<PAGE>

===========================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                 ____________

                                  FORM 10-K/A
      FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

    [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
        For the fiscal year ended December 30, 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 0-21499
                                 ____________

                            SPECIALTY CATALOG CORP.
            (Exact Name of Registrant as Specified in Its Charter)

                   DELAWARE                                 04-3253301
 (State or other jurisdiction of incorporation            (IRS Employer
          or organization)                             Identification No.)


                        21 BRISTOL DRIVE
                  SOUTH EASTON, MASSACHUSETTS                02375
            (Address of principal executive offices)       (Zip Code)

                                (508) 238-0199
             (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                                     None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value
                               (title of class)

     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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X] No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, if definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [X]

     Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 23, 2001 (based on the closing sale price of the Common
Stock on the NASDAQ National Market on such date) was $3,898,477.

     Number of shares of the Registrant's Common Stock outstanding as of March
23, 2001: 4,337,886

===========================================================================
<PAGE>

     This Amendment No. 1 to Form 10-K for the fiscal year ended December 30,
2000, is being filed by Specialty Catalog Corp. (the "Company") primarily to
include information required by Part III, Items 10,11,12 and 13 within 120 days
after the end of the fiscal year ended December 30, 2000.

                   NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Except for the historical information contained herein, this Annual Report
on Form 10-K/A for Specialty Catalog Corp. may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, but not limited
to, the Company's expected future revenues, operations and expenditures,
estimates of the potential markets for the Company's products, assessments of
competitors and potential competitors and projected timetables for the market
introduction of the Company's products. Investors are cautioned that forward-
looking statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including,
but not limited to, the following risks and uncertainties: (i) the Company's
indebtedness and future capital requirements, (ii) increasing postal rates,
paper prices and media costs, (iii) limited sources of fiber used to make the
Company's products, (iv) the limited number of suppliers of the Company's
products, (v) the Company's dependence upon foreign suppliers, especially in
China, Korea and Indonesia, (vi) the customary risks of doing business abroad,
including fluctuations in the value of currencies, (vii) the potential
development of a cure for hair loss and cancer treatment improvements, (viii)
the effectiveness of the Company's catalogs and advertising programs, (ix) the
Company's competition, and (x) the impact of acquisitions on the Company's
prospects. Additional information concerning certain risks and uncertainties
that could cause actual results to differ materially from those projected or
suggested in the forward-looking statements is contained under the caption "Risk
Factors" under Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. The forward-looking statements contained
herein represent the Company's judgment as of the date of this Annual Report on
Form 10-K/A, and the Company cautions readers not to place undue reliance on
such statements.

     Unless otherwise indicated,"2000" means the 52 weeks ended December 30,
2000, "1999" means the 52 weeks ended January 1, 2000 and "1998" means the 52
weeks ended January 2, 1999.


                                    PART I

ITEM 1.   BUSINESS

General

     Specialty Catalog Corp. (the "Company") is the leading direct marketer of
women's wigs and hairpieces in the US. The Company offers its products through
multiple distribution channels consisting of regular mailings of catalogs to its
proprietary customer list, Internet marketing and selling, and catalogs
circulated as part of advertising and mailing-list rental programs. The Company
has operations in the United States and the United Kingdom, and certain other
operations. The Company provides its customers with a broad selection of stylish
and comfortable products at affordable prices.

     The growth strategy of the Company's wig and hairpiece business has these
key elements:

        .   Increasing the profitability of its core business by improving
            operating processes and customer satisfaction,

        .   Increasing sales from its core catalog circulation by expanding its
            proprietary customer list through advertising and list rental
            programs,

        .   Increasing sales to its existing customers through refinements in
            database management, merchandise offerings, customer service, and
            creative presentations,

        .   Increasing sales through Internet retailing and advertising,

                                       2
<PAGE>

        .   Increasing sales through expanded business to business
            opportunities, and

        .   Pursuing international expansion opportunities.

Women's Wigs and Hairpieces

     The Paula Young(R) catalog, with a 2001 planned circulation of over
9-million catalogs to its customer file, has the largest circulation and sales
of any wig and hairpiece catalog in the US and Canada. As the Company's flagship
catalog, the Paula Young catalog features a broad assortment of ladies wigs and
hairpieces under the Company's proprietary brand names - the Paula Young and
Christine Jordan(R) lines of fashion wigs and hairpieces - and other popular wig
brands, including Eva Gabor(R). In addition, the Paula Young catalog offers a
selection of wig and hairpiece accessories including turbans, shampoos, combs
and styling heads.

     The Especially Yours(R) catalog features the Especially Yours brand of
women's wigs and hairpieces specifically designed for African-American women.
The Especially Yours line features women's wigs and hairpieces including natural
hairline crimping and fiber texture that reflects the natural hair of its
customers. Especially Yours catalogs also offer a selection of women's apparel,
hats and accessories to the African-American women's market. The catalog also
carries the Diahann Carroll(TM) line of wigs and hairpieces under an exclusive
license with the Tony-award winning actress and singer.

     The Company views each catalog as an opportunity to communicate with
current and potential customers. In this regard, the Paula Young and the
Especially Yours catalogs present the Company's products in a manner that
focuses on the natural look, beauty, versatility and comfort of the products.
Furthermore, the catalogs often feature customer testimonials, wearing
instructions and other presentations designed to make the catalog the
authoritative source on women's wigs and hairpieces.

International Activities

     Through its wholly-owned subsidiary, Daxbourne International Limited
("Daxbourne"), the Company is a leading retailer and wholesaler of women's wigs,
hairpieces and related products in the United Kingdom. Daxbourne has established
a significant franchise in the UK through wholesale, retail and catalog
distribution channels. Daxbourne's retail operations consist of 11 retail
concessions within department stores and one stand-alone retail outlet.

      On January 26, 2001, Daxbourne acquired the women's wig and hairpiece
business of the Company's British licensee. The licensee had been the exclusive
British licensee of the Company's Paula Young brand of women's wigs and
hairpieces since 1994. During the term of the license agreement the licensee
developed and circulated the Paula Young Fashion Wigs catalog using the
                             ------------------------
merchandising and creative resources of the Company, thereby establishing Paula
Young as a preeminent brand in Britain with a loyal customer following. The
acquisition agreement provides for the termination of the 1994 license
agreement, transfer of the assets of the Paula Young Fashion Wigs catalog
                                         ------------------------
business to Daxbourne. Daxbourne's catalog division will now circulate both
catalogs -- continuing to circulate its Jacqueline Collection catalog and the
                                        ---------------------
Paula Young Fashion Wigs catalog.
--------------------------------
Western Schools(R)

     Under the Company's Western Schools brand, continuing education ("CE")
courses are offered to nurses (approximately 92 percent of its total revenues in
2000) and CPAs (approximately 8 percent of its total revenues in 2000). Western
Schools has developed its franchise by offering high-quality, value-priced CE
courses.

American Healthcare Institute(R)

     Under the Company's American Healthcare Institute ("AHI") brand, the
Company sponsors approximately 1,000 CE seminars and conferences each year to
nurses and other mental health professionals.

     On February 3, 2001, AHI moved from Wheaton, Maryland to the Company's
headquarters in South Easton, Massachusetts.

                                       3
<PAGE>

Internet Marketing (wig.com, paulayoung.com, especiallyyours.com, Western-
online.com and Ahi-online.com)

     During 2000, the Company continued its Internet business by introducing
Especiallyyours.com and Ahi-online.com. The Company also began to e-advertise on
other Internet web sites and search engines through key word and banner
advertising. The Company also introduced special offers and promotions to its
customers via e-mail to promote sales at its web sites. In 2001, Western Schools
business launched Western Schools Online, where students can down load courses,
take tests, have the tests graded and receive continuing education credits all
on line - a totally virtual experience. All of the Company's web sites have
electronic order taking and e-mail customer service.

Industry and Markets

   Wigs

     Annual retail sales of women's wig and hairpieces in the US are estimated
to be between $300-million and $400-million. The consumer wig market is
generally comprised of fashion wig wearers and need-based wig wearers.
Fashion-based consumers purchase wigs and hairpieces as a beauty accessory.
Need-based wig wearers purchase wigs as a necessity, due to a physical condition
such as thinning hair or hair loss, or due to medical procedures and conditions
(e.g., alopecia and cancer treatments). Many everyday wig wearers replace their
wigs every three to four months, and would perhaps have a wig "wardrobe,"
consisting of several wigs, either of the same style and color or of different
styles and colors.

     In the 1960s wigs and hairpieces were considered a fashion accessory.
However, as styles and tastes changed, the fashion-driven demand for wigs
decreased. Due to this trend, during the 1970s and 1980s, the number of
specialty wig boutiques declined and department stores reduced their selling
space allocated to inventories of wigs. The Company's catalog business was
started to serve the need-based wig customers who were not being adequately
serviced by other retail alternatives. Because only approximately 5-million
women, or 25 percent of the estimated 20-million American women with thinning
hair, currently wear wigs, there appears to be substantial opportunities for
growth of the Company's business.

     The Caucasian retail wig market -- estimated to be approximately
$200-million of annual retail sales comprising approximately 2.7-million units
-- is serviced by direct mail catalogers, beauty salons, wig shops, boutiques
and department stores. It is estimated that catalog sales represent
approximately forty percent of the wig and hairpiece units sold and
approximately twenty percent of the sales dollars annually in the Caucasian
market, demonstrating that price points at retail stores are generally higher
than mail order price points. Catalogs offer the benefits of privacy,
convenience, lower prices and broader product selection. Retail stores generally
provide customers with more personalized service.

     Unlike the Caucasian market, the African-American wig market - estimated to
be approximately $140-million of annual retail sales comprising approximately
3.1-million units -- has yet to undergo any significant transition to direct
marketing from retail outlets. Although African-American women comprise
approximately thirteen percent of the US female population, it is estimated that
they purchase more than fifty percent of the wig and hairpiece units sold each
year in the US. Only about five percent of African-American wigs and hairpieces
are sold through catalogs, with the balance sold primarily in beauty salons and
wig shops. The Company believes that its Especially Yours(R) catalog, which
targets African-American women, already has the highest sales volume of any
catalog offering wigs designed for African-American women.

     The Company estimates that the international wig and hairpiece market is at
least as large as the US market. By identifying opportunities through
acquisitions and licensing programs, the Company has the ability to facilitate
international expansion. The Company currently has a license agreement to sell
its products in Germany.

   Continuing Education

     Nursing, accounting and other industries require their professionals to
meet CE requirements on a periodic basis. Required CE frequency and the number
of required hours vary from profession to profession and from state to state

                                       4
<PAGE>

depending on state laws and association regulations. Approximately forty percent
of the states in the US currently require nurses to have some form of CE. The CE
industry has many small providers, including local universities, but few large
providers. In addition, some hospitals and accounting firms educate their own
employees through in-house programs and by subsidizing outside programs. Because
CE is a required product, people may not be enthusiastic buyers. Accordingly,
Western Schools and AHI compete aggressively in their markets on price, course
content, course selection, and customer service.

Products

   Wigs and Hairpieces

     The Company sells a broad assortment of women's wigs and hairpieces in the
United States, Canada, the UK, and Germany. The collections include 150
different wig styles and 36 different hairpieces in more than 80 colors. The
current Paula Young and Especially Yours wig collections provide full head
coverage. Hairpieces include wiglets and add-ons. Wiglets are small wigs
generally worn on the top of the head to add style or cover thinning hair on the
top or crown area. Add-ons are generally used to add styling to the back of the
head.

   Sourcing

     The Company purchases approximately ninety-one percent of its wigs and
hairpieces directly from ten foreign manufacturers and the balance from three
domestic importers. The five largest foreign manufacturers each represent
between nine percent and twenty-three percent of wig and hairpiece purchases. As
an industry leader, the Company stays in close contact with these manufacturers,
as well as other prominent wig manufacturers. Through these relationships, the
Company is able to obtain better control over purchasing, styles, quality and
cost.

     Most of the synthetic wigs and hairpieces sold by the Company are made from
a special synthetic fiber. Two Japanese firms, Kaneka Corporation and Toyo
Chemical Corporation dominate the production of this fiber. A disruption in the
current supply of this fiber may have a material adverse effect on the Company.
The synthetic fiber is not a proprietary material and other manufacturers have
previously produced it. Nonetheless, the time required to obtain an alternative
source of supply and the attendant delay in new production, as well as possible
increases in the price of the fiber, would have a significant impact on wig and
hairpiece sales and profit margins.

     The Company anticipates that most of its wigs and hairpieces will continue
to be manufactured in the Far East. Accordingly, the Company's operations are
subject to the risks of doing business abroad, including fluctuations in the
value of currencies, export duties, work stoppages, political instability and
governmental intervention. Therefore, the availability of and the cost of wigs
and hairpieces may be affected. Although to date such risks have not had a
significant effect on the Company's business operations, no assurance can be
given that such risks will not have a material adverse effect on the Company's
business operations in the future.

   Apparel and Hats

     Especially Yours catalogs offer a selection of apparel and hats targeted to
African-American women. Hats are generally purchased from domestic vendors, and
apparel is purchased from vendors, who generally contract to produce the
merchandise overseas or domestically.

Marketing

     The Company markets its wigs and hairpieces and CE courses through catalogs
and over the Internet.

     Paula Young and Especially Yours are differentiated from traditional
storefront retailers and other direct marketers due to the broad and deep
selection of the core wig products each offers. These brands also enjoy a
significant price advantage against competing brands due to large order volume
and direct purchasing from manufacturers.

     The Company's two-step marketing program is the major method of new
customer generation for Paula Young and Especially Yours. The Company's two-step
marketing program entails first obtaining prospective customers by soliciting

                                       5
<PAGE>

customer interest through targeted advertising, and following receipt of such
interest with a series of catalogs designed to elicit an initial sale.

     For the first step, the Company uses a variety of targeted advertising
media, namely, magazines, newspapers, tabloids, co-op mailers, the Internet and
package insert programs. Advertising placements are selected based on
demographics, cost and historical experience. Historical experience is measured
by cost per inquiry and cost per customer compared against the lifetime value of
a customer. Based on this information, the Company evaluates the effectiveness
of media placements, and adjusts plans and programs accordingly.

     The second step, which commences when a prospective customer responds
favorably to an advertisement, involves sending prospective customers a series
of catalogs. Since the first step pre-qualifies prospective customers, Paula
Young is able to convert approximately seventeen percent of advertising
respondents into customers. Especially Yours is able to convert approximately
nine percent of its Especially Yours inquirers into customers. When a sale is
made, the customer is put on an active customer list and additional catalogs
designed to create a repeat buyer are mailed.

     Another method of customer generation involves the one-step process of
periodically circulating to inactive inquirers and former customers targeted
mailings designed to convert or reactivate this group into customers.

     The Company also advertises through its Internet web sites www.wig.com,
                                                                -----------
www.paulayoung.com and www.especiallyyours.com. These web sites provide
------------------     -----------------------
information on the latest selection of wigs and hairpieces, products and
styling, and answers to frequently asked questions. The web sites also have
secure, online ordering capabilities and they also provide links to additional
sites of interest to wig customers. Analysis shows that more than fifty percent
of the customers buying through the Internet had no previous relationship with
the Company. The Company has reserved other generic domain Internet sites in
order to increase the amount of online traffic to its web sites. During 2000,
the Company used key word and impression-based banner advertising, the expense
of which was significantly offset by reductions in print advertising placements.
This advertising has resulted in a substantial increase in visits to and
purchases from the Company's web sites.

     Western Schools markets its CE courses using a one-step marketing program
targeted at nurses and certified public accountants whose licenses need to be
renewed. Western Schools also provides its latest selection of CE courses and
exam materials online through its web site www.westernschools.com. During 2001,
                                           ----------------------
the Company introduced www.Western-online.com. This web site will offer all
                       ----------------------
Western Schools CE courses and exam taking online to the nursing profession.

     AHI markets its CE courses using a one-step marketing program targeted at
nurses and other mental health professionals whose licenses need to be renewed.
AHI also provides its latest selection of CE courses online through its web site
www.ahi-online.com.
------------------

New Opportunities

   New Products

     The Company seeks to leverage its customer relationships by adding new
product lines to its catalogs. During 2000, the Company introduced Hotlocks(R),
fashion accessories, such as hair extensions, scrunchies, headbands and clip-ons
that come in many colors and are worn for fashion and fun. In early 2001, the
WhisperLite(TM) collection was introduced. These wigs weigh as little as
1-and-1/2 ounces and have open wefting and lightweight cap construction for a
very comfortable fit.

   Business-to-Business

     Through its Salon Silhouettes catalog the Company has been testing
business-to-business opportunities in the US. The Salon Silhouettes catalog is
distributed to wig shops and beauty salons in order to provide the opportunity
for the Company to market to women who prefer shopping in retail outlets.

                                       6
<PAGE>

   Licensing Agreements

     Because of the leadership position of Paula Young, and building off the
leverage of its unique position in the marketplace, including its unique
products and its sourcing capabilities, Paula Young has been able to expand into
other countries through licensing agreements. Generally the Company's standard
license agreement grants each licensee an exclusive right to use the Company's
trademarks to sell wigs and hairpieces within the licensee's territory. The
Company supplies the licensee the inventory for which the Company is paid its
cost for the inventory plus an administrative fee for shipping and handling
costs. The Company also provides marketing advice and catalog development
assistance. In general, the licensees are required to pay royalties on their net
sales and expend a specified minimum amount of advertising each year. The
Company currently has an active license agreement in Germany and will continue
to search for additional international licensing opportunities.

   Acquisitions

     Through acquisitions, the Company may attempt to build market share through
further consolidation of the wig and hairpiece market and the CE market. The
Company may consider acquisition candidates, such as those offering products
targeted to senior women or those offering complementary products.

Databases

     The Company has developed proprietary databases of its wig and hairpiece
customers, African-American women, nurses, other mental health professionals and
certified public accountants. After confirming that security measures are in
place to protect proprietary data, these lists are rented to non-competing
businesses. Limited exchanges of lists of inactive customers with wig
competitors are also done from time to time. Due to the uniqueness and niche
nature of its products, the Company's customers are generally from very specific
demographic categories. These databases are very specific and would be very
difficult to replicate and, as such, protect the business's competitive
advantages.

Operations

   Order Entry and Customer Service

     The Company's telemarketing operation strives to simplify and encourage
catalog and Internet shopping by providing prompt, courteous and knowledgeable
customer service. Customers can call toll-free telephone numbers from 7 AM to 12
AM, seven days a week to place orders or to request a catalog. Approximately
sixty-eight percent of orders are placed by telephone or over the Internet. A
third-party provider handles over-flow call volume during peak periods and
coverage in the event of operational disruptions.

     At the time of order entry complete information about the customer and the
order are entered into an integrated information system. This system provides
customer history, product availability and specifications, expected ship date
and other order specifics. The Company attempts to train telemarketing
representatives to use a scripted catalog sales system, in order to be
knowledgeable in key product specifications and features, and to be trained to
cross-sell accessories and related products. The Company also attempts to train
telemarketing representatives to handle a range of products and customer service
calls, allowing the Company to shift representatives among catalog lines as call
volume requires.

   Fulfillment

     The Company's Massachusetts' distribution center fulfills all US and
Canadian orders. Orders received for available product are usually shipped by
the next business day, primarily via third class or priority mail. Merchandise
not in stock on the date of order is generally shipped within two days of
receipt. The Company's Daxbourne facility in London fulfills all UK and German
orders.

     The Company uses an integrated computer picking, packing and shipping
system, which monitors the in-stock status of each item ordered, processes the
order and generates all related packing and shipping materials, taking into
account the

                                       7
<PAGE>

location of items within the distribution center. During fiscal
2000, on average, the Company shipped approximately 4,400 packages per business
day.

   Returns

     The Company's return policy allows customers to return products for
exchange or refund. The Company believes that its return levels are normal for
mail order products. Return experience is closely monitored at the individual
product level to identify trends in product offerings, product defects and
quality issues in an attempt to assess future purchases, enhance customer
satisfaction and reduce overall returns. During 2000, the introduction of new
colors and styles, particularly human hair wigs at higher price points than
synthetic wigs, caused an increase in the rate of returns experienced by the
Company. As a result, the Company decided to eliminate the majority of its human
hair styles and other styles with high customer return rates.

   Catalog Production

     The Company's graphic arts staff designs all of the catalogs circulated by
the Company's businesses. In-house design of catalogs results in greater
control, continuity, flexibility and creativity, as well as significant cost
savings.

Competition

     The mail order catalog business is highly competitive. The Company's
businesses compete on the basis of uniqueness of product offering, breadth of
product offering, quality of product offering, relative value of product
offering, customer service, advertising effectiveness, and catalog design. The
Paula Young(R) and Especially Yours(R) catalogs and web sites compete with other
mail order catalogs, retail stores, including hair salons and wig shops,
department, specialty and discount stores and Internet web sites. The Company
enjoys advantages of economies of scale, the size of its customer list, and its
extensive advertising programs.

     The Company's CE businesses compete with other mail order catalogs,
in-house CE programs, professional associations, and other seminar providers.
The CE industry has many small providers, including local universities, but few
large providers. Potential competition may emerge from new distribution channels
such as the Internet. Accordingly, the businesses compete aggressively on price,
course content and selection, and customer service.

Employees

     As of December 30, 2000, the Company's United States operations employed a
total of 298 employees, consisting of 81 salaried full-time employees, 129
full-time hourly employees, and 88 part-time employees. Daxbourne International
Limited employed 63 employees, consisting of 26 salaried full-time employees and
37 part-time hourly employees in the United Kingdom. The Company's employees are
not covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.

Trademarks, Trade Names and Patents

     The Company has 16 registered trademarks in the United States, two
registered trademarks in the United Kingdom, two trademark applications and one
patent with the US Patent and Trademark Office. The Company has four registered
trademarks under California law. The Company also has five registered URLs. In
the ordinary course of business, the Company often utilizes new trade names.
When appropriate, the Company seeks to register these names.

Government Regulations

     In 1994, the United States Supreme Court reaffirmed an earlier decision
that allowed direct marketers to make sales into states where they do not have a
physical presence without collecting sales taxes, but noted that Congress has
the power to change this law. The imposition of an obligation to collect sales
taxes may have a negative effect on the Company's response rates and would
require the Company to incur administrative costs in collecting and remitting
sales taxes. Massachusetts and Maryland are the only two jurisdictions where the
Company is currently required to collect sales taxes.

                                       8
<PAGE>

ITEM 2.  PROPERTIES


     The Company occupies, under lease contracts, approximately 43,000 square
foot office building in South Easton, Massachusetts, approximately 50,000 square
foot warehouse facility in Brockton, Massachusetts and approximately 5,000
square feet of office space in Wheaton, Maryland.

     The Company owns a building of approximately 6,000 square feet in London,
England, which is used by Daxbourne for office and warehouse operations.

ITEM 3.  LEGAL PROCEEDINGS

     None.

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

     No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this report.

                                       9
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

     The common stock of the Company trades on the Nasdaq National Market
("NASDAQ") under the symbol "CTLG". The following table sets forth the high and
low quotations from Nasdaq.

                                                             High         Low
                                                             ----         ---
                   2000
                            First Quarter.................. $5.250       $2.625
                            Second Quarter................. $3.125       $2.000
                            Third Quarter.................. $3.000       $2.313
                            Fourth Quarter................. $2.969       $1.563
                   1999
                            First Quarter.................. $4.375       $3.000
                            Second Quarter................. $4.000       $3.188
                            Third Quarter.................. $4.500       $3.125
                            Fourth Quarter................. $6.000       $3.375

     The closing price of the Company's common stock at March 23, 2001 was $2.50
per share.

     The number of holders of record of the Company's common stock as of March
23, 2001 was approximately 50.

     The Company has been notified by NASDAQ that the Company's common stock bid
price is below its continued listing standards and that the Company's current
listing is subject to review by NASDAQ in accordance with its continued listing
procedures. Accordingly, while an established public trading market exists, with
respect to the Common Stock, there can be no assurance that the Common Stock
will remain listed on the NASDAQ National Market or otherwise be subject of an
established trading market. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors".

     The Company has not paid a dividend with respect to its common stock and
does not anticipate paying dividends in the foreseeable future. Under the terms
of the Company's existing debt agreement, the Company is not permitted to pay
dividends.

                                       10
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                     Fiscal Year Ended
                                                              -----------------------------------------------------------------
                                                                Dec. 30,      Jan. 1,      Jan. 2,      Jan. 3,      Dec. 28,
                                                                  2000       2000 (1)       1999       1998(2)         1996
                                                                  ----       --------       ----       -------         ----
                                                                          (In thousands, except per-share amounts
         Statement of Operations Data:                                          and weighted average shares)
         <S>                                                  <C>            <C>          <C>         <C>            <C>
         Net sales (3)......................................   $   60,892   $   54,475   $   55,591  $    49,310     $  41,037
         Cost of sales (3)..................................       22,002       20,338       20,893       18,173        15,432
                                                               ----------   ----------   ----------  -----------    ----------
         Gross profit.......................................       38,890       34,137       34,698       31,137         5,605
         Operating expenses (3).............................       36,031       31,891       31,159        6,044         2,330
                                                               ----------   ----------   ----------  -----------    ----------
         Income from operations.............................        2,859        2,246        3,539        5,093         3,275
         Interest expense, net..............................          974          794          872          821         1,658
                                                               ----------   ----------   ----------  -----------    ----------

         Income before income taxes and
            extraordinary items.............................        1,885        1,452        2,667        4,272         1,617
         Income taxes.......................................          773          653        1,096        1,793           644
                                                               ----------   ----------   ----------  -----------    ----------
         Income before extraordinary items .................        1,112          799        1,571        2,479           973
                                                               ----------   ----------   ----------  -----------    ----------
         Net income (4).....................................   $    1,112   $      799   $    1,571  $     2,260    $      973
                                                               ==========   ==========   ==========  ===========    ==========
         Earnings per Share - Basic EPS:
            Income before extraordinary items...............   $     0.26   $     0.18   $     0.31  $      0.51    $     0.31
                                                               ==========   ==========   ==========  ===========    ==========
            Net income......................................   $     0.26   $     0.18   $     0.31  $      0.46    $     0.31
                                                               ==========   ==========   ==========  ===========    ==========
            Weighted average shares outstanding.............    4,341,915    4,400,944    5,033,800    4,905,667     3,180,091
                                                               ==========   ==========   ==========  ===========    ==========
         Earnings per Share - Diluted EPS:
            Income before extraordinary items...............   $     0.25   $     0.17   $     0.29  $      0.45    $     0.25
                                                               ==========   ==========   ==========  ===========    ==========
            Net income......................................   $     0.25   $     0.17   $     0.29  $      0.41    $     0.25
                                                               ==========   ==========   ==========  ===========    ==========
            Weighted average shares outstanding.............    4,530,756    4,684,874    5,495,014    5,527,701     3,946,211
                                                               ==========   ==========   ==========  ===========    ==========

                                                                                           As Of
                                                              -----------------------------------------------------------------
                                                                Dec. 30,     Jan. 1,      Jan. 2,      Jan. 3,        Dec. 28,
                                                                  2000      2000(1,5)     1999 (5)     1998 (5)        1996
                                                                  ----      ---------     --------     --------        ----
         Balance Sheet Data:                                                            (In thousands)
         Working capital....................................    $   3,295    $ ( 2,424)   $(    268)  $    1,308     $   5,619
         Total assets.......................................       23,704       25,423       23,044       23,478        18,405
         Long-term debt ....................................        7,200        2,900        3,671        5,012         8,147
         Shareholders' equity...............................        8,728        7,739        7,436        7,866         4,801
</TABLE>

(1)  The fiscal year ended January 1, 2000 includes four months of activity of
     AHI, which was acquired by the Company on September 10, 1999. For the four
     months ended January 1, 2000, AHI had net sales of $886,690, gross profit
     of $256,905 and a net loss of $14,870.

(2)  The fiscal year ended January 3, 1998 includes three months of activity of
     the Company's subsidiary, Daxbourne International Limited, which was
     acquired by the Company on October 3, 1997. For the three months ended
     January 3, 1998, Daxbourne had net sales of $1,172,376, gross profit of
     $844,171 and net income of $80,375.

(3)  Emerging Issues Task Force ("EITF") Issue 00-10, "Accounting for Shipping
     and Handling Fees and Costs", requires that shipping and handling fees,
     billed to a customer in a sale transaction, should be classified as part of
     revenues. This consensus had to be adopted no later than the fourth quarter
     of 2000. The Company has restated its consolidated statements of operations
     for the fiscal years presented by reclassifying all shipping and handling
     income from cost of sales and operating expenses to revenues.

(4)  In 1997, net income reflects a $218,699 extraordinary loss on the early
     retirement of debt (net of an income tax benefit of $149,083).

(5)  Certain amounts in the 1997, 1998 and 1999 financial statements have been
     reclassified to conform to the 2000 presentation.

                                      11
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The discussion and analysis below should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto. In
addition to historical information, the following Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from those anticipated in these
forward-looking statements. See "Note Regarding Forward-Looking Statements".

Introduction

     The Company targets niche consumer product categories primarily via direct
marketing. SC Direct, its principal operating subsidiary in the United States
("SC Direct"), is the US leading retailer of women's wigs and hairpieces.
Daxbourne International Limited ("Daxbourne"), a subsidiary of SC Direct, is a
leading United Kingdom retailer and wholesaler of women's wigs and hairpieces.
SC Publishing, another subsidiary of SC Direct ("SC Publishing"), sells
continuing education courses to nurses and certified public accountants.
American Healthcare Institute ("AHI"), an operating division of SC Publishing,
which was acquired by the Company on September 10, 1999, and accounted for under
the purchase method of accounting, provides continuing-education seminars and
conferences for the healthcare industry.

Results of Operations

2000 Compared to 1999

     Revenues increased to $60.9 million in 2000 from $54.5 million in 1999, an
increase of $6.4 million or 11.7 percent. This increase was due to the addition
of $4.4 million in net sales from AHI, which was acquired by the Company in
September 1999, and increases in SC Direct's, Daxbourne's and Western Schools
net sales of approximately $1.1 million, $157,000, and $51,000 respectively. The
remainder of the revenue increase resulted from the approximately proportionate
increase in shipping & handling income of approximately $795,000 due to the
increase in Company net sales mentioned above. The increase in SC Direct's net
sales was primarily due to net sales increases in the Paula Young and Especially
Yours catalogs in the amount of $2.2 million and $1.7 million, respectively.
These increases were due primarily to increased number of orders from increased
circulation of its catalogs to existing customers and to new customers generated
by the Company's advertising programs and sales over the Internet as well as
changes in the product mix in both catalogs. The increase in SC Direct's net
sales was offset by a decrease of $2.8 million in net sales from its Paula
Hatbox(R) catalog, as a result of the Company's decision in the fourth quarter
of 1999 to no longer circulate this catalog.

     Gross margin as a percentage of revenues increased to 63.9 percent in 2000
from 62.7 percent in 1999 as a result of minor merchandise mix changes. Gross
margin increased to $38.9 million in 2000 from $34.1 million in 1999, an
increase of $4.8 million or 14.1 percent. This increase was due to the increase
in revenues discussed above as well as an increase in the gross margin rate
discussed above.

     Operating expenses increased to $36.0 million in 2000 from $31.9 million in
1999, an increase of $4.1 million or 12.9 percent. This increase was due
primarily to: (a) additional catalog production and advertising expenses of
approximately $2.5 million and $395,000, respectively, mainly related to the
acquisition of AHI as well as increased circulation of catalogs mailed to the
Paula Young and Especially Yours customers and to inactive Paula Young customers
in an effort to reactivate these names, (b) approximately $632,000 related to
costs incurred in connection with the bonus paid to the former chief executive
officer and the terminated sale of the Company's common stock to Golub
Associates, Inc., (c) increased depreciation and amortization of approximately
$621,000 related to the implementation of the Company's catalog information
system in August 1999, and (d) $1.7 million in additional payroll and benefit
costs, mainly related to the AHI acquisition, additional information technology
personnel and an increase in in-house telemarketing and customer service
personnel. The increase in operating expenses was offset by: (i) a reduction in
outside telemarketing and customer service costs of approximately $575,000, and
(ii) a prior year's restructuring charge described below.

                                       12
<PAGE>

     In August 1999, the Company announced the resignation of its chief
executive officer. In connection with the resignation and search for a new chief
executive officer, the Company recorded a pre-tax charge of $500,000, consisting
of severance and other severance related benefits and recruiting fees. During
the fourth quarter 1999, the Company eliminated the circulation of the Paula's
Hatbox catalog that featured ladies hats and selected women's apparel and
accessories. The Company recorded a pre-tax charge of $730,000 in October 1999,
of which $480,000 related to severance and severance related benefits for four
employees and the write-off of remaining unamortized deferred catalog costs. The
remaining $250,000 related to inventory write-offs.

     Interest expense, net of interest income, increased to approximately
$974,000 in 2000 from approximately $794,000 in 1999, an increase of
approximately $180,000 or 22.7 percent. The increase was attributable to higher
interest rates during 2000 compared to 1999, offset by lower average principal
amounts outstanding on the Company's bank facility.

     Income tax expense, as a percentage of pre-tax income, was 41.0 percent in
2000 versus 45.0 percent in 1999, due to an additional provision for state taxes
as a result of the completion of a state tax audit during 1999.

1999 Compared to 1998

     Net sales decreased to $54.5 million in 1999 from $55.6 million in 1998, a
decrease of $1.1 million, or 1.9 percent. This decrease was due a decrease in SC
Direct's net sales of $3.0 million, offset by increases in Daxbourne's and
Western Schools net sales of approximately $261,000 and $616,000 respectively,
primarily due to improved customer response rates as a result of changes in
circulation strategies. On September 10, 1999, the Company acquired AHI. AHI had
net sales of approximately $887,000 for the period September 10, 1999 through
January 1, 2000. The decrease in SC Direct's net sales was primarily due to (i)
a decrease of $3.2 million in net sales from its Paula Young catalog, resulting
from lower sales to potential new customers due to a planned reduction in
advertising expenditures in the first half of 1999, (ii) a decrease of $1.1
million in net sales from the Christine Jordan catalog as a result of the
Company's decision to no longer circulate the Christine Jordan catalog, but
continue to sell Christine Jordan branded products through its Paula Young
catalog, and (iii) a decrease of approximately $604,000 in net sales from its
Paula's Hatbox catalog. These net sales decreases in SC Direct were offset by an
increase of $1.9 million in net sales from SC Direct's Especially Yours catalog,
primarily due to increased orders attributable to an increase in the customer
base as a result of customer generation efforts in previous years, and an
increase in average order size, attributable to changes in the product mix in
the Especially Yours catalog.

     Gross margin as a percentage of net sales increased to 62.7 percent for
1999 from 62.4 percent for 1998. Gross margin decreased to $34.1 million in 1999
from $34.7 million in 1998, a decrease of approximately $561,000, or 1.6
percent, as a result of the reduction in net sales discussed above, offset by
the increase in the gross margin rate mentioned above.

     Operating expenses increased to $31.9 million in 1999 from $31.2 million in
1998, an increase of approximately $731,000, or 2.3 percent. This increase was
attributable primarily to severance and severance related benefits, and the
write-off of remaining non-amortized deferred catalog costs from the
discontinuance of the Paula's Hatbox catalog. Included in operating expenses for
1999 are charges of: (i) $500,000 consisting of severance, severance related
benefits and recruiting fees, recorded as a result of costs incurred in
connection with the resignation of the Company's chief executive officer and for
fees already incurred in connection with the Company's search for a replacement,
(ii) approximately $277,000 related to costs incurred in connection with certain
acquisitions that the Company decided not to pursue, (iii) increased
depreciation and amortization of approximately $327,000 related to the
implementation of the Company's catalog information system in August 1999, and
(iv) the write-off of $480,000 for the remaining unamortized deferred catalog
costs and severance and severance related benefits for four employees relating
to the elimination of the Paula's Hatbox catalog. These increases to operating
expenses are offset by lower advertising expenses of $1.1 million due to the
Company's strategic decision to eliminate certain marginal advertising programs.

                                       13
<PAGE>

Interest expense, net of interest income, decreased to approximately $794,000 in
1999 from approximately $872,000 in 1998, a decrease of approximately $78,000,
or 8.9 percent. The decrease was attributable to lower average principal amounts
outstanding on the Company's bank facility due to debt repayments.

     Income tax expense, as a percentage of pre-tax income, was 45.0 percent in
1999 versus 41.1 percent in 1998, due to an additional provision for state taxes
as a result of the completion of a state tax audit during 1999.

Liquidity and Capital Resources

     Net cash flows used by the Company for 2000 were approximately $702,000.
Cash flows provided by operating activities for 2000 were $2.3 million, offset
by uses of $1.4 million in investing activities and $1.5 million in financing
activities. The major factors that caused the difference between net income and
net cash flows provided by operations for 2000 were increases in: (i)
depreciation and amortization expense of $1.7 million and (ii) deferred income
tax expense of approximately $83,000, offset by a decrease in cash working
capital items of approximately $608,000. The Company used $1.4 million in
investing activities for computer and equipment purchases. The $1.5 million in
net cash used in financing activities was primarily due to: (i) the repayment of
$1.9 million of long-term debt, (ii) the repayment of short-term borrowings of
$5.4 million, (iii) the repayment of approximately $119,000 of capital leases,
and (iv) the purchase of approximately $35,000 of treasury stock, offset by the
issuance of $6.0 million of long-term debt related to the closing of the
Company's new $12.25 million senior credit facility with Fleet National Bank.

     On December 27, 2000, the Company entered into an $12.25 million credit
agreement (the "Agreement") with Fleet National Bank (the "Bank") for the
purpose of refinancing its existing senior debt and to provide for the working
capital needs of the Company. The new credit facility, which may be increased to
$13.0 million in 2002, replaces the Company's former credit facilities with the
Bank. The Agreement includes a $9.0 million five-year term note (the "Term
Loan") and a $3.25 million two-year revolving credit agreement (the "Line of
Credit"). The amount available on the Line of Credit increases as principal
amortization payments on the Term Loan are paid, such that the total Agreement
remains at $12.25 million over the two years of the Line of Credit agreement.
The Line of Credit provides for revolving credit loans and letters of credit
with floating rates based on margins over LIBOR or prime at the Company's
option. The Term Loan is for five years and is amortized at the rate of $450,000
a quarter beginning January 1, 2001.

     As of December 30, 2000, $6.4 million of the Term Loan was under LIBOR
contract rates ranging from 8.6625 percent to 9.02813 percent and the remainder
of the Term Loan was at the base rate of 9.75 percent. As of December 30, 2000,
approximately $788,000 of the Line of Credit was at the base rate of 9.75
percent. The Company is required to pay a commitment fee of 0.375 percent per
annum on the unused portion of the commitment. At December 30, 2000, $2.5
million was available under this Line of Credit.

     The Agreement is collateralized by a first perfected security interest in
all tangible and intangible assets of the Company, subject to certain permitted
liens. The Agreement is subject to certain consolidated covenants, including but
not limited to leverage and debt service coverage ratios, minimum earnings
requirements, and a restriction on the payment of cash dividends on the
Company's common stock.

     The Company's cash flow from operations and available credit facilities are
considered adequate to fund planned business operations and both the short-term
and long-term capital needs of the Company. However, certain events, such as an
additional significant acquisition, could require new external financing.

Recently Issued Accounting Pronouncements

     Emerging Issues Task Force ("EITF") Issue 00-10, "Accounting for Shipping
and Handling Fees and Costs", requires that shipping and handling fees, billed
to a customer in a sale transaction, should be classified as part of revenues.
This consensus had to be adopted no later than the fourth quarter of 2000. The
Company has restated its consolidated statements of operations for the fiscal
years ended December 30, 2000, January 1, 2000 and January 2, 1999 by
reclassifying all shipping and handling income from cost of sales and operating
expenses to revenues.

                                       14
<PAGE>

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
adoption of SAB No. 101 did not materially affect the Company's consolidated
financial statements in the current year.

     Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities", is effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Under SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company will adopt
SFAS No. 133 effective December 31, 2000. Management does not expect the
adoption of SFAS No. 133 to have a significant impact on the financial position,
results of operations, or cash flows of the Company.

Risk Factors

     Postal Rates, Paper Prices and Media Costs. Postage, shipping and paper
costs are significant expenses in the operation of the Company's business. The
Company mails its catalogs and generally ships its products to customers through
the US Postal Service and, at the customer's request and expense, ships its
products by overnight and second day delivery services. The Company passes on
the costs of mailing its products directly to customers as separate shipping and
handling charges, but does not directly pass on paper costs and the costs of
mailing its catalogs. Any future increases in postal or shipping rates or paper
costs could have a material adverse effect on the Company's operating results if
the Company is unable to pass on these increases to its customers. In addition,
a rise in media costs could have a material adverse effect on the Company's
ability to generate new customers.

     Limited Sources of Fiber. The majority of the Company's revenue is derived
from the sale of wigs. The Company's synthetic wigs are made from special
synthetic fiber manufactured by two Japanese companies, Kaneka Corporation and
Toyo Chemical Corporation. The wig manufacturers from whom the Company purchases
its inventory purchase the fiber from these two fiber manufacturers. Should
there be a permanent or long-term disruption in the supply of fiber, the time
required to obtain an alternate source and the attendant delay in new
production, as well as a possible significant increase in the price of fiber,
may have a material adverse effect on the Company's wig and hairpiece sales and
profit margins.

     Limited Number of Wig Manufacturers. The wigs sold by the Company are
produced by a limited number of manufacturers. Each of the Company's five
largest manufacturers supplied between nine percent and twenty-three percent of
the Company's overall wig purchases in 2000. The loss of one or more of these
manufacturers could materially disrupt the Company's wig operations. Although
the Company believes that in such an event it could purchase its wig
requirements from the remaining manufacturers and from additional manufacturers,
there can be no assurance that such sources of supply could meet the Company's
wig requirements without considerable disruption to the Company's purchasing
cycles, inventory levels and profit margins. The Company does not currently
have, and does not anticipate entering into in the foreseeable future, long-term
supply contracts with manufacturers.

     Dependence Upon Foreign Suppliers; Exchange Rates; and Currency
Fluctuations. The Company expects that most of its wigs and hairpieces will
continue to be manufactured in the Far East in the future. Accordingly, the
Company's operations are subject to the customary risks of doing business
abroad, including fluctuations in the value of currencies, export duties, work
stoppages and, in certain parts of the world, political instability and possible
governmental intervention. As such, the availability and cost of wigs may be
favorably or adversely affected by any of these items. Although to date such
risks have not had a significant effect on the Company's business operations, no
assurance can be given that such risks will not have a material adverse effect
on the Company's business operations in the future.

     Risk of a Cure for Hair Loss; Cancer Treatment Improvement. Millions of
American women suffer varying degrees of hair loss, including those suffering
hair loss as a side effect of cancer treatments. Women suffering from hair loss
comprise a substantial percentage of the Company's customer base for its wigs
and hairpieces. Ongoing research is

                                       15
<PAGE>

conducted by numerous groups, both public and private, seeking remedies for hair
loss. One drug, Minoxidil (marketed under the name Rogaine(R) as well as other
names), is available over-the-counter and is sold to men and women as a measure
against hair loss. There can be no assurance that another new drug will not be
developed that could prevent hair loss among women. Such an event may have a
material adverse effect on the Company's core wig business. In addition, the
development of any therapies, such as new cancer treatments, that would
eliminate hair loss as a side effect, may have a material adverse effect on the
Company's business.

     Registered Trademarks and Trade Names. The Company currently has several
registered trademarks and may seek additional legal protection for its products
and trade names. The Company has invested substantial resources in developing
several distinctive catalog trademarks as well as branded products and product
lines. There can be no assurance that the steps taken by the Company to protect
its rights will be sufficient to deter misappropriation. Failure to protect
these intellectual property assets could have a material adverse effect on the
Company's business operations. Moreover, although the Company does not currently
know of any lawsuit alleging the Company's infringement of intellectual property
rights that could have a material adverse effect on the Company's business,
there can be no assurance that any such lawsuit will not be filed against the
Company in the future or, if such a lawsuit is filed, that the Company would
ultimately prevail.

     Risk of Delisting From Nasdaq - The Company's common stock is listed on the
Nasdaq National Market System. The Company cannot guarantee that it will always
be listed. Nasdaq's rules for continual listing include stockholders' equity
requirements, and market value requirements. The Company has been notified by
Nasdaq that the Company's common stock bid price is below its continued listing
standards and that the Company's current listing is subject to review by Nasdaq.

     If the Company's common stock is delisted from Nasdaq, and if the Company's
common stock cannot be listed on the Nasdaq Small Cap Market, trading in the
Company's common stock would likely be conducted, if at all, in the over-the-
counter market. This would make it more difficult for stockholders to dispose of
their common stock and more difficult to obtain accurate quotations on the
Company's common stock. This could have an adverse effect on the price of the
common stock. There are separate rules regulating broker-dealers who trade on
behalf of customers in unlisted stocks. These rules require broker-dealers to
sell common stock only to established customers and accredited investors
(generally defined as investors with a net worth in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with a spouse), to make
special suitability determinations about the purchasers, and to receive the
purchaser's written consent to the transaction prior to sale. The effect of
these requirements, among others, may be to limit the ability or incentive of
broker-dealers to sell the Company's common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's primary exposures to market risks include fluctuations in
interest rates on its short-term and long-term borrowings of approximately $9.8
million as of December 30, 2000 under its credit facility. On January 19, 2001,
the Company and the Bank entered into an Interest Rate Swap Agreement based on a
notional principal balance of $4.5 million. Under the interest rate swap
agreement, the Company receives quarterly LIBOR-based interest rate payments
from the Bank, and pays interest quarterly at a fixed rate of 5.57% to the Bank
(plus the borrowing margin as defined in the loan agreement with the Bank).
These interest rate payments are settled net with the Bank. The agreement is
effective for a period of two years and terminates on January 19, 2003.

     Management does not believe that the risk inherent in the variable-rate
nature of these instruments will have a material adverse effect on the Company's
consolidated financial statements. However, no assurance can be given that such
a risk will not have a material adverse effect on the Company's financial
statements in the future.

     The Company's Term Loan and Line of Credit bear interest rates based on
either a base rate or a LIBOR contract rate. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".

                                       16
<PAGE>

     As of December 30, 2000, the outstanding balance on all of the Company's
credit facilities was $9,788,099. Based on this balance, an immediate change of
one percent in the interest rate would cause a change in interest expense of
approximately $98,000 on an annual basis. The Company's objective in maintaining
these variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings.

     The foreign currencies to which the Company has the most significant
exchange rate exposure are the British Pound, Chinese Yuan, Indonesian Rupiah
and Korean Won. The Company expects that most of its wigs and hairpieces will
continue to be manufactured in China, Indonesia and Korea in the future.
Although a substantial portion of the Company's transactions with these
countries occurs in US dollars, the Company's operations are subject to
fluctuations in the value of these countries' currencies. Although to date such
exchange rate exposures have not had a significant effect on the Company's
business operations, no assurance can be given that such exchange rate exposures
will not have a material adverse effect on the Company's business operations in
the future.

                                       17
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                       <C>
     Independent Auditors' Report...................................................................        19

     Financial Statements as of December 30, 2000 and January 1, 2000 and
        for the Three Fiscal Years Ended December 30, 2000, January 1,
        2000 and January 2, 1999

       Consolidated Balance Sheets..................................................................        20

       Consolidated Statements of Operations........................................................        21

       Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)..............        22

       Consolidated Statements of Cash Flows........................................................     23-24

       Notes to Consolidated Financial Statements...................................................     25-42
</TABLE>

                                       18
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors of Specialty Catalog Corp. :

     We have audited the accompanying consolidated balance sheets of Specialty
Catalog Corp. and subsidiaries (the "Company") as of December 30, 2000 and
January 1, 2000 and the related consolidated statements of operations,
shareholders' equity and comprehensive income (loss), and cash flows for the
years then ended and year ended January 2, 1999. Our audits also included the
consolidated financial statement schedule listed in the Index at Item 14(a)(2).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 30,
2000 and January 1, 2000 and the results of its operations and its cash flows
for the years then ended and year ended January 2, 1999, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedule when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 15, 2001

                                       19
<PAGE>

                            SPECIALTY CATALOG CORP.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                               December 30,       January 1,
                                                                                                  2000              2000
                                                                                                  -----             ----
<S>                                                                                            <C>                <C>
                                          Assets
Current assets:
      Cash and cash equivalents.........................................................       $     435,276      $  1,136,847
     Accounts receivable, less allowance for doubtful accounts of  $39,791 and
         $116,198 at December 30, 2000 and January 1, 2000, respectively................           1,521,469         1,206,490
      Inventories.......................................................................           5,324,460         5,626,304
      Prepaid expenses..................................................................           3,561,311         4,012,538
                                                                                               -------------      ------------
                Total current assets....................................................          10,842,516        11,982,179
                                                                                               -------------      ------------
Property, plant and equipment:
      Property, plant and equipment.....................................................           9,623,867         8,286,156
      Less accumulated depreciation and amortization....................................          (5,232,422)      (3,967,224)
                                                                                               -------------      ------------
                Total property, plant and equipment, net................................           4,391,445         4,318,932
                                                                                               -------------      ------------
Intangible assets, net..................................................................           3,942,508         4,571,405
Deferred income taxes...................................................................           4,273,287         4,338,843
Other assets............................................................................             253,748           211,918
                                                                                               -------------      ------------
                Total assets............................................................       $  23,703,504      $ 25,423,277
                                                                                               =============      ============

                           Liabilities and Shareholders' Equity
Current liabilities:
      Accounts payable and accrued expenses.............................................       $   3,656,757      $  4,261,400
      Liabilities to customers..........................................................             925,888         1,169,256
      Short-term borrowings.............................................................             788,100         6,401,238
      Income taxes......................................................................             376,914           449,577
      Current portion of long-term debt.................................................           1,800,000         2,125,000
                                                                                               -------------      ------------
                Total current liabilities...............................................           7,547,659        14,406,471
                                                                                               -------------      ------------
Long-term debt..........................................................................           7,200,000         2,900,000
Other long-term liabilities.............................................................             227,929           377,875
Commitments and contingencies Shareholders' equity:
       Preferred stock, $1.00 par value: 1,000,000 shares authorized;
           no shares issued and outstanding.............................................                  --                --
       Common stock, $.01 par value: 10,000,000 shares authorized; 5,239,774 shares
           issued at December 30, 2000 and January 1, 2000; 4,337,886 and 4,351,386 shares
           outstanding at December 30, 2000 and January 1, 2000, respectively...........              52,397            52,397
        Additional paid-in capital......................................................          16,159,570        16,159,570
        Accumulated other comprehensive loss............................................            (138,950)          (51,250)
        Accumulated deficit.............................................................          (4,477,923)       (5,590,054)
                                                                                               -------------      ------------
                                                                                                  11,595,094        10,570,663
        Less treasury stock, at cost, 901,888 and 888,388 shares at December 30, 2000 and
           January 1, 2000, respectively................................................          (2,867,178)       (2,831,732)
                                                                                               -------------      ------------
                Total shareholders' equity.............................................            8,727,916         7,738,931
                                                                                               -------------      ------------
                         Total liabilities and shareholders' equity....................        $  23,703,504      $ 25,423,277
                                                                                               =============      ============
</TABLE>

                See notes to consolidated financial statements.

                                       20
<PAGE>

                            SPECIALTY CATALOG CORP.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             Fiscal Year Ended
                                                                              ------------------------------------------------
                                                                              December 30,       January 1,        January 2,
                                                                                 2000               2000              1999
                                                                                 -----              ----              ----
<S>                                                                           <C>               <C>               <C>
Net Sales:
   Revenues............................................................       $ 52,973,996      $ 47,312,945      $ 48,397,806
   Shipping and handling income........................................          7,660,299         6,865,334         6,707,605
   Royalties...........................................................            257,817           296,303           485,746
                                                                              ------------      ------------      ------------
Total net sales........................................................         60,892,112        54,474,582        55,591,157
Cost of sales (including buying, occupancy and order fulfillment costs)         22,002,323        20,337,583        20,892,943
                                                                              ------------      ------------      ------------
Gross profit...........................................................         38,889,789        34,136,999        34,698,214
Operating Expenses:
   Operating expenses..................................................         34,340,466        30,819,662        30,413,015
   Depreciation and amortization.......................................          1,690,232         1,070,719           745,931
                                                                              ------------      ------------      ------------
Total operating expenses...............................................         36,030,698        31,890,381        31,158,946
                                                                              ------------      ------------      ------------
Income from operations.................................................          2,859,091         2,246,618         3,539,268
Interest expense, net..................................................            973,575           794,165           871,893
                                                                              ------------      ------------      ------------
Income before income taxes.............................................          1,885,516         1,452,453         2,667,375
Income taxes...........................................................            773,385           652,967         1,095,994
                                                                              ------------      ------------      ------------
Net income.............................................................       $  1,112,131      $    799,486      $  1,571,381
                                                                              ============      ============      ============

Earnings per share - Basic EPS:
      Net income per share.............................................       $       0.26      $       0.18      $       0.31
                                                                              ============      ============      ============
      Weighted average shares outstanding..............................          4,341,915         4,400,944         5,033,800
                                                                              ============      ============      ============
Earnings per share - Diluted EPS:
      Net income per share.............................................       $       0.25      $       0.17      $       0.29
                                                                              ============      ============      ============
      Weighted average shares outstanding..............................          4,530,756         4,684,874         5,495,014
                                                                              ============      ============      ============
</TABLE>

                See notes to consolidated financial statements.

                                       21
<PAGE>

                            SPECIALTY CATALOG CORP.
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY & COMPREHENSIVE INCOME
                                    (LOSS)

<TABLE>
<CAPTION>
                                                                                                              Accumulated
                                                            Common Stock                                         Other
                                                            ------------          Treasury      Deferred      Comprehensive
                                                       Shares        Amount         Stock     Compensation   Income (Loss)
                                                       ------        -------        -----     ------------   ---------------
<S>                                                 <C>           <C>             <C>         <C>            <C>
Balance, January 3, 1998..........................   5,022,001    $   50,220             --    $    (65,862)    $      3,495

Other comprehensive income (loss):
   Net income.....................................          --            --             --              --               --
   Foreign currency translation
     adjustment...................................          --            --             --              --           12,431
Total comprehensive income........................

   Exercise of stock options
(including the tax benefit of $256,021)...........     217,773         2,177             --              --               --
   Treasury stock repurchase......................          --            --   $ (2,353,641)             --
   Amortization of deferred
    compensation..................................          --            --             --          17,499               --
                                                    ----------    ----------   ------------    ------------     ------------
Balance, January 2, 1999..........................   5,239,774        52,397     (2,353,641)        (48,363)          15,926
                                                    ----------    ----------   ------------    ------------     ------------

Other comprehensive income (loss):
   Net income.....................................          --            --             --              --               --
   Foreign currency translation
     adjustment...................................          --            --             --              --          (67,176)
Total comprehensive income........................
   Treasury stock repurchase......................          --            --       (478,091)             --               --
   Amortization and write-off of
    deferred compensation.........................          --            --             --          48,363               --
                                                    ----------    ----------   ------------    ------------     ------------
Balance, December 30, 2000........................   5,239,774        52,397     (2,831,732)             --          (51,250)
                                                    ----------    ----------   ------------    ------------     ------------

Other comprehensive income (loss):
   Net income.....................................          --            --            --               --                --
   Foreign currency translation...................
     adjustment...................................          --            --            --               --          (87,700)
Total comprehensive income........................
   Treasury stock repurchase......................          --            --        (35,446)             --               --
                                                    ----------    ----------   ------------    ------------     ------------
Balance, December 30, 2000........................   5,239,774    $   52,397   $ (2,867,178)   $         --     $   (138,950)
                                                    ==========    ==========   ============    ============     ============

<CAPTION>

                                                                       Additional                          Total
                                                                        Paid-in          Accumulated    Shareholders'
                                                                        Capital           Deficit          Equity
                                                                        -------           -------          ------
Balance, January 3, 1998...............................              $ 15,838,826    $  (7,960,921)   $   7,865,758

Other comprehensive income (loss):
   Net income..........................................                        --        1,571,381        1,571,381
   Foreign currency translation
     adjustment........................................                        --               --           12,431
Total comprehensive income.............................                                                   1,583,812

   Exercise of stock options
(including the tax benefit of $256,021)................                   320,744               --          322,921
   Treasury stock repurchase...........................                        --               --       (2,353,641)
   Amortization of deferred
    compensation.......................................                        --               --           17,499
                                                                     ------------    -------------    -------------
Balance, January 2, 1999...............................                16,159,570       (6,389,540)       7,436,349
                                                                     ------------    -------------    -------------

Other comprehensive income (loss):
   Net income..........................................                        --          799,486          799,486
   Foreign currency translation
     adjustment........................................                        --               --          (67,176)
Total comprehensive income.............................                                                     732,310

   Treasury stock repurchase...........................                        --               --         (478,091)
   Amortization and write-off of
    deferred compensation..............................                        --               --           48,363
                                                                     ------------    -------------    -------------
Balance, January 1, 2000...............................                16,159,570       (5,590,054)       7,738,931
                                                                     ------------    -------------    -------------

Other comprehensive income (loss):
   Net income..........................................                        --        1,112,131        1,112,131
   Foreign currency translation
     adjustment........................................                        --               --          (87,700)
Total comprehensive income.............................                                                   1,024,431

   Treasury stock repurchase...........................                        --               --          (35,446)
                                                                     ------------    -------------    -------------
Balance, December 30, 2000.............................              $ 16,159,570    $  (4,477,923)   $   8,727,916
                                                                     ============    =============    =============
</TABLE>

                See notes to consolidated financial statements.

                                       22
<PAGE>

                            SPECIALTY CATALOG CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 Fiscal Year Ended
                                                                                      ---------------------------------------------
                                                                                      December 30,      January 1,      January 2,
                                                                                         2000              2000            1999
                                                                                         ----              ----            ----
<S>                                                                                   <C>               <C>            <C>
Cash flows from operating activities:
Net income..........................................................................  $  1,112,131      $  799,486     $  1,571,381
Adjustments to reconcile net income to net cash provided by
  operating activities:
      Depreciation and amortization.................................................     1,690,232       1,070,719          745,931
      Deferred income taxes.........................................................        82,547         413,292          872,233
      Amortization of deferred compensation.........................................            --          48,363           17,499
      Changes in operating assets and liabilities, net of impact of acquisitions:
        Accounts receivable.........................................................      (342,569)          1,194          (96,676)
        Inventories.................................................................       249,536        (248,884)         878,091
        Prepaid expenses............................................................       440,541        (207,728)        (465,520)
        Other assets................................................................       (72,646)        (57,263)          94,473
        Accounts payable and accrued expenses.......................................      (553,093)        500,008          297,625
        Liabilities to customers....................................................      (243,368)        492,809         (320,496)
        Income taxes payable........................................................       (44,532)        154,836          209,895
        Other long-term liabilities.................................................       (41,670)             --            4,167
                                                                                      ------------      ----------     ------------
Net cash provided by operating activities...........................................     2,277,109      $2,966,832        3,808,603
                                                                                      ------------      ----------     ------------

Cash flows from investing activities:
       Purchases of property, plant and equipment...................................    (1,377,009)      1,844,967)      (1,188,905)
        Acquisitions, net of cash acquired..........................................            --       1,323,381)        (505,140)
                                                                                      ------------      ----------     ------------
Net cash used in investing activities...............................................    (1,377,009)      3,168,348)      (1,694,045)
                                                                                      ------------      ----------     ------------

Cash flows from financing activities:
      Issuance of common stock......................................................            --              --           10,752
       Advances (repayments) on short-term borrowings, net..........................    (5,445,457)      1,357,390        1,289,559
       Issuance of long-term debt...................................................     6,000,000       1,000,000               --
       Purchases of treasury stock..................................................       (35,446)       (478,091)      (2,353,641)
      Repayments of long-term debt..................................................    (1,924,057)      1,564,142)        (969,011)
       Repayments of capital lease obligations......................................      (118,706)        (64,533)         (20,303)
                                                                                      ------------      ----------     ------------

Net cash provided by (used in) financing activities.................................    (1,523,666)        250,624       (2,042,644)
                                                                                      ------------      ----------     ------------

Effect of exchange rate changes on cash and cash equivalents........................       (78,005)        (10,132)          13,095
                                                                                      ------------      ----------     ------------

Increase (decrease) in cash and cash equivalents....................................      (701,571)         38,976           85,009

Cash and cash equivalents, beginning of year........................................     1,136,847       1,097,871        1,012,862
                                                                                      ------------      ----------     ------------
Cash and cash equivalents, end of year..............................................  $    435,276      $1,136,847     $  1,097,871
                                                                                      ============      ==========     ============

Supplemental disclosures of cash flow information:
       Cash paid during the year for:
         Interest...................................................................  $    844,204      $  794,668     $    812,845
                                                                                      ============      ==========     ============
         Income taxes...............................................................  $    431,184         426,370     $    725,000
                                                                                      ============      ==========     ============
</TABLE>

                See notes to consolidated financial statements.

                                      23
<PAGE>

                            SPECIALTY CATALOG CORP.

              CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

     Supplemental disclosures of cash flow information:

           During the years ended December 30, 2000 and January 1, 2000, the
     Company received federal income tax refunds of $320,000 and $375,000,
     respectively.

     Summary of non-cash transactions:

           During the years ended December 30, 2000 and January 1, 2000, the
     Company recorded capital lease obligations of $10,430 and $290,789,
     respectively related to the purchase of data processing equipment.

           During 1999, the Company disposed of fully depreciated fixed assets
     no longer in use totaling $753,244.

           During 1998, 217,773 stock options were exercised for which the
     Company recorded a reduction in its income taxes payable and an increase in
     additional paid-in capital of $256,021. Unpaid severance amounting to
     $56,148 that was recorded in accrued restructuring charges to a former
     employee was used as payment against a portion of these stock options
     exercised.

                See notes to consolidated financial statements.

                                       24
<PAGE>

                            SPECIALTY CATALOG CORP.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  FISCAL YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000, AND JANUARY 2, 1999

1.  Summary of Significant Accounting Policies

     Nature of Business -- Specialty Catalog Corp. (the "Company") targets niche
consumer product categories, primarily via direct marketing. SC Corporation, the
Company's principal operating subsidiary doing business under the name SC Direct
("SC Direct"), is the leading US retailer of women's wigs and hairpieces.
Daxbourne International Limited ("Daxbourne"), a subsidiary of SC Direct, is a
leading UK retailer, wholesaler and direct marketer of women's wigs and
hairpieces. SC Publishing ("SC Publishing"), another subsidiary of SC Direct,
sells continuing education courses to nurses and certified public accountants.
American Healthcare Institute ("AHI"), an operating division of SC Publishing,
which was acquired by the Company on September 10, 1999, provides
continuing-education seminars and conferences for the healthcare industry.

     Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

     Translation of Foreign Currencies -- The financial statements of the
Company's foreign subsidiary are translated from local currency into US dollars
using the current exchange rate at the balance sheet date for assets and
liabilities and the average exchange rate prevailing during the period for
revenues and expenses. The local currency of its foreign subsidiary is
considered to be the functional currency. Exchange gains and losses on
intercompany balances of a long-term investment nature are recorded as a
component of other comprehensive income (loss) in shareholders' equity, while
other transaction gains and losses are recorded directly to the consolidated
statements of operations. Comprehensive income (loss) consisted solely of
accumulated foreign currency translation adjustments in connection with the
Company's UK subsidiary in 2000 and 1999.

     Cash and Cash Equivalents -- Cash and cash equivalents consist of cash and
temporary investments with maturities of three months or less when purchased.

     Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined using the weighted average cost method. A reserve for obsolete
inventory is recorded based on the expected realizable value of merchandise. The
cost of inventory includes the cost of merchandise, freight, duty, brokerage
fees and marine insurance.

     Prepaid Expenses -- The costs incurred to develop, print and place direct
response advertisements to obtain names of potential customers are recorded as
prepaid expenses until the time the advertisement is published, mailed or
otherwise made available to potential customers. Direct response advertising,
including catalog printing and mailing costs, for selling purposes, is
capitalized and amortized over the expected period of future benefit, generally
two to four months. For the years ended December 30, 2000, January 1 2000, and
January 2, 1999, advertising expense was $17.0 million, $14.3 million and $15.4
million, respectively.

     Property, Plant and Equipment -- Property, plant and equipment are stated
at cost, less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Amortization is computed on the straight-line method over the
lesser of the estimated useful lives of the related assets or the lease terms.

     In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that costs incurred in the development of internal use software be capitalized
and amortized over a period of time. The Company adopted SOP 98-1 in the first
quarter of 1998. During 2000 and 1999, the Company capitalized $568,706 and
$1,185,536, respectively, of costs associated with its new catalog information
system that was

                                       25
<PAGE>

implemented in August 1999, of which $254,651 and $583,659, respectively, were
internal payroll and payroll related costs.

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.  Summary of Significant Accounting Policies (continued)

     Intangibles -- Intangible assets, consisting of goodwill, covenants not to
compete, customer lists, trademarks, and trade names, are amortized using the
straight-line method over useful lives of three to thirty years. Management's
policy regarding intangible assets is to evaluate the recoverability of its
intangible assets when the facts and circumstances suggest that these assets may
be impaired. This policy is consistent with those policies set forth in
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". Evaluations consider factors including operating results, business and
strategic plans, economic projections, and market emphasis. Evaluations compare
expected cumulative, non-discounted operating cash flows with net book values of
related intangible assets. Unrealizable intangible asset values are charged to
operations. There were no impairment charges during the fiscal years presented.

     Other Assets -- Other assets consist primarily of deferred financing costs.
Deferred financing costs which were incurred by the Company in connection with
the credit agreement (the "Agreement") with Fleet National Bank (the "Bank")
(see footnote 7) are amortized over the life of the underlying indebtedness
using the straight-line method. At December 30, 2000 and January 1, 2000,
deferred financing costs were $71,448 and $81,987, respectively.

     Income Taxes -- The Company uses the asset and liability method of
accounting for deferred income taxes. The provision for income taxes includes
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax basis of assets and
liabilities.

     Revenue -- The Company recognizes sales and the related costs of sales at
the time merchandise is shipped to customers. The Company allows for merchandise
returns at the customer's discretion within the period stated in the Company's
sales policy. An allowance is provided for returns based on historical return
rates applied to recent shipments.

     Fair Value of Financial Instruments -- SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the fair value of
financial instruments, relating to both those assets and liabilities recognized
and those not recognized in the consolidated balance sheets of the Company, for
which it is practicable to estimate fair value. The estimated fair value of
financial instruments which are presented herein have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could realize in a
current market exchange.

     The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and short-term borrowings approximate their
carrying values at December 30, 2000 and January 1, 2000, due to the short-term
maturities of these investments. The carrying values and fair values of the
Company's long-term debt at December 30, 2000 and January 1, 2000 were
$9,000,000 and $5,025,000, respectively.

     Stock-Based Compensation -- Compensation cost of stock-based compensation
arrangements with employees is measured based on Accounting Principles Board
("APB") Opinion No. 25. The Company applies APB Opinion No. 25 to its stock-
based compensation awards to employees and the disclosure provisions of SFAS No.
123, "Accounting for Stock-based Compensation", are addressed in footnote 10.

     Newly Issued Accounting Pronouncements-- Emerging Issues Task Force
("EITF") Issue 00-10, "Accounting for Shipping and Handling Fees and Costs",
requires that shipping and handling fees, billed to a customer in a sale
transaction, should be classified as part of revenues. This consensus had to be
adopted no later than the fourth quarter of

                                       26
<PAGE>

2000. The Company has restated its consolidated statements of operations for the
fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 by
reclassifying all shipping and handling income from cost of sales and operating
expenses to revenues.


                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.  Summary of Significant Accounting Policies (continued)

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
adoption of SAB No. 101 did not materially affect the Company's consolidated
financial statements in the current year.

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", is effective for all fiscal years beginning after June 15, 2000.
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company will adopt SFAS No. 133 effective
December 31, 2000. Management does not expect the adoption of SFAS No. 133 to
have a significant impact on the financial position, results of operations, or
cash flows of the Company.

     Fiscal Year -- The Company is on a 52/53-week fiscal year, ending on the
Saturday closest to December 31. Unless otherwise indicated, "2000" means the 52
weeks ended December 30, 2000, "1999" means the 52 weeks ended January 1, 2000
and "1998" means the 52 weeks ended January 2, 1999.

     Accounting Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Management bases its estimates on historical
experiences and on various assumptions that are believed to be reasonable under
the circumstances. The primary estimates underlying the Company's financial
statements include allowances for doubtful accounts, allowances for returns, and
inventory valuation.

     Reclassifications -- Certain amounts in the 1998 and 1999 financial
statements have been reclassified to conform to the 2000 presentation.

2.   Prepaid Expenses

     Prepaid expenses at December 30, 2000 and January 1, 2000 consist of the
following:

                                                        2000          1999
                                                        ----          ----
        Deferred catalog costs..................     $2,915,706    $2,704,258
        Prepaid advertising.....................        176,173       181,113
        Prepaid income taxes....................             --       720,000
        Other...................................        469,432       407,167
                                                     ----------    ----------
                                                     $3,561,311    $4,012,538
                                                     ==========    ==========

3.   Property, Plant and Equipment

     Property, plant and equipment at December 30, 2000 and January 1, 2000
consist of the following:

<TABLE>
<CAPTION>
                                                                        Useful
                                                                         Life            2000           1999
                                                                         -----           -----          ----
        <S>                                                            <C>           <C>             <C>
        Furniture and equipment...............................         5-7 years     $ 1,934,588     $ 1,764,086
</TABLE>

                                       27
<PAGE>

<TABLE>
        <S>                                                            <C>           <C>             <C>
        Building..............................................         40 years          298,140         323,000
        Data processing equipment.............................         3-5 years       6,731,971       5,652,965
        Automobiles...........................................          3 years          122,798         112,025
        Leasehold improvements................................            (i)            536,370         434,080
                                                                                     -----------     -----------
                                                                                       9,623,867       8,286,156
        Less accumulated depreciation and amortization........                        (5,232,422)     (3,967,224)
                                                                                     -----------     -----------
                                                                                     $ 4,391,445     $ 4,318,932
                                                                                     ===========     ===========
</TABLE>

        (i) Lesser of the estimated useful lives of the related assets or the
            lease term.

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Depreciation and amortization expense related to property, plant and
equipment was $1,274,150, $734,776 and $429,311 for 2000, 1999 and 1998,
respectively. In 1999, the Company disposed of fully depreciated fixed assets no
longer in use totaling $753,244. There were no gains or losses recognized on the
consolidated statement of operations from these disposals.

4.   Intangible Assets

     Intangible assets at December 30, 2000 and January 1, 2000 consist of the
following:

<TABLE>
<CAPTION>
                                                              Useful
                                                               Life               2000              1999
                                                               -----              ----              ----
        <S>                                                 <C>                <C>               <C>
        Goodwill..........................................  20-30 years        $ 2,801,432       $ 2,937,185
        Trade names.......................................   30 years            1,096,464         1,157,307
        Covenant-not-to-compete...........................    5 years              745,350           807,500
        Customer lists....................................   3-5 years             381,045           400,310
                                                                               -----------       -----------
                                                                                 5,024,291         5,302,302
        Less accumulated amortization.....................                      (1,081,783)         (730,897)
                                                                               -----------       -----------
                                                                               $ 3,942,508       $ 4,571,405
                                                                               ===========       ===========
</TABLE>

     Amortization expense related to intangible assets was $416,082, $335,943
and $316,620 for 2000, 1999 and 1998, respectively.

5.   Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses at December 30, 2000 and January 1,
2000 consist of the following:

<TABLE>
<CAPTION>
                                                                           2000               1999
                                                                           ----               ----
        <S>                                                              <C>               <C>
        Accounts payable......................................           $2,500,268        $3,076,493
        Accrued compensation..................................              158,178           579,721
        Other accrued expenses................................              998,311           605,186
                                                                         ----------        ----------
                                                                         $3,656,757        $4,261,400
                                                                         ==========        ==========
</TABLE>

6.   Liabilities to Customers

     Liabilities to customers at December 30, 2000 and January 1, 2000 consist
of the following:

<TABLE>
<CAPTION>
                                                                            2000              1999
                                                                            -----             ----
        <S>                                                               <C>               <C>
        Deferred revenue.....................................             $ 365,167         $ 450,279
        Refunds due customers................................               201,867            17,592
        Reserve for returns..................................               358,854           701,385
                                                                          ---------        ----------
                                                                          $ 925,888        $1,169,256
                                                                          =========        ==========
</TABLE>

     Deferred revenue reflects cash received from customers for ordered items
that have not yet been shipped. Refunds due customers represents merchandise
returned by customers for a cash or credit refund. The reserve for returns

                                       28
<PAGE>

represents estimated merchandise to be returned for refunds in the future based
on historical return rates applied to recent shipments.

                                       29
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.   Long-Term Debt

     Long-term debt at December 30, 2000 and January 1, 2000 consists of the
following:

<TABLE>
<CAPTION>
                                                                                           2000               1999
                                                                                          -----               ----
               <S>                                                                     <C>                <C>
               Fleet National Bank (Term Loan), due October 2001...........            $        --         $ 4,000,000
               Fleet National Bank (UK Term Loan), due October 2001........                     --           1,025,000
               Fleet National Bank (Term Loan), due January 2006...........              9,000,000                  --
                                                                                      ------------         -----------
                                                                                         9,000,000           5,025,000
               Less current portion........................................              1,800,000           2,125,000
                                                                                       -----------         -----------
                                                                                       $ 7,200,000         $ 2,900,000
                                                                                       ===========         ===========
</TABLE>

     On December 27, 2000, the Company entered into an $12.25 million credit
agreement (the "Agreement") with Fleet National Bank (the "Bank") for the
purpose of refinancing its existing senior debt and to provide for the working
capital needs of the Company. The new credit facility, which may be increased to
$13.0 million in 2002, replaces the Company's former credit facilities with the
Bank. The Agreement includes a $9.0 million five-year term note (the "Term
Loan") and a $3.25 million two-year revolving credit agreement (the "Line of
Credit"). The amount available on the Line of Credit increases as principal
amortization payments on the Term Loan are paid, such that the total Agreement
remains at $12.25 million over the two years of the Line of Credit agreement.
The Line of Credit provides for revolving credit loans and letters of credit
with floating rates based on margins over LIBOR or prime at the Company's
option. The Term Loan is for five years and is amortized at the rate of $450,000
a quarter beginning January 1, 2001.

     As of December 30, 2000, $6.4 million of the Term Loan was under LIBOR
contract rates ranging from 8.6625 percent to 9.02813 percent and the remainder
of the Term Loan was at the base rate of 9.75 percent. As of December 30, 2000,
approximately $788,000 of the Line of Credit was at the base rate of 9.75
percent. The Company is required to pay a commitment fee of 0.375 percent per
annum on the unused portion of the commitment. At December 30, 2000, $2,461,901
was available under the Line of Credit.

     The Agreement is collateralized by a first perfected security interest in
all tangible and intangible assets of the Company, subject to certain permitted
liens. The Agreement is subject to certain consolidated covenants, including but
not limited to leverage and debt service coverage ratios, minimum earnings
requirements, and a restriction on the payment of cash dividends on the
Company's common stock. The aggregate maturities of long-term debt after
December 30, 2000 are as follows:

           Fiscal
           Year                                                 Amount
           ----                                                 ------
           2001..........................................    $ 1,800,000
           2002..........................................      1,800,000
           2003..........................................      1,800,000
           2004..........................................      1,800,000
           2005..........................................      1,800,000
                                                             -----------
                                                             $ 9,000,000
                                                             ===========

8.   Operating Expenses

     On December 3, 1999, the Company and Golub Associates, Inc. ("GAI") jointly
announced the execution of a non-binding letter of intent pursuant to which GAI
would lead a transaction to acquire all of the outstanding common stock of
Specialty Catalog Corp. for a cash purchase price of $5.00 per share. This
transaction was subject to various contingencies. On January 19, 2000, a merger
agreement was entered into which provided for a cash merger in which the holders
of common stock of the Company immediately prior to the effective date of the
merger would have received

                                       30
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$5.00 per share of the Company's common stock. The merger agreement was subject
to the satisfaction of a number of closing conditions. On March 9, 2000, the
Company announced that the Company and GAI and its affiliates had mutually
terminated the merger agreement because, even though financing had been
arranged, certain other closing conditions could not be satisfied in a timely
manner. In 2000 and 1999, the Company recorded costs of $632,294 and $65,467,
respectively, from this transaction.

     In August 1999, the Company announced the resignation of its chief
executive officer. In connection with the resignation and its search for a new
chief executive officer, in the third quarter of 1999, the Company recorded a
pre-tax charge of $500,000, consisting of severance and other severance related
benefits and recruiting fees. Accrued compensation expenses at January 1, 2000
include expenses accrued in connection with these charges of $397,344. All
amounts relating to the accrued expenses were paid in 2000.

     From 1996 to 1999, the Company circulated the Paula's Hatbox(R) catalog
that featured ladies hats and then expanded to include selected women's apparel
and accessories. In a move motivated by the desire to exit the competitive
ladies ready-to-wear market segment, and to dedicate its focus and resources on
the growth and development of the Company's core wig businesses, the Company
decided to stop circulating this catalog in the fourth quarter of 1999. The
Company recorded a pre-tax charge of $730,000 in October 1999 related to the
write-off of remaining unamortized deferred catalog costs, inventory write-offs
and severance and severance related benefits for four employees. Accrued
restructuring charges at January 1, 2000 include expenses accrued in connection
with this closure of $27,091. All amounts relating to the accrued expenses were
paid in 2000.

     In August 1998, the Company announced the reorganization of certain
management positions. In connection with this reorganization, the Company
recorded in the third quarter of 1998 a pre-tax charge of $469,558, consisting
of severance and other severance related benefits through July 1999 for five
employees. Accrued expenses at January 2, 1999 include expenses accrued in
connection with these charges of $99,301.

9.   Acquisitions

American Healthcare Institute

     On September 10, 1999, the Company acquired the assets and assumed certain
liabilities of AHI, a private Maryland-based continuing-education seminar and
conference provider for $1,323,381 in cash. This transaction was accounted for
as a purchase. The results of operations of AHI for the period from September
10, 1999 through January 1, 2000 are included in the accompanying consolidated
financial statements. The $1,150,634 excess of costs over net assets acquired
was allocated to customer lists and goodwill which are being amortized over 3
and 20 years, respectively.

10.  Shareholders' Equity

     Treasury Stock -- In December 1998, the Company's Board of Directors
authorized the Company to repurchase up to $1.0 million of the Company's common
stock. As of December 30, 2000, the Company had repurchased 144,100 shares at an
average price of $3.56 per share.

     Stock Compensation Plan -- On June 22, 2000, the Company adopted the 2000
Stock Incentive Plan (the "Plan"). The Plan authorizes the issuance of up to
750,000 shares of the Company's common stock through the grant of stock options
and awards of restricted stock. Each option has a maximum term of ten years from
the date of grant, subject to early termination.

                                       31
<PAGE>

     Options granted under the Company's 1996 Stock Incentive Plan, as amended
(the "1996 Plan"), before their termination will remain outstanding according to
their terms, but no further options will be granted under the 1996 Plan after
June 22, 2000.

                                       32
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Rights Agreement -- On April 11, 2000, the board of directors of the
Company adopted a stockholder rights plan pursuant to a Rights Agreement dated
as of April 11, 2000, between the Company and Continental Stock Transfer and
Trust Company, as Rights Agent. The Rights Agreement is effective as of April
11, 2000 for all shares of Common Stock outstanding on such date and for all
shares of Common Stock issued thereafter and prior to the earliest of the
Distribution Date (as defined in the Rights Agreement). Each Right is
exercisable (as defined in the Rights Agreement) by the registered holder of a
Right Certificate to purchase 1/1000th of a share of Series A Preferred Stock of
the Company, subject to adjustment, at an exercise price per 1/1000th of a share
of Series A Preferred Stock of $15, subject to adjustment. Each 1/1000th of a
share of Series A Preferred Stock will have economic attributes (i.e.,
participation in dividends and voting rights) substantially equivalent to one
whole share of the common stock of the Company. The Rights expire on the tenth
anniversary of the date of the Rights Agreement unless earlier redeemed or
exchanged by the Company as provided in the Rights Agreement. For further
information, a detailed description of the Rights Agreement and a copy of the
Rights Agreement were included in a current report on Form 8-K, which was filed
with the Securities and Exchange Commission on April 13, 2000.

     Stock option activity is summarized below:

<TABLE>
<CAPTION>
                                                                                                   Weighted
                                                                              Exercise Price        Average
                                                                                   Per              Exercise
                                                                  Shares          Share              Price
                                                                  ------          -----              -----
             <S>                                               <C>            <C>                  <C>
             Outstanding January 3, 1998.....................   1,156,734      $0.31-$7.15           $3.69
             Granted.........................................      25,000            $6.50           $6.50
             Exercised.......................................    (217,773)           $0.31           $0.31
             Forfeited or expired............................     (59,050)           $6.50           $6.50
                                                               ----------      -----------         -------
             Outstanding January 2, 1999.....................     904,911      $0.31-$7.15           $4.40
             Granted.........................................     181,500            $6.50           $6.50
             Forfeited or expired............................    (112,284)     $6.50-$6.88           $6.51
                                                               ----------      -----------         -------
             Outstanding January 1, 2000.....................     974,127      $0.31-$7.15           $4.54
                                                               ----------      -----------         -------
             Granted.........................................     422,500      $2.25-$2.50           $2.50
             Forfeited or expired............................    (134,950)     $6.50-$6.63           $6.51
                                                               ----------      -----------         -------
             Outstanding December 30, 2000...................   1,261,677      $0.31-$7.15           $3.65
                                                               ==========      ===========         =======
</TABLE>

     The 1,261,677 stock options outstanding as of December 30, 2000 consisted
of 310,226 of $0.31 options issued in November 1994 to an employee of the
Company, 75,000 of $5.33 options issued in October 1996 to an employee of the
Company, 150,000 of $7.15 options issued in October 1996 to the Company's
underwriters in connection with the Company's initial public offering, 303,951
of options ranging in exercise prices from $6.50 to $6.625 issued under the 1996
Plan to employees and directors of the Company and 422,500 of options ranging in
exercise prices from $2.25 to $2.50 issued under the Plan to employees and
directors of the Company.

     Options exercisable at December 30, 2000, January 1, 2000 and January 2,
1999 were 639,177, 650,326 and 524,583, respectively. The options outstanding as
of December 30, 2000 have weighted average remaining contractual lives of 3.9
years for the $0.31 options issued in 1994, 5.8 years for the $5.33-$7.15
options granted in 1996, 6.8 years for the $6.50-$6.625 options granted in 1997,
7.4 years for $6.50 options granted in 1998, 8.5 years for the $6.50

                                       33
<PAGE>

options granted in 1999 and 9.5 years for the $2.25-$2.50 options granted in
2000. The weighted average fair value of stock options granted in 2000, 1999 and
1998 were $1.09, $0.54 and $1.75, respectively.

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The Company applies the intrinsic value provisions of APB Opinion No. 25
and related interpretations in accounting for awards granted to employees. Had
compensation cost been determined based on the fair value at the grant dates for
options granted with the method prescribed by SFAS No. 123 "Accounting for
Stock-based Compensation", the Company's net income and basic and diluted
earnings per share would have been changed to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                               2000              1999             1998
                                               ----              ----             ----
          <S>                               <C>                <C>             <C>
          Net income:
           As reported..................    $1,112,131         $799,486        $1,571,381
                                            ==========         ========        ==========
           Pro forma....................    $1,033,147         $633,002        $1,385,609
                                            ==========         ========        ==========
          Basic earnings per share:
           As reported..................    $     0.26         $   0.18        $     0.31
                                            ==========         ========        ==========
           Pro forma....................    $     0.24         $   0.14        $     0.28
                                            ==========         ========        ==========
          Diluted earnings per share:
           As reported..................    $     0.25         $   0.17        $     0.29
                                            ==========         ========        ==========
           Pro forma....................    $     0.23         $   0.14        $     0.25
                                            ==========         ========        ==========
</TABLE>

     The fair value of each option grant used to compute pro forma net income
and basic and diluted earnings per share disclosures is the estimated present
value on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions for 2000, 1999 and 1998 respectively:
expected volatility of 33.32 percent, 29.00 percent and 27.59 percent, a risk
free interest rate of 6.00 percent, 5.30 percent and 5.63 percent and an
expected holding period of 6 years.

11.  Reconciliation of Basic and Diluted Earnings per Share

     The following table shows the amounts used in computing basic and diluted
earnings per share for net income and the effects of potentially dilutive
options on the weighted average number of shares outstanding.

<TABLE>
<CAPTION>
                                                                  For the fiscal year ended
                               ------------------------------------------------------------------------------------------------
                                        December 30, 2000                January 1, 2000                January 2, 1999
                                        -----------------                ---------------               ----------------
                                    Net Income         Shares      Net Income         Shares      Net Income         Shares
                                    ----------         ------      ----------         ------      ----------         ------
<S>                            <C>                   <C>           <C>              <C>           <C>               <C>
Basic earnings per share            $1,112,131       4,341,915      $ 799,486       4,400,944      $1,571,381       5,033,800
Effect of dilutive options                  --         188,841             --         283,930              --         461,214
                                    ----------       ---------      ---------       ---------      ----------       ---------
Diluted earnings per share          $1,112,131       4,530,756      $ 799,486       4,684,874      $1,571,381       5,495,014
                                    ==========       =========      =========       =========      ==========       =========
</TABLE>

     Options to purchase 923,951 shares of common stock ranging from $5.33 to
$7.15 per share were not included in computing diluted EPS for the year ended
December 30, 2000 because their effects were antidilutive. Options to purchase
670,351 shares of common stock ranging from $5.33 to $7.15 per share were not
included in computing diluted EPS for the year ended January 1, 2000 because
their effects were antidilutive. Options to purchase 599,935 shares of common
stock ranging from $6.88 to $7.15 per share were not included in computing
diluted EPS for the year ended January 2, 1999 because their effects were
antidilutive.

                                       34
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.  Income Taxes

     The provision for income taxes at December 30, 2000, January 1, 2000 and
January 2, 1999 consists of the following:

<TABLE>
<CAPTION>
                                       2000           1999             1998
                                       ----           ----             ----
          <S>                         <C>            <C>            <C>
          Current:
             Federal................  $      --      $      --      $       --
             State..................         --        175,591              --
             Foreign................    300,658        271,117          57,932
                                      ---------      ---------      ----------
                                        300,658        446,708          57,932
                                      ---------      ---------      ----------
          Deferred:
             Federal................    332,532        262,573         606,533
             State..................    199,282         24,466         209,800
             Foreign................   (59,087)       (80,780)         221,729
                                      ---------      ---------      ----------
                                        472,727        206,259       1,038,062
                                      ---------      ---------      ----------
               Total................  $ 773,385      $ 652,967      $1,095,994
                                      =========      =========      ==========
</TABLE>

     Deferred income tax assets and liabilities at December 30, 2000 and January
1, 2000 consist of the following:

<TABLE>
<CAPTION>
                                                                              2000             1999
                                                                              -----            ----
          <S>                                                              <C>              <C>
          Deferred income tax assets:
               Net operating loss carryforwards and credits.......         $ 4,130,171      $ 4,021,799
               Operating reserves.................................             668,708          418,620
               Inventory..........................................             349,307          462,145
               Property, plant and intangibles....................             307,277          528,306
                                                                           -----------      -----------
                                                                             5,455,463        5,430,870
                                                                           -----------      -----------
          Deferred income tax liabilities:
               Deferred catalog costs.............................           1,139,993        1,045,754
               Other..............................................              42,183           46,273
                                                                           -----------      -----------
                                                                             1,182,176        1,092,027
                                                                           -----------      -----------
          Net deferred income tax asset...........................         $ 4,273,287      $ 4,338,843
                                                                           ===========      ===========
</TABLE>

     Reconciliation of the statutory Federal income tax rate and the effective
rate of the provision for income taxes for the years ended December 30, 2000,
January 1, 2000 and January 2, 1999 is as follows:

<TABLE>
<CAPTION>
                                                               2000          1999           1998
                                                               ----          ----           ----
          <S>                                                  <C>           <C>            <C>
          Statutory Federal income tax rate................      34.0%         34.0%          34.0%
          State taxes, net of Federal income tax benefits..       6.3           6.3            6.1
          Other............................................       0.7           4.7            1.0
                                                               ------        ------         ------
                                                                 41.0%         45.0%          41.1%
                                                               ======        ======         ======
</TABLE>

     The Company has recorded a deferred tax asset of $4,273,287 primarily
reflecting the benefit of $10,379,069 of net operating loss carryforwards which
expire in varying amounts between 2001 and 2010. Realization is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforwards. The use of the net operating losses is subject to an annual
limitation of $1,555,125 due to a change in control of the Company pursuant to
Section 382 of the Internal Revenue Code of 1986, as amended ("IRC"). Over the
past three years, the Company has used substantially all of the net operating
loss carryforwards available to it. Tax benefits of Federal operating loss
carryforwards of approximately $190,000, $632,000 and $703,000 were utilized in
2000, 1999 and 1998, respectively. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized.

                                       35
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.  Commitments and Contingencies

     Lease Commitments -- Certain non-cancelable leases are classified as
capital leases, and the leased assets are included as part of "Property, Plant
and Equipment". The obligations of the Company under such leases are
collateralized by leased equipment. Other leases are classified as operating
leases and are not capitalized. Future minimum lease payments under capital
leases as of December 30, 2000 are included in "Other Long-term Liabilities" and
are as follows:

<TABLE>
<CAPTION>
             Year                                              Amount
             ----                                              ------
             <S>                                             <C>
             2001 ........................................   $    99,969
             2002 ........................................        56,308
             2003 ........................................        54,760
             2004 ........................................        27,380
                                                             -----------
             Total minimum lease payments.................       238,417
               Less - amounts representing interest.......        18,822
                                                             -----------
             Present value of minimum lease payments......   $   219,595
                                                             ===========
</TABLE>

     Operating Leases -- The Company leases certain administrative, warehousing
and other facilities and equipment under operating leases. The following is a
schedule of future minimum rental payments under non-cancelable operating leases
as of December 30, 2000:

<TABLE>
<CAPTION>
            Year                                               Amount
            ----                                               ------
            <S>                                              <C>
            2001..........................................   $   622,704
            2002..........................................       503,344
            2003..........................................       109,306
            2004..........................................        26,806
            2005..........................................        16,458
                                                             -----------
                                                             $ 1,278,618
                                                             ===========
</TABLE>

     Management expects that, in the normal course of business, expiring leases
will be renewed or replaced by other leases. Rent expense under operating leases
was $651,563, $580,137 and $594,752 for 2000, 1999 and 1998, respectively.

     Employment and Bonus Agreements -- On May 9, 2000, the Company announced
the appointment of Joseph J. Grabowski as president of the Company effective as
of May 8, 2000. On July 1, 2000, Mr. Grabowski assumed the title of CEO,
replacing Steven L. Bock whose resignation was effective June 30, 2000.

     The term of the executive employment agreement (the "Employment Agreement")
between the Company and Mr. Grabowski commenced on May 8, 2000 and, unless
extended, terminates on May 7, 2002 (the "Initial Term"). Under this Employment
Agreement, Mr. Grabowski will receive an annual salary of $300,000, along with
other benefits. Mr. Grabowski will be eligible for a performance bonus of up to
100 percent of his annual salary, based upon the Company's performance as
compared against the annual performance plan. Upon executing this agreement, Mr.
Grabowski was granted options under the 2000 Stock Incentive Plan to purchase
250,000 shares of common stock of the Company at $2.50 per share, the then fair
market value of the stock. Mr. Grabowski is also eligible to receive an
additional grant of 250,000 stock options, at a price which shall equal the Fair
Market Value on the date of the grant, as defined in the 2000 Stock Incentive
Plan, after the end of the first fiscal year in which the Company's gross
revenues exceed $120,000,000.

     The Company may terminate Mr. Grabowski's employment upon his death or
permanent disability, or if he engages in conduct that constitutes "cause" under
the Employment Agreement. Mr. Grabowski may terminate his employment for "Good
Reason" as defined in the Employment Agreement. In the event Mr. Grabowski's
employment is terminated by the Company other than for "cause", Mr. Grabowski
will receive a "Termination Payment" as defined in the

                                       36
<PAGE>

Employment Agreement. The Employment Agreement contains non-competition and
other restrictions effective during the term of employment and for a one-year
period thereafter.

                                       37
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     In addition, Mr. Grabowski, along with all other salaried employees, may
earn certain other bonuses based on the Company's achievement of certain
operating targets.

14.  Employee Benefit Plan

     The Company maintains a qualified defined contribution plan, under the
provisions of Section 401(k) of the IRC, covering substantially all United
States employees. Under the terms of the plan, eligible employees may make
contributions of up to 15 percent of pay, subject to statutory limitations.
Contributions not exceeding 5 percent of an employee's pay are matched 40
percent by the Company. The Company may, at its discretion, make an additional
year-end contribution. Employee contributions are always fully vested. Company
contributions vest 20 percent for each completed year of service, becoming fully
vested after five years of service. Matching contributions by the Company under
the plan were $105,578, $87,697 and $86,535 in 2000, 1999 and 1998,
respectively. No discretionary contributions have been made to the plan.

15.  Business Segments and Financial Information by Geographic Location

     Specialty Catalog Corp. has six reportable segments: Paula Young,
Especially Yours and Paula's Hatbox under the SC Direct division, Western
Schools and AHI under the SC Publishing division and Daxbourne International
Limited. The SC Direct division sells women's wigs and hairpieces using two
distinct catalogs: Paula Young and Especially Yours. In addition, prior to the
end of 1999, SC Direct sold apparel, hats and other fashion accessories through
its Paula's Hatbox catalog. The SC Publishing division distributes catalogs
under its Western Schools brand and specializes in providing continuing
education courses to nurses and accounting professionals. SC Publishing's other
segment, AHI, which was acquired by the Company on September 10, 1999,
distributes catalogs under its own name and specializes in providing continuing
education seminars and conferences to nurses and other mental health
professionals. Daxbourne International Limited is a retailer and wholesaler of
women's wigs, hairpieces and related products in the United Kingdom.

     Beginning in the second quarter of fiscal year 2000, the Company changed
its reportable segments from SC Direct, SC Publishing, AHI and Daxbourne
International Limited to Paula Young, Especially Yours, Paula's Hatbox, Western
Schools, AHI and Daxbourne International Limited. The change was made to conform
the Company's financial reporting to how it now manages its business. As a
result, the Company has restated the segment reporting results for the years
ended January 1, 2000 and January 2, 1999.

                                       38
<PAGE>

                             SPECIALTY CATALOG CORP.
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company's reportable segments are strategic business units that offer
either different products or operate in different geographic locations. The
Company markets its products in two major geographic areas, the United States
and the United Kingdom. The SC Direct and SC Publishing divisions market their
products and maintain their assets in the United States. Daxbourne International
Limited markets its products and maintains its assets in the United Kingdom.

     A summary of information about the Company's operations by segment for the
year ended December 30, 2000, January 1, 2000 and January 2, 1999 follows:

<TABLE>
<CAPTION>
                                 Paula      Especially   Paula's      Corporate       Total SC        Western
                                 Young        Yours       Hatbox       Expenses        Direct         Schools
                                 -----        -----       ------       --------        ------         -------
<S>                           <C>           <C>           <C>          <C>           <C>              <C>
        2000
Net sales (including
   royalties)..............   $30,851,690   $7,213,115    $  --       $       --     $38,064,805      $4,377,591
Shipping & handling
  income...................     5,486,250    1,282,825       --               --       6,769,075         849,717
                              -----------   ----------    -----       ----------     -----------      ----------
Total revenues.............    36,337,940    8,495,940       --               --      44,833,880       5,227,308
Gross profit...............    23,280,988    5,157,179       --         (231,454)     28,206,713       3,811,700
Operating expenses.........    15,080,217    5,078,787       --        5,311,239      25,470,243       3,082,328
Depreciation and
  amortization.............            --           --       --        1,147,980       1,147,980          42,668
                              -----------   ----------    -----       ----------     -----------      ----------
Income (loss) from
  operations...............     8,200,771       78,392       --       (6,690,673)      1,588,490         686,704
Interest expense, net......            --           --       --          740,397         740,397              --
Income tax provision
 (benefit).................            --           --       --          348,046         348,046         281,548

Segment assets.............            --           --       --       16,888,254      16,888,254       4,466,359
Capital expenditures.......            --           --       --        1,259,034       1,259,034          16,433

<CAPTION>
                                                Total SC
                                      AHI       Publishing       Daxbourne          Total
                                      ---       ----------       ---------          -----
<S>                               <C>           <C>              <C>             <C>
        2000
Net sales (including
   royalties)...............      $5,251,389     $9,628,980      $5,538,028      $53,231,813
Shipping & handling
  income....................              21        849,738          41,486        7,660,299
                                  ----------    -----------      ----------      -----------
Total revenues..............       5,251,410     10,478,718       5,579,514       60,892,112
Gross profit................       3,081,129      6,892,829       3,790,247       38,889,789
Operating expenses..........       3,288,630      6,370,958       2,499,265       34,340,466
Depreciation and
  amortization..............         146,401        189,069         353,183        1,690,232
                                  ----------    -----------      ----------      -----------
Income (loss) from
  operations................        (353,902)       332,802         937,799        2,859,091
Interest expense, net.......           3,517          3,517         229,661          973,575
Income tax provision
 (benefit)..................        (146,547)       135,001         290,338          773,385

Segment assets..............         488,140      4,954,499       1,860,751       23,703,504
Capital expenditures........          73,097         89,530          28,445        1,377,009
</TABLE>


<TABLE>
<CAPTION>
                                       Paula       Especially      Paula's      Corporate         Total SC      Western
                                       Young         Yours         Hatbox       Expenses           Direct       Schools
                                       -----         -----         ------       --------           ------       -------
<S>                                  <C>            <C>           <C>          <C>               <C>              <C>
       1999
Net sales (including
  royalties....................      $28,623,097    $5,557,564    $2,833,709   $         --      $37,014,370      $4,326,888
Shipping & handling
  income.......................        4,737,847       872,417       431,611             --        6,041,875         785,121
                                     -----------    ----------    ----------   ------------      -----------      ----------
Total revenues.................       33,360,944     6,429,981     3,265,320                      43,056,245       5,112,009
Gross profit...................       21,712,460     3,810,056       909,075       (232,455)      26,199,136       3,639,002
Operating expenses.............       12,792,835     3,680,678     2,844,866      5,531,387       24,849,766       2,802,061
Depreciation and
  amortization.................               --            --            --        627,157          627,157          44,461
                                     -----------    ----------    ----------   ------------      -----------      ----------
Income (loss) from
  operations...................        8,919,625       129,378    (1,935,791)    (6,390,999)         722,213         792,480
Interest expense, net..........               --            --            --        535,375          535,375              --
Income tax provision
  (benefit)....................               --            --            --        140,605          140,605         324,916

Segment assets.................               --            --            --     16,494,808       16,494,808       4,084,173
Capital expenditures...........               --            --            --      1,687,039        1,687,039           8,661

 <CAPTION>
                                                          Total SC
                                               AHI       Publishing       Daxbourne            Total
                                               ---       ----------       ---------            -----
<S>                                        <C>          <C>               <C>              <C>
           1999
Net sales (including
  royalties..........................      $886,690     $5,213,578        $5,381,300       $47,609,248
Shipping & handling
  income.............................            --        785,121            38,338         6,865,334
                                           --------     ----------        ----------       -----------
Total revenues.......................       886,690      5,998,699         5,419,638        54,474,582
Gross profit.........................       576,593      4,215,595         3,722,268        34,136,999
Operating expenses...................       573,456      3,375,517         2,594,379        30,819,662
Depreciation and
  amortization.......................        28,341         72,802           370,760         1,070,719
                                           --------     ----------        ----------       -----------
Income (loss) from
  operations.........................      (25,204)        767,276           757,129         2,246,618
Interest expense, net................           --              --           258,790           794,165

Income tax provision
  (benefit)..........................      (10,334)        314,582           197,780           652,967

Segment assets.......................       425,903      4,510,076         4,418,393        25,423,277
Capital expenditures.................        80,107         88,768            69,160         1,844,967
</TABLE>

                                       39
<PAGE>

                                  SPECIALTY CATALOG CORP.
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                       Paula        Especially       Paula's     Corporate          Total SC        Western
                                       Young          Yours          Hatbox      Expenses            Direct         Schools
                                       -----          -----          ------      --------            ------         -------
<S>                                  <C>             <C>             <C>          <C>               <C>             <C>
           1998
Net sales (including
  Royalties......................    $32,979,626     $3,634,695      $3,438,200   $        --       $40,052,521     $3,711,181
Shipping & handling
  income.........................      5,104,102        544,906         467,051            --         6,116,059        567,938
                                     -----------     ----------      ----------   -----------       -----------     ----------
Total revenues...................     38,083,728      4,179,601       3,905,251            --        46,168,580      4,279,119
Gross profit.....................     24,722,185      1,998,412       1,765,131      (235,168)       28,250,560      2,892,093
Operating expenses...............     13,964,167      2,818,773       3,110,169     5,616,092        25,509,201      2,559,474
Depreciation and
  amortization...................             --             --              --       327,870           327,870         27,704
                                     -----------     ----------      ----------   -----------       -----------     ----------
Income (loss) from
  operations.....................     10,758,018       (820,361)     (1,345,038)   (6,179,130)        2,413,489        304,915
Interest expense, net............             --             --              --       530,001           530,001            ---
Income tax provision
  (benefit)......................             --             --              --       772,528           772,528        125,013

Segment assets...................             --             --              --    14,747,288        14,747,288      3,614,759
Capital expenditures.............             --             --              --     1,119,713         1,119,713         21,122

<CAPTION>
                                                             Total SC
                                          AHI          Publishing     Daxbourne        Total
                                          ---          ----------     ---------        -----
<S>                                      <C>            <C>            <C>            <C>
          1998
  Net sales (including
    Royalties....................         $  --        $3,711,181     $5,119,850     $48,883,552
  Shipping & handling
    income.......................            --           567,938         23,608       6,707,605
                                          -----        ----------     ----------     -----------
  Total revenues.................            --         4,279,119      5,143,458      55,591,157
  Gross profit...................            --         2,892,093      3,555,561      34,698,214
  Operating expenses.............            --         2,559,474      2,344,340      30,413,015
  Depreciation and
    amortization.................            --            27,704        390,357         745,931
                                          -----        ----------     ----------     -----------
  Income (loss) from
    operations...................            --           304,915        820,864       3,539,268
  Interest expense, net..........            --                --        341,892         871,893
  Income tax provision
    (benefit)....................            --           125,013        198,453       1,095,994

  Segment assets.................            --         3,614,759      4,682,424      23,044,471
  Capital expenditures...........            --            21,122         48,070       1,188,905
</TABLE>

                                       40
<PAGE>

                            SPECIALTY CATALOG CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.    Selected Quarterly Financial Data (1) (unaudited):

<TABLE>
<CAPTION>
                         2000                                1/st/ Quarter    2/nd/ Quarter     3/rd/ Quarter     4/th/ Quarter
                         ----                                -------------    -------------     -------------     -------------
<S>                                                          <C>              <C>               <C>               <C>
Net sales .............................................       $16,070,125      $16,661,394       $13,475,795       $14,684,798
Gross profit ..........................................        10,245,589       10,822,438         8,406,632         9,415,130
Net income (loss) .....................................           (39,629)         776,115            67,272           308,373
Earnings (loss) per share - Basic EPS
     Net income (loss).................................       $     (0.01)     $      0.18       $      0.02       $      0.07
     Weighted average shares outstanding...............         4,351,386        4,340,353         4,337,886         4,337,886
Earnings (loss) per share - Diluted EPS
     Net income (loss).................................       $     (0.01)     $      0.17       $      0.01       $      0.07
     Weighted average shares outstanding...............         4,351,386        4,615,365         4,643,556         4,491,358

<CAPTION>
                         1999                                1/st/ Quarter    2/nd/ Quarter     3/rd/ Quarter     4/th/ Quarter
                         ----                                -------------    -------------     -------------     -------------
<S>                                                          <C>              <C>               <C>               <C>
Net sales (2)..........................................       $15,154,754      $14,059,624       $11,672,611       $13,587,593
Gross profit (2).......................................         9,724,590        9,107,795         7,410,472         7,894,142
Net income (loss) (2)..................................           497,168          864,398           (74,525)         (487,555)
Earnings (loss) per share - Basic EPS
     Net income (loss).................................       $      0.11      $      0.20       $     (0.02)      $     (0.11)
     Weighted average shares outstanding...............         4,440,264        4,417,718         4,399,955         4,351,386
Earnings (loss) per share - Diluted EPS
     Net income (loss).................................       $      0.11      $      0.18       $     (0.02)      $     (0.11)
     Weighted average shares outstanding                        4,723,636        4,698,616         4,399,955         4,351,386

<CAPTION>
                         1998                                1/st/ Quarter    2/nd/ Quarter     3/rd/ Quarter     4/th/ Quarter
                         ----                                -------------    -------------     -------------     -------------
<S>                                                          <C>              <C>               <C>               <C>
Net sales .............................................       $15,119,625      $15,079,614       $12,544,184       $12,847,734
Gross profit...........................................         9,447,074        9,539,183         7,934,045         7,777,912
Net income (loss)......................................          (375,053)       1,134,911           319,544           491,979
Earnings (loss) per share - Basic EPS
     Net income (loss).................................            ($0.07)     $      0.22       $      0.06       $      0.10
     Weighted average shares outstanding...............         5,042,386        5,057,001         5,057,001         4,979,282
Earnings (loss) per share - Diluted EPS
     Net income (loss).................................            ($0.07)     $      0.21       $      0.06       $      0.09
     Weighted average shares outstanding...............         5,042,386        5,529,354         5,517,927         5,409,539
</TABLE>

(1)  Emerging Issues Task Force ("EITF") Issue 00-10, "Accounting for Shipping
and Handling Fees and Costs", requires that shipping and handling fees, billed
to a customer in a sale transaction, should be classified as part of revenues.
This consensus had to be adopted no later than the fourth quarter of 2000. The
Company has restated its consolidated statements of operations for the fiscal
years ended December 30, 2000, January 1, 2000 and January 2, 1999 by
reclassifying all shipping and handling income from cost of sales and operating
expenses to revenues.

(2)  The fiscal year ended January 1, 2000 includes four months of activity of
AHI, which was acquired by the Company on September 10, 1999. For the four
months ended January 1, 2000, AHI had net sales of $886,690, gross profit of
$256,905 and a net loss of $14,870.

17.  Subsequent Events

     On January 19, 2001, the Company and the Bank entered into an Interest Rate
Swap Agreement based on a notional principal balance of $4.5 million. Under the
interest rate swap agreement, the Company receives quarterly LIBOR-based
interest rate payments from the Bank, and pays interest quarterly at a fixed
rate of 5.57% to the Bank. These

                                      41
<PAGE>

interest rate payments are settled net with the Bank. The agreement is effective
for a period of two years and terminates on January 19, 2003.

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     On January 26, 2001, Daxbourne acquired the women's wig and hairpiece
business of the Company's British licensee. The licensee had been the exclusive
British licensee of the Company's Paula Young brand of women's wigs and
hairpieces since 1994. During the term of the license agreement the licensee
developed and circulated the Paula Young Fashion Wigs catalog using the
                             ------------------------
merchandising and creative resources of the Company, thereby establishing Paula
Young as a preeminent brand in Britain with a loyal customer following. The
acquisition agreement provides for the termination of the 1994 license agreement
and transfer of the assets of the Paula Young Fashion Wigs catalog business to
                                  ------------------------
Daxbourne. Daxbourne's catalog division will now circulate both catalogs --
continuing to circulate its Jacqueline Collection catalog and the Paula Young
                            ---------------------                 -----------
Fashion Wigs catalog.
------------

     On February 3, 2001, AHI moved from Wheaton, Maryland to the Company's
headquarters in South Easton, Massachusetts.



     ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

     This Amendment No. 1 to Form 10-K for the fiscal year ended December 30,
2000 is being filed by Specialty Catalog Corp. (the "Company") primarily to
include information called for pursuant to Part III, Items 10, 11, 12 and 13
within 120 days after the end of the fiscal year ended December 30, 2000.


                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth the name, age and position of each of our
directors and, executive officers as of April 23, 2001. Each director will hold
office until the next annual meeting of our stockholders or until his or her
successor has been elected and qualified. Our executive officers are appointed
by and serve at the discretion of, the board of directors.

<TABLE>
<CAPTION>
  Name                           Age          Office Held
  ----                           ---          -----------
  <S>                            <C>          <C>
  Joseph Grabowski               54           President and Chief Executive Officer
  Thomas McCain                  52           Senior Vice President and Chief Financial Officer
  David Cicurel                  51           Director
  Martin E. Franklin             36           Director
  Samuel L. Katz                 35           Director
  David L. Moore                 45           Director
  Guy Naggar                     60           Director
</TABLE>

                                      42
<PAGE>

   Joseph Grabowski has been Chief Executive Officer of the Company since July
1, 2000 and has been President of the Company since May 8, 2000. Prior to
joining the Company, Mr. Grabowski was president and chief executive officer of
Carol Wright Gifts, a general merchandise and specialty product catalog company.
From January 1996 to September 1997, Mr. Grabowski was president and chief
executive officer of Brownstone Studios, a women's apparel catalog company. Mr.
Grabowski's previous experience in direct marketing and catalog retailing
includes senior-level positions at Haband, J. Crew, Inc. and Doubleday and Co.
Mr. Grabowski received his BA degree in Economics and his MBA degree from
Rutgers University.

   Thomas K. McCain has been Senior Vice President and Chief Financial Officer
of the Company since June 1999. From October 1998 to June 1999, Mr. McCain was
Senior Vice President of Finance and Chief Financial Officer of Paul Harris
Stores, Inc. Prior to October 1998, Mr. McCain was employed by Edison Brothers
Stores, Inc., for more than five years, as Vice President and Controller, Vice
President of Tax and Financial Reporting, Vice President of Tax and Treasury,
Vice President of Tax and Assistant Treasurer prior to May 1996. He graduated
with a BS degree from Southeast Missouri State University and received his MBA
degree from the John M. Olin School of Business at Washington University in St.
Louis.

   David E. Cicurel has served as one of our directors since June 1999. Mr.
Cicurel is a consultant with substantial experience in restructuring both
publicly-held and privately-held companies. He restructured and took private
Continental Foods plc., a snack foods company that was listed on the
International Stock Exchange. He also restructured International Communication &
Data plc., a U.K. listed consumer database company. He is also an outside
director of Dawnay Day & Co. Limited, a U.K. investment bank.

   Martin E. Franklin has served as one of our directors since November 1994.
Mr. Franklin has been Chairman and Chief Executive Officer of Marlin Holdings,
LLC and the general partner of Marlin Capital, L.P., a private investment firm
since October 1996. From February 1997 through February 2000, Mr. Franklin
served as Chairman of the Board of Directors of Bolle Inc., an AMEX company,
which is a manufacturer, marketer and distributor of premium eyewear. From May
1996 until March 1998, Mr. Franklin served as Chairman and Chief Executive
Officer of Lumen Technologies, Inc., a NYSE company, which is a manufacturer and
distributor of specialty lighting equipment, and served as Executive Chairman of
Lumen Technologies, Inc. from March 1998 until December 1998. Mr. Franklin was
Chairman of the Board and Chief Executive Officer of Lumen's predecessor, Benson
Eyecare Corporation, from October 1992 to May 1996 and President of Benson
Eyecare Corporation from November 1993 until May 1996. Mr. Franklin was non-
executive Chairman and a director of Eyecare Products plc, a London Stock
Exchange Company, from December 1993 until February 1999. Mr. Franklin has
served as a director of Corporate Express, Inc., a NASDAQ listed company from
March 1999 through November 1999. Mr. Franklin also serves on the boards of a
number of privately held companies and charitable organizations. Mr. Franklin
received a B.A. in Political Science from the University of Pennsylvania in
1986.

   Samuel L. Katz has served as one of our directors since November 1994. Mr.
Katz has been Senior Executive Vice President of Strategic and Business
Development of Cendant Corporation since January, 2001. Cendant Corporation is a
public company engaged in the real estate, travel and direct marketing
industries. Mr. Katz has been Chief Executive Officer of the Cendant Internet
Group, a division of Cendant Corporation, since January 2000. Mr. Katz was
Senior Executive Vice President, Strategic Development of Cendant Corporation
from July 1999 to January 2000, Executive Vice President, Strategic Development
of Cendant Corporation from April 1998 until January 2000, and Senior Vice
President, Acquisitions of Cendant Corporation from December 1998 to March 1998.
Mr. Katz was Senior Vice President, Acquisitions of HFS Incorporated, a
predecessor of Cendant Corporation, from January 1996 to April 1998. From June
1993 to December 1995, Mr. Katz was Vice President of Dickstein Partners Inc., a
private investment firm. Mr. Katz is a director NRT Incorporated. Mr. Katz
received his B.A. in Economics from Columbia University in 1986.

   David L. Moore has served as one of our directors since April 2001. Since
March of 1997, he has been Chairman of Sonostar Ventures, LLC, an investment and
venture capital firm. From 1998 through December 2000 he was chairman of
Paradigm Direct, LLC, a direct marketing firm specializing in customer
acquisition in the telecommunications, wireless and credit card industries. Over
the past ten years, Mr. Moore has been Chairman and Chief Executive Officer of
Garden State Brickface, Inc., a leading New York metropolitan area residential
and commercial remodeling firm and Chairman of US Remodelers, Inc., the
country's largest direct marketer of kitchen

                                      43
<PAGE>

cabinet refacing. He also serves on the boards of a number of privately-held
companies and charitable organizations. Mr. Moore received his BA in Economics
from Amherst College and his MBA from Harvard University.

     Guy Naggar has served as one of our directors since November 1994. Mr.
Naggar has been Chairman of Dawnay, Day & Co. Limited, a U.K. investment bank,
since 1981. Mr. Naggar has also been the Chairman of Delyn Group Plc, a U.K.
listed company, since March 1998. Immediately prior to becoming Chairman of
Dawnay, Day & Co. Limited, Mr. Naggar was a Director of the Charterhouse Group
Limited and of its subsidiary, Charterhouse Japhet Limited. Mr. Naggar sits on
various other private company boards.

                  INFORMATION CONCERNING DIRECTOR COMPENSATION

           AND MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES

     As compensation for service as director, each non-employee director
receives cash compensation and discretionary stock option grants. The annual
cash compensation to each non-employee director is $15,000 plus out of pocket
expenses payable quarterly. Pursuant to the Company's 2000 Stock Incentive Plan
(the "2000 Plan"), discretionary stock option grants can be made to the members
of the Board. The following options were granted to each of the directors in
2000:


<TABLE>
<CAPTION>
             Director          Date                   Options         Exercise     Vesting
                                                      Granted          Price       Period
          <S>                <C>                      <C>             <C>         <C>
          David Cicurel      August 25, 2000          10,000           $2.50      3 years
          Martin Franklin    June 22, 2000            50,000           $2.50      3 years
          Samuel Katz        June 22, 2000            10,000           $2.50      3 years
          Guy Naggar         August 25, 2000          10,000           $2.50      3 years
</TABLE>


     The Board of Directors held four meetings during 2000, and each director
attended at least 75% of the aggregate of such meetings of the Board and all
committees of the Board on which he served.


Committees of the Board of Directors

     The Board of Directors has established an Audit Committee consisting of
David Cicurel, Martin Franklin and Samuel L. Katz. Mr. Franklin serves as the
chairman of the committee. The Audit Committee is responsible for recommending
to the Board of Directors the appointment of the Company's outside auditors,
examining the results of audits, reviewing internal accounting controls and
reviewing related party transactions. The Audit Committee held four meetings in
2000.

     The Board of Directors has also established a Compensation Committee
consisting of David Cicurel, Martin Franklin and Samuel Katz. Mr. Franklin
serves as chairman of the committee. The Compensation Committee held one meeting
in 2000. The Company does not have a nominating committee or a committee serving
a similar purpose.

Compensation Committee Interlocks and Insider Participation

     No person serving on the Compensation Committee at any time during fiscal
year 2000 was a present or former officer or employee of the Company or any of
its subsidiaries. During fiscal year 2000, no executive officer of the Company
served as a member of the board of directors or compensation committee (or other
board committee performing equivalent functions) of another entity, in which any
executive officer served on the Company's Board of Directors or Compensation
Committee.

                                      44
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     The table below sets forth certain compensation information for the fiscal
years ended December 30, 2000, January 1, 2000 and January 2, 1999, with respect
to the Company's Chief Executive Officer and those other executive officers of
the Company who were the most highly paid for fiscal 2000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                      Long-Term
                                                                       Annual Compensation           Compensation
                                                                     ----------------------          ------------
                                                                                                      Securities
                                                 Fiscal                                               Underlying
     Name and Principal Positions                 Year          Salary ($)        Bonus ($)            Options
     ----------------------------                 ----          ----------        ---------            -------
<S>                                              <C>            <C>               <C>                <C>
Joseph Grabowski............................      2000           $189,955   (1)      --                250,000   (2)
   Chief Executive Officer
   And President (1)

Thomas K. McCain............................      2000           $175,052         $ 25,000              20,000   (2)
     Senior Vice President/Chief                  1999           $ 83,153   (3)      --                 50,000   (4)
     Financial Officer (3)

Steven L. Bock..............................      2000           $169,245         $500,000  (5)          --
     Chairman, Chief Executive Officer            1999           $302,872            --                  --
     and President (5)                            1998           $300,678            --                  --
</TABLE>

1)   Mr. Grabowski commenced employment with the Company on May 8, 2000 as
President. On July 1, 2000, Mr. Grabowski assumed the role of Chief Executive
Officer upon the resignation of his predecessor, Steven L. Bock.

2)   Represents shares underlying options under the 2000 Plan granted in June
2000 at an exercise price of $2.50 per share, which become exercisable over a
three-year period.

3)   Mr. McCain commenced employment with the Company on June 21, 1999 as the
Senior Vice President and Chief Financial Officer. He replaced Mr. J. William
Heise who resigned from the Company in June 1999.

4)   Represents shares underlying options under the 1996 Plan granted in June
1999 at an exercise price of $6.50 per share, which become exercisable over a
five-year period.

5)   Mr. Bock resigned from his position as President on May 7, 2000 and as
Chief Executive Officer on June 30, 2000. As part of the Second Amendment to his
employment agreement with the Company, Mr. Bock received a one-year severance of
$325,000 and "stay bonuses" of $175,000.

                                      45
<PAGE>

Option Grants in Last Fiscal Year

     The following table sets forth information regarding options granted
during fiscal 2000 to the Chief Executive Officer and the Company's other most
highly compensated executive officers. In accordance with the rules of the
Commission, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their terms. These gains are based on
assumed rates of annual compound stock price appreciation of the Company's
Common Stock of 5% and 10% of the exercise price from the date the options were
granted to the end of the option terms.

<TABLE>
<CAPTION>
                                                                                                  Potential Realizable
                                    Individual     Percentage                                       Value at Assumed
                                      Grants        of Total                                         Annual Rates of
                                    Number of       Options                                            Stock Price
                                    Securities     Granted to    Exercise                           Appreciation for
                                    Underlying     Employees      Price                                Option Term
                                     Options       in Fiscal       Per        Expiration               -----------
Name                               Granted (#)        2000        Share          Date             5%                10%
----                               -----------        ----        -----          ----             --                ---
<S>                                <C>             <C>            <C>         <C>               <C>               <C>
Joseph Grabowski                    250,000 (1)      72.99%       $2.50         6/22/10         $393,059          $996,089
Thomas K. McCain                     20,000 (1)       5.84%       $2.50         6/22/10         $ 31,445          $ 79,687
</TABLE>

(1)  On June 22, 2000, grants of 250,000 and 20,000 stock options under the 2000
Plan at an exercise price of $2.50 per share were made to Joseph Grabowski and
Thomas McCain, respectively. As of June 22, 2000, the fair market value of the
Company's common stock was $2.50 per share. No other grants of stock options
were made to any other of the Company's named executive officers in the last
fiscal year.

Aggregated Option Exercises And Year End Option Values

     The following table sets forth information as to options exercised during
the fiscal year ended December 30, 2000, and unexercised options held at the end
of such fiscal year, by the individuals listed in the Summary Compensation
Table.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                                                              Number of Shares Underlying            Value of Unexercised
                                                                      Unexercised                    In-the-Money Options
                                                             Options at December 30, 2000        at December 30, 2000 ($)(1)
                                                            ------------------------------      -----------------------------
                                 Shares
                              Acquired on      Value
Name                            Exercise      Realized      Exercisable      Unexercisable      Exercisable     Unexercisable
----                            --------      --------      -----------      -------------      -----------     -------------
<S>                           <C>             <C>           <C>              <C>                <C>             <C>
Joseph Grabowski (2)              --             --             --              250,000          $   --            $  --
Thomas K. McCain (3)              --             --             --               20,000              --               --
Thomas K. McCain (4)              --             --           10,000             40,000              --               --
Steven L. Bock (5)                --             --          310,226               --              525,151            --
Steven L. Bock (5)                --             --           75,000               --                --               --
</TABLE>

(1)  Value is based on the closing sale price of $2.00 per share of the Common
Stock as of December 29, 2000 (the last trading date during fiscal year 2000)
minus the exercise price.

(2)  Mr. Grabowski commenced employment with the Company on May 8, 2000 as
President. On July 1, 2000, Mr. Grabowski assumed the role of Chief Executive
Officer upon the resignation of his predecessor, Steven L. Bock. Represents
shares underlying options under the 2000 Plan granted in June 2000 at an
exercise price of $2.50 per share, which become exercisable over a three-year
period.

(3)  Represents shares underlying options under the 2000 Plan granted in June
2000 at an exercise price of $2.50 per share, which become exercisable over a
three-year period.

                                      46
<PAGE>

(4)  Represents shares underlying options granted under the 1996 Plan in June
1999 at an exercise price of $6.50 per share, which become exercisable over a
five-year period.

(5)  Mr. Bock resigned from his position as President on May 7, 2000 and as
Chief Executive Officer on June 30, 2000. As part of the Second Amendment to his
employment agreement with the Company, Mr. Bock's stock options listed above
became fully vested. The 310,226 stock options represent shares underlying
options granted under a non-qualified stock option plan at an exercise price of
$0.3072 per share. The 75,000 stock options represent shares underlying options
granted under the 1996 Plan at an exercise price of $5.33 per share.

Employment Agreements

     Employment and Bonus Agreements -- On May 9, 2000, the Company announced
the appointment of Joseph J. Grabowski as president of the Company effective as
of May 8, 2000. On July 1, 2000, Mr. Grabowski assumed the title of CEO,
replacing Steven L. Bock whose resignation was effective June 30, 2000.

     The term of the executive employment agreement (the "Employment Agreement")
between the Company and Mr. Grabowski commenced on May 8, 2000 and, unless
extended, terminates on May 7, 2002 (the "Initial Term"). Under this Employment
Agreement, Mr. Grabowski will receive an annual salary of $300,000, along with
other benefits. Mr. Grabowski will be eligible for a performance bonus of up to
100 percent of his annual salary, based upon the Company's performance as
compared against the annual performance plan. Upon executing this agreement, Mr.
Grabowski was granted options under the 2000 Stock Incentive Plan to purchase
250,000 shares of common stock of the Company at $2.50 per share, the then fair
market value of the stock. Mr. Grabowski is also eligible to receive an
additional grant of 250,000 stock options, at a price which shall equal the Fair
Market Value on the date of the grant, as defined in the 2000 Stock Incentive
Plan, after the end of the first fiscal year in which the Company's gross
revenues exceed $120,000,000.

     The Company may terminate Mr. Grabowski's employment upon his death or
permanent disability, or if he engages in conduct that constitutes "cause" under
the Employment Agreement. Mr. Grabowski may terminate his employment for "Good
Reason" as defined in the Employment Agreement. In the event Mr. Grabowski's
employment is terminated by the Company other than for "cause", Mr. Grabowski
will receive a "Termination Payment" as defined in the Employment Agreement. The
Employment Agreement contains non-competition and other restrictions effective
during the term of employment and for a one-year period thereafter.

Section 16(a) Beneficial Ownership Reporting Compliance

     Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors and certain of its officers and persons holding more than
ten percent of the Company's Common Stock are required to report their ownership
of the Common Stock and any changes in such ownership to the Securities and
Exchange Commission and the Company. Based on the Company's review of copies of
such reports, no untimely reports were made during the fiscal year ended
December 30, 2000.

                                      47
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table and footnotes sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of April 23, 2001, by:
(i) each person known by the Company to own beneficially five per cent or more
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table and (iv) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares, except as may be otherwise noted in the footnotes
hereto. Unless otherwise indicated, the address of each person named in the
table below is c/o Specialty Catalog Corp., 21 Bristol Drive, South Easton, MA
02375.

<TABLE>
<CAPTION>
                                                            Number of Shares
                                                              Beneficially
              Name                                               Owned            Percentage (1)
              ----                                               -----            --------------
              <S>                                           <C>                   <C>
              Joseph Grabowski...........................      94,333 (2)               2.13%

              Thomas K. McCain...........................      38,267 (3)                   *

              David E. Cicurel...........................      42,611 (4)                   *
                 David Cicurel Investments Limited
                 14 New Burlington Street
                 London, England W1X 1FF

              Martin E. Franklin.........................     368,955 (5)               8.46%
                 Marlin Holdings, LLC
                 555 Theodore Fremd Avenue
                 Rye, New York 10580

              Samuel L. Katz.............................      98,009 (6)               2.26%
                 Cendant Corporation
                 9 West 57/th/ Street
                 New York, New York 10019

             David L. Moore.............................            0                      *
                 Sonostar Ventures, LLC
                 2 Executive Drive, Suite 900
                 Fort Lee, NJ 07024

              Guy Naggar.................................     405,767 (7)               9.35%
                 Dawnay, Day & Co., Ltd.
                 15 Grosvenor Gardens
                 London, England SW1W 0BD

              Steven L. Bock.............................     425,160 (8)               9.00%
                 10 Graystone Lane
                  Weston, MA 02193

              Golub Associates Inc.......................     602,689 (9)              13.89%
                 555 Madison Ave. 30/th/ Floor
                 New York, New York 10022

              Alexander Enterprise Holding Corp..........     249,400 (10)              5.75%
                 499 Park Avenue
                 New York, New York 10022
</TABLE>

                                      48
<PAGE>

<TABLE>
<CAPTION>
                                                                             Number of Shares
                                                                              Beneficially
        Name                                                                     Owned            Percentage (1)
        ----                                                                     -----            --------------
        <S>                                                                  <C>                  <C>
        Marion Naggar's Children Settlement Trust.................            733,966 (11)              16.92%
           Abacus (CI) Limited. ..................................            733,966 (11)              16.92%
           Abacus Trustees (Jersey) Limited.......................            733,966 (11)              16.92%
           First Global Holdings Limited..........................            244,655 (11)               5.64%
              Geneva Place, 2/nd/ Floor
              Wickham's Cay
              Road Town
              Tortola
              British Virgin Islands
           Oracle Investments & Holdings Limited..................            244,656 (11)               5.64%
              Geneva Place, 2/nd/ Floor
              Wickham's Cay
              Road Town
              Tortola
              British Virgin Islands
           Ionic Holdings LDC.....................................            244,655 (11)               5.64%
              Butterfield House
              Fort Street
              Box 219
              George Town, Grand Cayman
              Cayman Islands

        Wynnefield Partners Small Cap Value, L.P. ................            550,699 (12)              12.70%
              450 Seventh Avenue, Suite 509
              New York, New York 10123
           Wynnefield Partners Small Cap Value, L.P.I..............           244,550 (12)               5.64%
              450 Seventh Avenue, Suite 509
              New York, New York 10123
           Wynnefield Small Cap Value Offshore
              Fund, Ltd. .........................................            102,600 (12)               2.37%
              450 Seventh Avenue, Suite 509
              New York, New York 10123

        All executive officers and directors as a group (7
        persons)..................................................          1,047,942 (13)              23.38%
</TABLE>

        * Indicates less than 1%

(1)     Applicable percentage of ownership is based upon 4,337,886 shares
outstanding. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission (the "Commission") and generally includes
voting and investment power with respect to securities. Shares of Common Stock
issued upon the exercise of options and warrants currently exercisable or
exercisable within 60 days are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other person.

(2)     Includes 83,333 shares of Common Stock underlying stock options under
the 2000 Stock Incentive Plan (the "2000 Plan") that are exercisable June 22,
2001 at a price of $2.50 per share.

                                      49

<PAGE>

(3)  Includes 6,667 shares of Common Stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 20,000 shares of Common Stock underlying stock options under the 1996
Stock Incentive Plan (the "1996 Plan") that are exercisable June 21, 2001 at a
price of $6.50 per share. Includes 1,600 shares held in trust for Mr. McCain's
son, with respect to which he disclaims beneficial ownership.

(4)  Includes 2,500 shares of Common Stock underlying stock options under the
1996 Plan that are exercisable at a price of $6.50 per share.

(5)  Includes 16,667 shares of Common Stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 4,100 shares of Common Stock underlying stock options issued under the
1996 Plan that are exercisable at a price of $6.50 per share. Includes 15,000
shares held in trust for Mr. Franklin's minor children, with respect to which he
disclaims beneficial ownership.

(6)  Includes 3,333 shares of Common Stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per share.
Includes 4,100 shares of Common Stock underlying stock options issued under the
1996 Plan that are exercisable at a price of $6.50 per share.

(7)  Includes 4,100 shares of Common Stock underlying stock options issued under
the 1996 Plan that are exercisable at a price of $6.50 per share.

(8)  Includes 310,226 shares of Common Stock underlying stock options which
became exercisable upon the consummation of the Company's initial public
offering at a price of $0.3072 per share; and 75,000 shares of Common Stock
underlying stock options which became exercisable upon his termination from the
Company at a price of $5.33 per share.

(9)  LEG Partners III SBIC, L.P. ("LEG Partners") beneficially owns the 602,689
shares. Golub Associates, Inc. ("GAI") provides administrative and operational
services to LEG Partners. Golub PS-GP, LLC is the general partner of LEG
Partners. Lawrence E. Golub is the managing member of Golub PS-GP, LLC and the
president of GAI. Each of LEG Partners, Golub PS-GP, LLC and Lawrence E. Golub
may be deemed the beneficial owner of the 602,689 shares.

(10) Nicolas Berggruen, in his capacity as investment advisor, may be deemed to
beneficially own 249,400 shares which are held of record by Alexander Enterprise
Holding Corp., a British Virgin Islands corporation. Alexander Enterprise
Holding Corp. has the right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, such securities.


(11) Of the 733,966 total shares reported as beneficially owned by the Marion
Naggar's Children Settlement Trust (the "Trust"), First Global Holdings Ltd.
("First Global") owns beneficially 244,655 of such shares, Oracle Investments &
Holdings Ltd. ("Oracle") owns beneficially 244,656 of such shares and Ionic
Holdings LDC ("Ionic") owns beneficially 244,655 of such shares. Marion Naggar
is the spouse of Guy Naggar, a director and beneficial shareholder of the
Company. The Trust is the sole shareholder of each of Oracle, First Global and
Ionic. Abacus (CI) Limited and Abacus Trustees (Jersey) Limited are the trustees
of the Trust, and share power over the activities of the Trust. Abacus (CI)
Limited and Abacus Trustees (Jersey) Limited have no direct voting or
dispositive power over shares held by the Trust, but have the power to direct
the Trust to appoint directors of Oracle, First Global and Ionic and accordingly
may be deemed to be the beneficial owners of shares owned by each of Oracle,
First Global and Ionic. Abacus (CI) Limited and Abacus Trustees (Jersey) Limited
serve as trustees in a fiduciary capacity and disclaim any beneficial ownership
over any shares held by the Trust. First Global Holdings Limited disclaims
beneficial ownership of the 244,656 shares owned by Oracle Investments &
Holdings Limited and the 244,655 shares owned by Ionic Holdings LDC. Oracle
Investments & Holdings Limited disclaims beneficial ownership of the 244,655
shares owned by First Global Holdings Limited and the 244,655 shares owned by
Ionic Holdings LDC. Ionic Holdings LDC disclaims beneficial ownership of the
244,655 shares owned by First Global Holdings Limited and the 244,656 shares
owned by Oracle Investments & Holdings Limited.

                                      50
<PAGE>

(12)  Wynnefield Partners Small Cap Value L.P. ("WPLP"), in its capacity as
investment adviser, may be deemed to beneficially own 203,549 shares that are
held of record by clients of WPLP. Those clients have the right to receive, or
the power to direct the receipt of, dividends from, or the proceeds from the
sale of, such securities. Wynnefield Partners Small Cap Value L.P.I. ("WPLPI"),
in its capacity as investment adviser, may be deemed to beneficially own 244,560
shares that are held of record by clients of WPLPI. Those clients have the right
to receive, or the power to direct the receipt of, dividends from, or the
proceeds from the sale of, such securities. Wynnefield Small Cap Offshore Fund
Ltd. ("WOFL"), in its capacity as investment adviser, may be deemed to
beneficially own 102,600 shares that are held of record by clients of WOFL.
Those clients have the right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, such securities. WPLP
disclaims beneficial ownership of the 244,560 shares and 102,600 shares that may
be deemed to be beneficially owned by WPLPI and WOFL, respectively. WPLPI
disclaims beneficial ownership of the 203,549 shares and 102,600 shares which
may be deemed to be beneficially owned by WPLP and WOFL, respectively. WOFL
disclaims beneficial ownership of the 203,549 shares and 244,560 shares which
may be deemed to be beneficially owned by WPLP and WPLPI, respectively.

(13)  Includes 144,801 shares of Common Stock underlying stock options that are
currently exercisable.

      The Company is not aware of any material proceedings to which any
director, executive officer or affiliate of the Company or any security holder,
including any owner of record or beneficially of more than 5% of any class of
the Company's voting securities, is a party adverse to the Company or has a
material interest adverse to the Company.

      The Company is not aware of any material pending legal proceedings, other
than ordinary routine litigation incidental to the business of the Company, to
which any director or officer of the Company is a party or of which any of their
property is the subject.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Note Receivable

      On June 21, 1999, the Company made an interest free loan to Thomas McCain,
the Company's Senior Vice President and Chief Financial Officer, in the
aggregate amount of $172,000 related to relocation costs and moving expenses.
The Company will forgive the loan on the third anniversary of his start date
with the Company. If Mr. McCain leaves the Company prior to the end of such
three-year period, or if his employment is terminated for cause prior to the end
of such three-year period, then he must repay the loan in full upon such
termination of employment with the Company.

Engagement of Marlin Holdings, LLC

      On February 16, 2001, pursuant to an agreement, the Company has engaged
Marlin Holdings, LLC ("Marlin") to assist the Company with the structure,
financing and coordination of any management buyout or other privatization
transaction. The agreement with Marlin provides for reimbursement of expenses
incurred by Marlin on any such endeavors, and payment of $250,000 upon closing
of a transaction, subject to downward adjustment as provided in the agreement.
Martin Franklin, a director of the Company, is Chairman and Chief Executive
Officer of Marlin.

                                       51
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  1.   FINANCIAL STATEMENTS

               The financial statements are listed and included under Part II,
               Item 8 of this Report.

          2.   FINANCIAL STATEMENT SCHEDULE

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            Column A         Column B         Column C         Column D        Column E
                                            --------         --------         --------         --------        --------
                                                                     Additions
                                                                     ---------
                                           Balance at       Charged to         Charged                          Balance
                                           beginning         costs and        to other                          at end
               Description                 of period         expenses         accounts        Deductions       of period
               -----------                 ---------         --------         --------        ----------       ---------
<S>                                        <C>              <C>             <C>               <C>              <C>
Year ended December 30, 2000:
   Allowance for doubtful accounts.......     $116,198         $ 21,372     $       --        $   97,779         $ 39,791
   Accrued restructuring charge..........     $ 27,091         $     --     $       --        $   27,091         $     --
   Reserve for returns...................     $701,385         $     --     $7,966,567        $8,309,098         $358,854
Year ended January 1, 2000:
   Allowance for doubtful accounts.......     $ 65,621         $ 67,005     $       --        $   16,428         $116,198
   Accrued restructuring charge..........     $ 99,301         $730,000     $       --        $  802,210         $ 27,091
   Reserve for returns...................     $452,635         $     --     $9,782,865        $9,534,115         $701,385
Year ended January 2, 1999:
   Allowance for doubtful accounts.......     $ 79,500         $ 17,000     $       --        $   30,879         $ 65,621
   Accrued restructuring charge..........     $     --         $469,558     $       --        $  370,257         $ 99,301
   Reserve for returns...................     $730,958         $     --     $7,625,322        $7,903,645         $452,635
</TABLE>

     All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted because
the information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.

          3.   EXHIBITS

               The exhibits are listed under Part IV, Item 14(C) of this Report.

     (b)  REPORTS ON FORM 8-K

          No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

     (c)  EXHIBITS

     EXHIBIT
       NO.                                DESCRIPTION
       ---                                -----------
       3.1        Certificate of Incorporation of the Registrant, as amended.
                  Filed as Exhibit 3.01 to Specialty Catalog Corp.'s Form S-1,
                  File No. 333-10793.
       3.2        By Laws of the Registrant, as amended. Filed as Exhibit 3.02
                  to Specialty Catalog Corp.'s Form S-1, File No. 333-10793.
       4.1        Specimen Certificate representing the Common Stock, par value
                  $0.01 per share. Filed as Exhibit 4.01 to Specialty Catalog
                  Corp.'s Form S-1, File No. 333-10793.
      10.1        Employment Agreement dated as of May 8, 2000 between the
                  Registrant and Joseph Grabowski. Filed as Exhibit 10.1 to
                  Specialty Catalog Corp.'s Form 10-Q, dated May 15, 2000.
      10.2        Rights Agreement between Specialty Catalog Corp. and
                  Continental Stock Transfer and Trust Company, as Rights Agent.
                  Filed as Exhibit 4.1 to Specialty Catalog Corp.'s Form 8-K,
                  dated April 11, 2000, file no. 0-21499.

                                       52
<PAGE>

      10.3       Amended and Restated Senior Credit Facilities dated December
                 27, 2000 between Fleet National Bank and the Registrant, Filed
                 as Exhibit 10.3 to Specialty Catalog Corp.'s Form 10-K, dated
                 March 30, 2001, File No. 0-21499.
      10.4       2000 Stock Incentive Plan. Filed as Appendix A to Specialty
                 Catalog Corp.'s Proxy Statement for its 2000 Annual Meeting.
      10.5       1996 Stock Option Plan. Filed as Exhibit 10.01 to Specialty
                 Catalog Corp.'s Form S-1, File No. 333-10793.
      10.6       Employment Agreement dated as of October 4, 1996 between the
                 Registrant and Steven L. Bock. Filed as Exhibit 10.02 to
                 Specialty Catalog Corp.'s Form S-1, File No. 333-10793.
      10.7       First Amendment to Employment Agreement dated as of June 24,
                 1999 between the Registrant and Steven L. Bock, Filed as
                 Exhibit 10.17 to Specialty Catalog Corp.'s Form 10-K, dated
                 March 28, 2000, File No. 0-21499.
      10.8       Second Amendment to Employment Agreement dated as of December
                 2, 1999 between the Registrant and Steven L. Bock, Filed as
                 Exhibit 10.18 to Specialty Catalog Corp.'s Form 10-K, dated
                 March 28, 2000, File No. 0-21499.
      10.9       Lease dated July 10, 1985 between Simon D. Young, Trustee of
                 the Sandpy Realty Trust, ("Trustee"), and SC Corporation (f/k/a
                 Wigs by Paula) for premises located at 21 Bristol Drive, South
                 Easton, MA. Filed as Exhibit 10.18 to Specialty Catalog Corp.'s
                 Form S-1, File No. 333-10793.
      10.10      First Amendment of Lease, dated March 15, 1986, between the
                 Trustee and SC Corporation. Filed as Exhibit 10.19 to Specialty
                 Catalog Corp.'s Form S-1, File No. 333-10793.
      10.11      Second Amendment to Lease, dated March 1, 1989, between the
                 Trustee and SC Corporation. Filed as Exhibit 10.20 to Specialty
                 Catalog Corp.'s Form S-1, File No. 333-10793.
      10.12      Third Amendment to Lease, dated October 22, 1993 between the
                 Trustee and SC Corporation. Filed as Exhibit 10.21 to Specialty
                 Catalog Corp.'s Form S-1, File No. 333-10793.
      10.13      Fourth Amendment to Lease, dated November 26, 1997 between the
                 Trustee and SC Corporation. Filed as Exhibit 10.41 to Specialty
                 Catalog Corp.'s Form 10-K, dated March 26, 1998, File No. 0-
                 21499.
      10.14      Supplemental Defined Contribution Plan. Filed as Exhibit 10.31
                 to Specialty Catalog Corp.'s Form S-1, File No. 333-10793.
      10.15      Net Building Lease dated March 7, 1997 between Campanelli
                 Investment Properties and the Registrant for premises located
                 at 128 Campanelli Industrial Drive, Brockton, MA. Filed as
                 Exhibit 10.36 to Specialty Catalog Corp.'s Form 10-K, dated
                 March 27, 1997, File No. 0-21499.
      10.16      Engagement letter dated February 16, 2001 between Marlin
                 Holdings, LLC and the Company, Filed herewith.
      21.1       Subsidiaries of the Registrant, Filed herewith.
      23.1       Consent of Deloitte & Touche LLP, Filed herewith.

                                       53
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                         SPECIALTY CATALOG CORP.

     Date: April 27, 2001                By: /s/ Joseph Grabowski
                                             ---------------------
                                             Joseph Grabowski
                                             President and
                                             Chief Executive Officer

     Date: April 27, 2001                By: /s/ Thomas McCain
                                             -----------------
                                             Thomas McCain
                                             Senior Vice President and
                                             Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated. By so signing, each of the undersigned, in his or her
capacity as a director or officer, or both, as the case may be, of the
Registrant, does hereby appoint Thomas K. McCain, and his or her true and lawful
attorneys or attorney to execute in his or her name, place and stead, in his or
her capacity as a director or officer or both, as the case may be, of the
Registrant, this report on Form 10-K and any and all amendments to said report
and all instruments necessary or incidental in connection therewith, and to file
the same with Securities and Exchange Commission. Said attorney shall have full
power and authority to do and perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and purposes as
each of the undersigned might or could do in person, hereby ratifying and
approving the acts of said attorney.

<TABLE>
<CAPTION>
            Signatures                                  Title                                  Date
            ----------                                  -----                                  ----
     <S>                            <C>                                                     <C>
      /s/ Joseph Grabowski          President and Chief Executive Officer (Principal        April 27, 2001
      ---------------------
         Joseph Grabowski           Executive Officer)

        /s/ Thomas McCain           Senior Vice President and Chief Financial               April 27, 2001
        ------------------
          Thomas McCain             Officer (Principal Financial and Accounting
                                    Officer)

     /s/ Martin E. Franklin         Director                                                April 27, 2001
     -----------------------
        Martin E. Franklin

        /s/ David Cicurel           Director                                                April 27, 2001
        ------------------
          David Cicurel

       /s/ Samuel L. Katz           Director                                                April 27, 2001
       -------------------
          Samuel L. Katz

         /s/ David L. Moore         Director                                                April 27, 2001
         ------------------
           David L. Moore

         /s/ Guy Naggar             Director                                                April 27, 2001
         ---------------
            Guy Naggar
</TABLE>

                                       54