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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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 1934
|--- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended August 4, 2001

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
incorporation or organization)

(I.R.S. Employer
Identification No.)2520 Diehl Road
Aurora, Illinois(Address of principal executive offices)

60504
(Zip Code)


(630) 820-7200(Registrant's telephone number, including area code)

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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 9,248,485 shares of common stock, $.01 par value, outstanding as of September 5, 2001.

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SUCCESSORIES, INC.
INDEX TO FORM 10-Q

|                               |  |         |  |                                                                                       |  | Page Number
|------------------------------ |  | ------- |  | ------------------------------------------------------------------------------------- |  | -----------
|PART I.  FINANCIAL INFORMATION |  |        
|                               |  | Item 1. |  | Financial Statements                                                                  |  |            
|                               |  |         |  | Consolidated Balance Sheets                                                           |  | 3          
|                               |  |         |  | Consolidated Statements of Operations and Comprehensive Loss                          |  | 4          
|                               |  |         |  | Consolidated Statement of Stockholders' Equity                                        |  | 5          
|                               |  |         |  | Consolidated Statements of Cash Flows                                                 |  | 6          
|                               |  |         |  | Notes to Consolidated Financial Statements                                            |  | 7          
|                               |  | Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 13         
|                               |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 18         
|PART II.  OTHER INFORMATION    |  |        
|                               |  | Item 1. |  | Legal Proceedings                                                                     |  | 19         
|                               |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                   |  | 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

|                                                |                                                                                                                                                                                                              | August 4,
2001 |            | February 3,
2001 |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ---------- | ---------------- | -
|
|ASSETS                                          |                                                                                                                                                                                                              |                |            |                  |  
|Current assets:                                 |                                                                                                                                                                                                              |                |            |                  |  
|                                                | Cash and cash equivalents                                                                                                                                                                                    |                | $          | 655,000          |  
|                                                | Accounts and notes receivable, net                                                                                                                                                                           |                |            | 2,354,000        |  
|                                                | Inventories, net                                                                                                                                                                                             |                |            | 6,070,000        |  
|                                                | Prepaid catalog expenses                                                                                                                                                                                     |                |            | 1,315,000        |  
|                                                | Deferred income taxes and other prepaid expenses                                                                                                                                                             |                |            | 702,000          |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Total current assets                            |                                                                                                                                                                                                              |                | 11,096,000 |                  |  
|Restricted cash                                 |                                                                                                                                                                                                              |                | 250,000    |                  |  
|Property and equipment, net                     |                                                                                                                                                                                                              |                | 5,282,000  |                  |  
|Notes receivable                                |                                                                                                                                                                                                              |                | 205,000    |                  |  
|Deferred financing costs and debt discount, net |                                                                                                                                                                                                              |                | 245,000    |                  |  
|Deferred income taxes, net                      |                                                                                                                                                                                                              |                | 3,626,000  |                  |  
|Intangibles and other assets, net               |                                                                                                                                                                                                              |                | 1,110,000  |                  |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|TOTAL ASSETS                                    |                                                                                                                                                                                                              | $              | 21,814,000 |                  | $
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                                                                                                                                                              |                |            |                  |  
|Current liabilities:                            |                                                                                                                                                                                                              |                |            |                  |  
|                                                | Current portion of long-term debt                                                                                                                                                                            |                | $          | 1,532,000        |  
|                                                | Accounts payable                                                                                                                                                                                             |                |            | 1,109,000        |  
|                                                | Accrued expenses and deferred income taxes                                                                                                                                                                   |                |            | 1,523,000        |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Total current liabilities                       |                                                                                                                                                                                                              |                | 4,164,000  |                  |  
|Long-term debt, net of current portion          |                                                                                                                                                                                                              |                | 10,000     |                  |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Total liabilities                               |                                                                                                                                                                                                              |                | 4,174,000  |                  |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Minority interest                               |                                                                                                                                                                                                              |                |           |                  |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Stockholders' equity:                           |                                                                                                                                                                                                              |                |            |                  |  
|                                                | Convertible preferred stock, $.01 par value; 1,000,000 shares authorized; 503,092 of Series A and 101,667 of Series B shares issued and outstanding; liquidation value $.01 per share plus accrued dividends |                |            | 6,000            |  
|                                                | Common stock, $.01 par value; 20,000,000 shares authorized; 9,248,485 and 9,181,196 shares issued and outstanding, respectively                                                                              |                |            | 93,000           |  
|                                                | Common stock warrants                                                                                                                                                                                        |                |            | 2,324,000        |  
|                                                | Notes receivable from stockholders                                                                                                                                                                           |                |            | (118,000         | )
|                                                | Additional paid-in capital                                                                                                                                                                                   |                |            | 33,260,000       |  
|                                                | Accumulated deficit                                                                                                                                                                                          |                |            | (17,861,000      | )
|                                                | Accumulated other comprehensive loss                                                                                                                                                                         |                |            | (64,000          | )
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|Total stockholders' equity                      |                                                                                                                                                                                                              |                | 17,640,000 |                  |  
|                                                |                                                                                                                                                                                                              |                |            |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                                                                              | $              | 21,814,000 |                  | $
|                                                |                                                                                                                                                                                                              |                |            |                  |  

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 |            | Six Months Ended |  
|-------------------------------------------------- | ---------------------------------- | ------------------ | ---------- | ---------------- | -
|
|Net product sales                                  |                                    | $                  | 9,693,000  |                  | $
|Cost of goods sold                                 |                                    |                    | 4,712,000  |                  |  
|                                                   |                                    |                    |            |                  |  
|Gross profit on product sales                      |                                    |                    | 4,981,000  |                  |  
|Fees, royalties and other income                   |                                    |                    | 283,000    |                  |  
|                                                   |                                    |                    |            |                  |  
|Gross margin                                       |                                    |                    | 5,264,000  |                  |  
|Operating expenses                                 |                                    |                    | 7,026,000  |                  |  
|                                                   |                                    |                    |            |                  |  
|(Loss) income from operations                      |                                    |                    | (1,762,000 | )                |  
|                                                   |                                    |                    |            |                  |  
|Other income (expense):                            |                                    |                    |            |                  |  
|                                                   | Interest expense                   |                    |            | (64,000          | )
|                                                   | Minority interests in subsidiaries |                    |            | (25,000          | )
|                                                   | Interest income                    |                    |            | 9,000            |  
|                                                   | Other, net                         |                    |            | 9,000            |  
|                                                   |                                    |                    |            |                  |  
|Total other expense                                |                                    |                    | (71,000    | )                |  
|                                                   |                                    |                    |            |                  |  
|Loss before income tax and extraordinary item      |                                    |                    | (1,833,000 | )                |  
|Income tax                                         |                                    |                    | 1,000,000  |                  |  
|                                                   |                                    |                    |            |                  |  
|Loss before extraordinary item                     |                                    |                    | (2,833,000 | )                |  
|                                                   |                                    |                    |            |                  |  
|Extraordinary loss on early extinguishment of debt |                                    |                    |           |                  |  
|                                                   |                                    |                    |            |                  |  
|Net loss                                           |                                    | $                  | (2,833,000 | )                | $
|                                                   |                                    |                    |            |                  |  
|Dividend to preferred shareholders                 |                                    |                    | 55,000     |                  |  
|                                                   |                                    |                    |            |                  |  
|Loss available to common stockholders              |                                    | $                  | (2,888,000 | )                | $
|                                                   |                                    |                    |            |                  |  
|Foreign currency translation adjustment            |                                    | $                  | (5,000     | )                | $
|                                                   |                                    |                    |            |                  |  
|Comprehensive loss                                 |                                    | $                  | (2,838,000 | )                | $
|                                                   |                                    |                    |            |                  |  
|Loss per share (basic and diluted):                |                                    |                    |            |                  |  
|                                                   | Loss before extraordinary item     |                    | $          | (0.31            | )
|                                                   |                                    |                    |            |                  |  
|                                                   | Net loss                           |                    | $          | (0.31            | )
|                                                   |                                    |                    |            |                  |  

The
accompanying notes are an integral part of these statements.

4

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

|                                        |                                                 | Convertible
Preferred Stock |   |   |       |   |           |        |   |        |       |   |           |   |   |          |   |   |           
|--------------------------------------- | ----------------------------------------------- | --------------------------- | - | - | ----- | - | --------- | ------ | - | ------ | ----- | - | --------- | - | - | -------- | - | - | ----------
|
|
|
|Balance at February 3, 2001             |                                                 | 604,759                     |   | $ | 6,000 |   | 9,181,196 |        | $ | 92,000 |       | $ | 2,324,000 |   | $ | (148,000 | ) | $ | 33,136,000
|Net loss                                |                                                 |                            |   |   |      |   |          |        |   |       |       |   |          |   |   |         |   |   |          
|Foreign currency translation Adjustment |                                                 |                            |   |   |      |   |          |        |   |       |       |   |          |   |   |         |   |   |          
|Notes receivable payments               |                                                 |                            |   |   |      |   |          |        |   |       |       |   |          |   |   | 30,000   |   |   |          
|Common stock transactions:              |                                                 |                             |   |   |       |   |           |        |   |        |       |   |           |   |   |          |   |   |           
|                                        | Sales of common shares                          |                             |  |   |       |  |           | 11,373 |   |        |      |   |           |  |   |          |  |   |           
|                                        | Preferred stock dividend issued as common stock |                             |  |   |       |  |           | 55,916 |   |        | 1,000 |   |           |  |   |          |  |   |           
|Preferred stock transactions:           |                                                 |                             |   |   |       |   |           |        |   |        |       |   |           |   |   |          |   |   |           
|                                        | Preferred stock dividends                       |                             |  |   |       |  |           |       |   |        |      |   |           |  |   |          |  |   |           
|                                        |                                                 |                             |   |   |       |   |           |        |   |        |       |   |           |   |   |          |   |   |           
|Balance at August 4, 2001               |                                                 | 604,759                     |   | $ | 6,000 |   | 9,248,485 |        | $ | 93,000 |       | $ | 2,324,000 |   | $ | (118,000 | ) | $ | 33,260,000
|                                        |                                                 |                             |   |   |       |   |           |        |   |        |       |   |           |   |   |          |   |   |           

The accompanying notes are an integral part of these statements.

5

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

|                                               |                                                                                         | Six Months Ended                                   |           
|---------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------
|
|Cash flows from operating activities:          |                                                                                         |                                                    |           
|                                               | Net loss                                                                                |                                                    | $         
|                                               | Adjustments to reconcile net loss to net cash from operating activities:                |                                                    |           
|                                               |                                                                                         | Depreciation and amortization                      |           
|                                               |                                                                                         | Amortization of debt discount                      |           
|                                               |                                                                                         | Minority interests in subsidiaries                 |           
|                                               |                                                                                         | Extraordinary loss on early extinguishment of debt |           
|                                               |                                                                                         | Deferred income tax assetvaluation allowance      |           
|                                               |                                                                                         |                                                    |           
|                                               |                                                                                         |                                                    | (1,411,000
|Changes in operating assets and liabilities:   |                                                                                         |                                                    |           
|                                               | Accounts and notes receivable                                                           |                                                    |           
|                                               | Inventories                                                                             |                                                    |           
|                                               | Prepaid catalog expenses                                                                |                                                    |           
|                                               | Other prepaid expenses                                                                  |                                                    |           
|                                               | Accounts payable                                                                        |                                                    |           
|                                               | Accrued expenses                                                                        |                                                    |           
|                                               | Other assets                                                                            |                                                    |           
|                                               |                                                                                         |                                                    |           
|Net cash provided by operating activities      |                                                                                         |                                                    | 508,000   
|                                               |                                                                                         |                                                    |           
|Cash flows from investing activities:          |                                                                                         |                                                    |           
|                                               | Proceeds from notes receivable issued in connection with sale of property and equipment |                                                    |           
|                                               | Reduction in restricted cash                                                            |                                                    |           
|                                               | Purchase of property and equipment                                                      |                                                    |           
|                                               |                                                                                         |                                                    |           
|Net cash used in investing activities          |                                                                                         |                                                    | (139,000  
|                                               |                                                                                         |                                                    |           
|Cash flows from financing activities:          |                                                                                         |                                                    |           
|                                               | Proceeds from sale of common stock                                                      |                                                    |           
|                                               | Net borrowings on revolving credit loan                                                 |                                                    |           
|                                               | Repayments of long-term debt                                                            |                                                    |           
|                                               | Distributions to joint venture partners                                                 |                                                    |           
|                                               | Proceeds from notes receivable issued to stockholders                                   |                                                    |           
|                                               |                                                                                         |                                                    |           
|Net cash used in financing activities          |                                                                                         |                                                    | (2,182,000
|                                               |                                                                                         |                                                    |           
|Net decrease in cash                           |                                                                                         |                                                    | (1,813,000
|Cash and cash equivalents, beginning of period |                                                                                         |                                                    | 2,468,000 
|                                               |                                                                                         |                                                    |           
|Cash and cash equivalents, end of period       |                                                                                         | $                                                  | 655,000   
|                                               |                                                                                         |                                                    |           

The
accompanying notes are an integral part of these statements.

6

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

NOTE 1. DESCRIPTION OF THE BUSINESS

Successories, Inc. and its subsidiaries (collectively the "Company") design, manufacture, and market a diverse range of motivational and
self-improvement products, many of which are the Company's own proprietary designs. The Company considers itself a single line of business with products that are marketed primarily under
theSuccessoriesname 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 theSuccessoriestrademark.

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 six months ended August 4, 2001, and July 29, 2000, refer to the
thirteen and twenty-six weeks ended on the dates indicated.

The
results of operations for the six months ended August 4, 2001 are not necessarily indicative of the results to be expected for the full year. These financial statements
should be read in conjunction with
the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001.

NOTE 3. INVENTORIES

Inventories are comprised of the following:

August 4,
2001

February 3,
2001Finished goods

$
4,021,000

$
5,461,000Raw Materials


2,510,000


2,092,0006,531,000


7,553,000Less: reserve for obsolescence


(461,000
)

(497,000
)$
6,070,000

$
7,056,000


7

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NOTE 4. DEBT

Debt consists of the following:

August 4,
2001

February 3,
2001Bank borrowings:Term loan

$


$
3,090,000Revolving credit loan


1,525,000


Fixed rate loan





500,000Capital lease obligations


17,000


20,0001,542,000


3,610,000Less: current portion


(1,532,000
)

(3,597,000
)Long-term debt

$
10,000

$
13,000


On
June 20, 1997, the Company entered into a credit facility agreement with The Provident Bank (the "Bank"), amended most recently on September 4, 2001, which is
comprised of a revolving credit loan, term loan and fixed rate loan. Prior to September 4, 2001, the revolving credit loan provided for maximum borrowings of $9 million for each
succeeding July 1 through December 31, and at all other times of $6 million. Subsequent to September 4, 2001, the revolving credit loan provides for maximum borrowings of
$6 million through December 31, 2001 and each succeeding July 1 through December 31, and at all other times of $5 million. Borrowings under the revolving credit loan
are limited to 85% of eligible receivables plus 57% of eligible inventory, as defined. In addition, subsequent to September 4, 2001, the borrowing base is further reduced by $1,000,000 for the
rolling 12-month period at fiscal quarter-ends with EBITDA equal or less than $4,000,000. A commitment fee of 0.25% is payable on the daily unused amount of the maximum
revolving credit commitment. The facility expires in June 2003, and all 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 less 0.25% to a maximum of prime plus 0.75% on the revolving credit loan. The fixed rate loan bears interest at 12%. Interest is payable monthly. The interest rate on the outstanding
revolving credit loan was 6.75% at August 4, 2001. At August 4, 2001 the available borrowings on the revolving credit loan were $3,411,000, which is further reduced by $1,000,000
starting on September 5, 2001 per the new amended terms as stated above.

On
September 4, 2001, the Company obtained an amendment to the credit facility to adjust certain financial covenants, reduce applicable interest rate on the revolver and
commitment fee on the unused revolver, and amend certain other terms for the quarter ended August 4, 2001 and prospectively.

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

The
credit facility agreement contains, among other provisions, requirements for maintaining certain earnings levels and financial ratios, limits on capital expenditures and
additional indebtedness, and use of proceeds from certain equity offerings. At August 4, 2001, the Company was in compliance with the debt covenant requirements of the credit facility
agreement.

The
weighted average interest rates on cash interest expense for borrowings outstanding as of August 4, 2001 and July 29, 2000 were 8.9% and 11.2%, respectively.

8

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NOTE 5. INCOME TAXES

During the quarter ended August 4, 2001, based on the current economic slow-down, the management of the Company determined that the
valuation allowance associated with the deferred tax asset should be increased due to the reduced likelihood of whether all the benefits of net operating loss (NOL) carryforwards would be fully
utilized before they expire. In the quarter ended August 4, 2001, the Company recognized an income tax expense of $1,000,000 to increase the valuation allowance associated with the deferred tax
asset. At August 4, 2001, the deferred tax asset balance (net of valuation allowance) was $3,873,000.

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 change in the near term if estimates of future taxable income during the carryforward period are increased or decreased. To the extent the net operating
loss carryforwards and existing deductible temporary differences are not offset by existing taxable temporary differences reversing within the carryforward period, the remaining loss carryforwards are
expected to be realized by achieving future profitable operations. The realization of the net deferred tax asset is not assured, however, management believes that it is more likely than not that the
net deferred tax asset will be realized.

NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION

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

Six Months EndedAugust 4,
2001

July 29,
2000Cash paid during the period for:Income taxes

$
87,000

$
19,000Interest


80,000


405,000Non-cash investing and financing activities:Preferred stock dividends

$
110,000

$
110,000Revaluation of stock warrants





33,000


9

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NOTE 7. LOSS PER SHARE

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

|                                                        |                                                        | Three Months Ended |   | Six Months Ended |  
|------------------------------------------------------- | ------------------------------------------------------ | ------------------ | - | ---------------- | -
|
|Numerator for loss before extraordinary item per share: |                                                        |                    |   |                  |  
|                                                        | Loss before extraordinary item                         |                    | $ | (2,833,000       | )
|                                                        | Less: Preferred stock dividend                         |                    |   | (55,000          | )
|                                                        |                                                        |                    |   |                  |  
|                                                        | Numerator for loss before extraordinary item per share |                    | $ | (2,888,000       | )
|                                                        |                                                        |                    |   |                  |  
|Numerator for net loss per share:                       |                                                        |                    |   |                  |  
|                                                        | Net loss                                               |                    | $ | (2,833,000       | )
|                                                        | Less: Preferred stock dividends                        |                    |   | (55,000          | )
|                                                        |                                                        |                    |   |                  |  
|                                                        | Numerator for net loss per share                       |                    | $ | (2,888,000       | )
|                                                        |                                                        |                    |   |                  |  
|Denominator for loss per share:                         |                                                        |                    |   |                  |  
|                                                        | Weighted average common stock shares                   |                    |   | 9,214,899        |  
|                                                        |                                                        |                    |   |                  |  
|Basic and diluted loss per share:                       |                                                        |                    |   |                  |  
|                                                        | Loss before extraordinary item                         |                    | $ | (0.31            | )
|                                                        |                                                        |                    |   |                  |  
|                                                        | Net loss                                               |                    | $ | (0.31            | )
|                                                        |                                                        |                    |   |                  |  

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

NOTE 8. SEGMENT AND RELATED INFORMATION

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

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

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

10

---

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

|                                   |              | Net
Sales |            | Segment
Profit (Loss) |   | Total
Assets |            | Capital
Expenditures |            | Depreciation
and Amortization
|---------------------------------- | ------------ | --------- | ---------- | --------------------- | - | ------------ | ---------- | -------------------- | ---------- | -----------------------------
|Three Months Ended
August 4, 2001: |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories       |              | $         | 6,268,000  |                       | $ | 360,000      |            | $                    | 7,685,000  |                              
|Retail Company-owned stores        |              |           | 2,130,000  |                       |   | (537,000     | )          |                      | 2,825,000  |                              
|Sales to Franchisees               |              |           | 999,000    |                       |   | 30,000       |            |                      | 962,000    |                              
|Other segments                     |              |           | 296,000    |                       |   | 29,000       |            |                      | 303,000    |                              
|Corporate                          |              |           |           |                       |   | (2,715,000   | )          |                      | 10,039,000 |                              
|                                   |              |           |            |                       |   |              |            |                      |            |                              
|                                   | CONSOLIDATED |           | $          | 9,693,000             |   | $            | (2,833,000 | )                    | $          | 21,814,000                   
|Three Months Ended
July 29, 2000:  |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories       |              | $         | 7,628,000  |                       | $ | 1,088,000    |            | $                    | 2,867,000  |                              
|Retail Company-owned stores        |              |           | 2,543,000  |                       |   | 180,000      |            |                      | 3,848,000  |                              
|Sales to Franchisees               |              |           | 1,176,000  |                       |   | 182,000      |            |                      | 1,345,000  |                              
|Other segments                     |              |           | 861,000    |                       |   | 258,000      |            |                      | 402,000    |                              
|Corporate                          |              |           |           |                       |   | (1,980,000   | )          |                      | 19,306,000 |                              
|                                   |              |           |            |                       |   |              |            |                      |            |                              
|                                   | CONSOLIDATED |           | $          | 12,208,000            |   | $            | (272,000   | )                    | $          | 27,768,000                   
|Six Months Ended
August 4, 2001:   |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories       |              | $         | 13,940,000 |                       | $ | 890,000      |            | $                    | 7,685,000  |                              
|Retail Company-owned stores        |              |           | 4,236,000  |                       |   | (817,000     | )          |                      | 2,825,000  |                              
|Sales to Franchisees               |              |           | 1,926,000  |                       |   | 68,000       |            |                      | 962,000    |                              
|Other segments                     |              |           | 677,000    |                       |   | 100,000      |            |                      | 303,000    |                              
|Corporate                          |              |           |           |                       |   | (4,636,000   | )          |                      | 10,039,000 |                              
|                                   |              |           |            |                       |   |              |            |                      |            |                              
|                                   | CONSOLIDATED |           | $          | 20,779,000            |   | $            | (4,395,000 | )                    | $          | 21,814,000                   
|Six Months Ended
July 29, 2000:    |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories       |              | $         | 16,186,000 |                       | $ | 2,238,000    |            | $                    | 2,867,000  |                              
|Retail Company-owned stores        |              |           | 4,951,000  |                       |   | 189,000      |            |                      | 3,848,000  |                              
|Sales to Franchisees               |              |           | 2,340,000  |                       |   | 437,000      |            |                      | 1,345,000  |                              
|Other segments                     |              |           | 1,050,000  |                       |   | 312,000      |            |                      | 402,000    |                              
|Corporate                          |              |           |           |                       |   | (3,809,000   | )          |                      | 19,306,000 |                              
|                                   |              |           |            |                       |   |              |            |                      |            |                              
|                                   | CONSOLIDATED |           | $          | 24,527,000            |   | $            | (633,000   | )                    | $          | 27,768,000                   

The
Company utilizes its corporate facility 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 catalogs, property and equipment, and intangibles.

11

---

The following table presents the details for "Corporate":

|                                                  |  | Three Months Ended |           | Six Months Ended
|------------------------------------------------- |  | ------------------ | --------- | ----------------
|
|Corporate administrative expenses                 |  | $                  | 1,166,000 |                 
|Unallocated depreciation and amortization expense |  |                    | 478,000   |                 
|Other expenses                                    |  |                    | 71,000    |                 
|Income tax expense                                |  |                    | 1,000,000 |                 
|Extraordinary loss on early debt extinguishment   |  |                    |          |                 
|                                                  |  |                    |           |                 
|                                                  |  | $                  | 2,715,000 |                 
|                                                  |  |                    |           |                 

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

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.

For
the six months ended August 4, 2001 and July 29, 2000, net product sales by product categories were as follows:

Six Months EndedAugust 4,
2001

July 29,
2000Wall décor

43
%
47
%Desktop accessories

21
%
20
%Books and stationery

19
%
16
%Personalized gifts and awards

16
%
15
%Other

1
%
2
%


NOTE 9. NEW ACCOUNTING PRONOUNCEMENT

In July 2001, the Financial Accounting Standards Board ("FASB") issued FASB Statements Nos. 141 and 142 (FAS 141 and FAS 142), "Business
Combinations" and "Goodwill and Other Intangible Assets." FAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance
on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. FAS 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Under FAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. FAS 141 and
FAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of FAS 142, amortization of goodwill recorded for business combinations
consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under FAS 141 will be reclassified
to goodwill. Companies are required to adopt FAS 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted under certain circumstances. The adoption of
these standards is not expected to have a material impact on the Company's results of operations and financial position.

12

---



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
(the "Company") designs, manufactures 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, and 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 itsSuccessoriesname through direct marketing (catalog, electronic commerce and
telemarketing), retail channel (Company-owned stores), sales to franchisees and other channels. 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 corporate facility interchangeably for each
distribution channel. Furthermore, the marketing channels are directed at a single customer base located primarily in North America. In addition, the Company generates revenue from providing framing
services to outside corporate businesses on a contract fee basis. These operations allow better utilization of personnel and facilities mostly during the Company's seasonally slower production
periods.

For
the three and six months ended August 4, 2001 and July 29, 2000, net product sales for the various distribution channels, as a percentage of total net product sales,
were as follows:

|                              |  | Three Months Ended |   | Six Months Ended |  
|----------------------------- |  | ------------------ | - | ---------------- | -
|
|Direct marketingSuccessories |  | 64.7               | % | 62.5             | %
|Retail Company-owned stores   |  | 22.0               | % | 20.8             | %
|Sales to franchisees          |  | 10.3               | % | 9.6              | %
|Other channels                |  | 3.0                | % | 7.1              | %

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

As
previously announced, the Company has suspended its efforts to sell the remaining Company-owned retail stores and is focused on developing a new model targeted to reach businesses
residing in a store's community. While testing this new retail model, the Company will not be adding new franchisees to the system.

13

---

RESULTS OF OPERATIONS

The following tables set forth the results of operations for the three months and six months ended August 4, 2001 and July 29, 2000.

(Dollars in thousands)

Three Months Ended

Increase (Decrease)August 4, 2001

July 29, 2000Amount

%

Amount

%

Amount

%Net product sales

$
9,693

100.0

$
12,208

100.0

$
(2,515
)
(20.6
)Cost of goods sold


4,712

48.6


5,515

45.2


(803
)
(14.6
)Gross profit on product sales


4,981

51.4


6,693

54.8


(1,712
)
(25.6
)Fees, royalties and other income


283

2.9


275

2.3


8

2.9Gross margin


5,264

54.3


6,968

57.1


(1,704
)
(24.5
)Operating expenses


7,026

72.5


6,896

56.5


130

1.9(Loss) income from operations


(1,762
)
(18.2
)

72

0.6


(1,834
)
(2,547.2
)Interest and other expenses


71

0.7


344

2.8


(273
)
(79.4
)Loss before income taxes


(1,833
)
(18.9
)

(272
)
(2.2
)

(1,561
)
(573.9
)Income tax expense


1,000

10.3







1,000

100.0Loss before extraordinary item


(2,833
)
(29.2
)

(272
)
(2.2
)

(2,561
)
(941.5
)Extraordinary loss














Net loss

$
(2,833
)
(29.2
)
$
(272
)
(2.2
)
$
(2,561
)
(941.5
)


(Dollars in thousands)

Six Months Ended

Increase (Decrease)August 4, 2001

July 29, 2000Amount

%

Amount

%

Amount

%Net product sales

$
20,779

100.0

$
24,527

100.0

$
(3,748
)
(15.3
)Cost of goods sold


9,912

47.7


10,872

44.3


(960
)
(8.8
)Gross profit on product sales


10,867

52.3


13,655

55.7


(2,788
)
(20.4
)Fees, royalties and other income


509

2.4


490

2.0


19

3.9Gross margin


11,376

54.7


14,145

57.7


(2,769
)
(19.6
)Operating expenses


14,391

69.3


14,105

57.5


286

2.0(Loss) income from operations


(3,015
)
(14.6
)

40

0.2


(3,055
)
(7,637.5
)Interest and other expenses


161

0.8


673

2.7


(512
)
(76.1
)Loss before income taxes


(3,176
)
(15.4
)

(633
)
(2.5
)

(2,543
)
(401.7
)Income tax expense


1,000

4.8







1,000

100.0Loss before extraordinary item


(4,176
)
(20.2
)

(633
)
(2.5
)

(3,543
)
(559.7
)Extraordinary loss


219

1.1







219

100.0Net loss

$
(4,395
)
(21.3
)
$
(633
)
(2.5
)
$
(3,762
)
(594.3
)


14

---

Three Months Ended August 4, 2001 (Second Quarter 2001), Compared To Three Months Ended July 29, 2000 (Second Quarter 2000)

Net product sales were $9,693,000 in the current year second quarter ended August 4, 2001, compared to $12,208,000 for the corresponding second quarter
ended July 29, 2000 in the prior year. The $2,515,000 or 20.6% decrease in net sales was comprised of direct marketingSuccessoriesof $1,360,000
or 17.8%, retail Company-owned stores of $413,000 or 16.2%, sales to franchisees of $177,000 or 15.1%, and other channels of $565,000 or 65.6%.

In
the current year second quarter, the decrease in net product sales across the channels can be primarily attributed to the continuing economic slow-down. The Company's
customers are predominantly mid to large size businesses who appear to remain cautious with their spending in light of the current economic conditions. In addition, direct marketing Successoriessales
in the second quarter of this year were further impacted by a planned reduction in prospect catalog circulation in light of lower
response rates experienced in the first quarter as a result of the current business environment. The Company's direct marketing efforts continue to focus on aggressively targeting opportunities in
niche markets and refining marketing strategies focussed on increasing sales from the existing customer base. Internet sales, which are included in the direct marketing Successorieschannel,as a percentage of direct marketing sales increased to 23.1% in the current year
from 14.2% in the prior year. The comparable store sales in retail Company-owned stores decreased by 15.4% in the current year in comparison to the prior year. The total number of retail Company-owned
stores in operation in the current year were 25, compared to the 24 in operation in the prior year.

Gross
margin decreased in the current year second quarter to $5,264,000 from $6,968,000 in the prior year second quarter. The decrease in gross margin can be attributed to the decline
in net product sales and gross profit percentage in the current year. Gross profit, as a percentage of net product sales, was 51.4% in the current year in comparison to 54.8% in the prior year. The
decline in gross profit percentage can be primarily attributed to the change in product sales mix and higher fixed production costs per unit resulting from lower sales volume being generated through
the manufacturing facility in the current year.

Operating
expenses increased in the current year second quarter to $7,026,000 from $6,896,000 in the prior year second quarter. The increase in operating expenses can be attributed to
additional charges recorded in the current year of $394,000, which related to an increase in reserves for franchisee related receivables, write-off of the net book value of fixed assets
pertaining to four Company-owned store leases expiring prior to the end of the fiscal year and acceleration of goodwill amortization for Company-owned retail stores from a useful life of
15 years to the end of the current lease term. The variable operating expenses decreased from year to year with the decline in net product sales. However, the fixed operating expenses were
comparable between the years, but increased as a percentage of net product sales due to a lower sales volume base in the current year. With the decline in sales as a result of the current economic
conditions, in efforts to reduce its operating expenses the Company's management took steps subsequent to second quarter to reduce personnel primarily in it's corporate headquarters, which is expected
to provide annualized payroll expense savings of approximately $1,700,000. In addition, the Company will continue to monitor its prospect catalog circulation response rates to evaluate advertising
costs.

In
the current year second quarter 2001, the Company recorded an income tax expense of $1,000,000 to increase the valuation allowance associated with the deferred tax asset balance.
As a result of the current challenging economic environment, the Company's management determined that the valuation allowance should be increased due to the reduced likelihood of whether all the
benefits of deferred tax asset related to the net operating loss (NOL) carryforwards would be fully utilized before they expire.

15

---

The net loss of ($2,833,000) in the current year second quarter 2001 was higher than the net loss of ($272,000) in the prior year second quarter 2000. The increase in net loss in the
current year can be primarily attributed to the decrease in net product sales, decline in gross margin, and income tax expense recorded to increase the valuation allowance associated with the deferred
tax asset, offset by a decrease in interest expense due to lower outstanding debt balance.

Six Months Ended August 4, 2001 (Year-To-Date 2001), Compared To Six Months Ended July 29, 2000 (Year-
To-Date 2000)

Net product sales were $20,779,000 in the current year-to-date through August 4, 2001, compared to $24,527,000 for the corresponding
year-to-date through July 29, 2000 in the prior year. The $3,748,000 or 15.3% decrease in net sales was comprised of direct marketing Successoriesof $2,246,000 or 13.9%, retail Company-owned
stores of $715,000 or 14.4%, sales to franchisees of $414,000 or 17.7%, and other channels of
$373,000 or 35.5%.

In
the current year, the decrease in net product sales across the channels can be primarily attributed to the continuing economic slow-down. In addition, direct marketing Successoriessales in the second
quarter of this year were further impacted by a planned reduction in prospect catalog circulation in light of lower
response rates experienced in the first quarter as a result of the current business environment. The Company's direct marketing efforts continue to focus on aggressively targeting opportunities in
niche markets and refining marketing strategies focussed on increasing sales from the existing customer base. The comparable store sales in retail Company-owned stores decreased by 12.4% in the
current year in comparison to the prior year. The total number of retail Company-owned stores in operation in the current year were 25, compared to the 24 in operation in the prior year.

Gross
margin decreased in the current year to $11,376,000 from $14,145,000 in the prior year. The decrease in gross margin can be attributed to the decline in net product sales and
gross profit percentage in the current year. Gross profit, as a percentage of net product sales, was 52.3% in the current year in comparison to 55.7% in the prior year. The decline in gross profit
percentage can be primarily attributed to the change in product sales mix and higher fixed production costs per unit
resulting from lower sales volume being generated through the manufacturing facility in the current year.

Operating
expenses increased in the current year to $14,391,000 from $14,105,000 in the prior year. The increase in operating expenses can be attributed to additional charges recorded
in the current year second quarter of $394,000, which related to an increase in reserves for franchisee related receivables, write-off of the net book value of fixed assets pertaining to
four Company-owned store leases expiring prior to the end of the fiscal year and acceleration of goodwill amortization for Company-owned retail stores from a useful life of 15 years to the end
of the current lease term. The variable operating expenses decreased from year to year with the decline in net product sales. However, the fixed operating expenses were comparable between the years,
but increased as a percentage of net product sales due to a lower sales volume base in the current year. The payroll reductions initiated recently in the third quarter and streamlining of other
operating expenses which were initiated earlier this year, the Company expects to operate with a more cost effective business model going forward.

In
the current year second quarter 2001, the Company recorded an income tax expense of $1,000,000 to increase the valuation allowance associated with the deferred tax asset balance.
As a result of the current challenging economic environment, the Company's management determined that the valuation allowance should be increased due to the reduced likelihood of whether all the
benefits of deferred tax asset related to the net operating loss (NOL) carryforwards would be fully utilized before they expire.

16

---

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

The
net loss of ($4,395,000) in the current year was higher than the net loss of ($633,000) in the prior year. The increase in net loss in the current year can be primarily attributed
to the decrease in net product sales, decline in gross margin, income tax expense recorded to increase the valuation allowance associated with the deferred tax asset and extraordinary loss recorded
for the early extinguishment of debt, offset by a decrease in interest expense due to lower outstanding debt balance.

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 provided cash of $508,000 in the current year six months ended August 4, 2001, compared to $754,000 in the corresponding six months ended July 29,
2000 in the prior year. The decrease in cash flow from operating activities in the current year can be primarily attributed to the increase in net loss from operations, offset by decrease in accounts
receivable and inventory. The decrease in accounts receivable and inventory is the result of decline in net product sales level and improved management of assets in the current year.

Investing
activities used cash of $139,000 in the current year six months ended August 4, 2001, compared to $67,000 in the corresponding six months ended July 29, 2000
in the prior year. The principal use of cash in investing activities is capital expenditures and the source of cash is proceeds from sales of property and equipment.

Financing
activities used cash of $2,182,000 in the current year six months ended August 4, 2001, compared to $961,000 in the corresponding six months ended July 29,
2000. Scheduled debt repayments on the term note and net repayments on the revolving credit loan were the principal uses of cash. Proceeds from net borrowings on the revolving credit loan were the
primary source of cash. In the current year first quarter 2001, the Company prepaid its term loan and fixed rate loan with the bank as planned, in an effort to strengthen the Company's balance sheet
and debt to equity leverage. The above noted loans had payment terms through June 2003.

On
September 4, 2001, the Company obtained an amendment to the credit facility to adjust certain financial covenants, reduce applicable interest rate on the revolver and
commitment fee on the unused revolver, and amend certain other terms for the quarter ended August 4, 2001 and prospectively. See note 4 for the current terms under the credit facility
agreement. At August 4, 2001, 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. At August 4, 2001 the available borrowings on the revolving credit loan were $3,411,000, which is further reduced by $1,000,000 starting on September 5, 2001 per the new
amended terms as stated above.

SEASONALITY

The Company's business is subject to seasonal variations in demand. Historically, a significant portion of the Company's sales and net income have been
realized during the period from October through January. The effects of seasonality are greater in the Company's retail operations 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 sales, and direct

17

---

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 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 the third and fourth quarter sales demand.

INFLATION

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

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q report contains forward-looking statements which the Company believes are within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be deemed to include, among other things, statements relating to anticipated
financial performance, the management team, management's long-term performance goals, 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. Potential risks and uncertainties include such
factors of the economy, and the retail and catalog industries in general, changes in consumer confidence, the level of consumer spending on motivational-type products, the competitive
pricing environment within the markets that the Company distributes its products, the level of the Company's success in continuing to control costs and the Company's ability to increase certain
margins through economies of scale. An additional risk and uncertainty is the Company's development and introduction of successful new products. Investors are also directed to consider other risks and
uncertainties discussed in the Company's public announcements, reports to shareholders and documents filed by the Company with the Securities and Exchange Commission, including but not limited to
Reports on Forms 10-K, 8-K and 10-Q. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be
placed on such statements. The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.

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 $1,525,000 in variable rate debt. The impact of a 1% change in interest rates on the variable rate debt is approximately $15,000. 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. The Company does not expect significant impact from
foreign currency exchange rate risk. The Company's Canadian operation annual sales range around $2,000,000.

18

---



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is currently one of two named defendants in a case filed by Tower City Properties LTD ("Plaintiff"). Tower City Properties LTD v
Getting The Edge Company and Celex Group, Inc. (now Successories, Inc.) (Case No. CV-435521) was filed in the Common Pleas Court of Cuyahoga County, Cleveland, Ohio on
April 13, 2001 with the Company being served in July of 2001. Plaintiff alleges that: Getting The Edge Company entered into a lease agreement with Plaintiff; Getting The Edge Company is in
default under the lease agreement due to failure to pay rent; and Company guaranteed Getting The Edge Company's performance of the lease terms and obligations. Plaintiff seeks (i) compensatory
damages of $73,779.52 as of April 2, 2001, plus further rent that accrues prior to the trial; (ii) pre-judgment and post-judgment interest of 10% per annum;
(iii) costs; (iv) attorney's fees and (v) such other and further relief as the Court may deem just and equitable. The Company believes it has a meritorious defense and intends to
vigorously defend itself. A trial date of December 12, 2001 has been set.

In
a related matter, on August 29, 2001 the Company filed a complaint against Getting The Edge Company and Victor S. Voinovich, Sr. ("Defendants") in the United States District
Court of the Northern District of Illinois in Cook County, Chicago, Illinois (Case No. 01 C 6745). The Company alleges that: Defendants executed franchise agreements, including
personal guarantees, to operate Successories stores in Ohio; Mr. Voinovich executed a promissory note to the order of the Company; Defendants breached the franchise agreements and promissory
note by non-payment of monies due the Company; and Defendants are infringing on the Company's federally registered trademarks and service marks. The relief sought by the Company includes:
(i) a temporary restraining order, a preliminary injunction and a permanent injunction prohibiting, enjoining and/or restraining Defendants from infringing on the Company's intellectual
property; (ii) an order directing Defendants to eliminate all advertising under the Successories name or the Company's intellectual property; (iii) an order directing Defendants to
render an accounting to the Company of the gross sales by Defendants under the infringing marks; (iv) an award of three times the damages to the Company's goodwill and intellectual property
resulting from Defendant's infringing use of the Company's name and marks; (v) an award of punitive damages from Defendant's of at least $500,000; (vi) an award from Defendants of
attorney's fees, expenses and costs; (vii) an award of the full amount due from Defendants under the franchise agreements and the promissory note of at least $209,495.44 as of August 27,
2001; and (viii) such other further and different relief as the Court deems just and appropriate. A motion for a temporary restraining order and preliminary injunction was entered on
September 13, 2001 and continued to October 3, 2001.

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

19

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders on July 24, 2001, and the following matters were voted on at the meeting.

For

AbstainArnold M. Anderson

8,166,311

821,264Jack Miller

8,166,837

820,738Gary J. Rovansek

8,167,935

819,640


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: September 14, 2001 | By:                           
|Date: September 14, 2001 | By:                           

21

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INDEX TO EXHIBITS

|Exhibit No. |     | Description
|----------- | --- | -----------
|3.1         |     |            
|3.3         |     |            
|3.4         |     |            
|4.1         |     |            
|4.2         |     |            
|4.3         |     |            
|10.1        |     |            
|10.2        |     |            
|10.3        |     |            
|10.4        |     |            
|10.5        |     |            
|            |     |            
|10.6        |     |            
|10.7        |     |            
|10.8        | (a) |            
|10.8        | (b) |            
|10.8        | (c) |            
|10.9        |     |            
|10.10       |     |            
|10.11       |     |            
|10.12       |     |            
|10.13       |     |            

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|10.14 |  |  | Second Amendment to Credit Agreement between the Company and The Provident Bank dated as of May 14, 1998 (7)                       
|----- |  |  | -----------------------------------------------------------------------------------------------------------------------------------
|10.15 |  |  | Third Amendment to Credit Agreement between the Company and The Provident Bank dated as of September 1, 1998 (8)                   
|10.16 |  |  | Employment Agreement with Gary Rovansek dated October 29, 1998 (8)                                                                 
|10.17 |  |  | Fourth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 28, 1999 (10)                    
|10.18 |  |  | Warrants to Purchase Common Stock of the Company granted to Provident Financial Group, Inc. dated as of April 29, 1999 (10)        
|10.19 |  |  | Preferred Stock Purchase Agreement, dated as of May 28, 1999, by and among the Company and the investors (9)                       
|10.20 |  |  | Registration Rights Agreement, dated as of May 28, 1999, by and among the Company and the investors (9)                            
|10.21 |  |  | Preferred Stock Purchase Agreement, dated as of October 18, 1999, by and among the Company and the investors (12)                  
|10.22 |  |  | Amendment No. 1 to the Registration Rights Agreement, dated as of October 18, 1999, by and among the Company and the investors (12)
|10.23 |  |  | Fifth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 6, 2000 (15)                      
|10.24 |  |  | Sixth Amendment to Credit Agreement between the Company and The Provident Bank dated as of August 28, 2000 (16)                    
|10.25 |  |  | Joint Venture Agreement with Celebrating Excellence of Minnesota, Inc. and related documents (17)                                  

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