Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended February 2, 2002

or

For the transition period from                                      to                                     

Commission File Number: 0-22834

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

Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock*
(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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on March 31, 2002, based upon the last reported sale price on that date on the Nasdaq National Market of $0.86 per share, was approximately $5,255,979.

        Registrant had 9,313,884 shares of its Common Stock outstanding as of May 14, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days of February 2, 2002, are incorporated by reference into Part III hereof.

*

Including rights related thereto

SUCCESSORIES, INC.

FORM 10-K

FISCAL YEAR ENDED FEBRUARY 2, 2002

TABLE OF CONTENTS

1

PART I

Item 1. Business

General

        Successories, Inc., an Illinois corporation, ("Successories" or the "Company") designs, manufactures and markets a diverse range of motivational and self-improvement products, most of which are the Company's own proprietary designs. The Company's products include distinctive lines of wall decor, desktop accessories, books and stationery, and personalized gifts and awards. Company personnel create proprietary art work and designs that can be used in conjunction with a wide variety of products. The Company will also customize its products to fulfill customers' special needs.

        The Company's products are marketed primarily under its Successories trade name through direct marketing (catalog, electronic commerce and telemarketing), retail (Company-owned stores), sales to franchisees, and wholesale distribution channels. The Company's products are marketed primarily to businesses.

        The operating subsidiaries (the "Subsidiaries") of the Company commenced operations in 1985. In October 1990, Primus Development Group II Ltd. ("Primus") acquired in excess of 90% of the stock of the Subsidiaries through a share exchange. The Company was formed in October 1990 as a wholly-owned subsidiary of Primus and, in February 1992, Primus merged into the Company. In March 1991 and April 1993, the Company acquired the remaining outstanding stock of the Subsidiaries through share exchanges.

Products

        A majority of the Company's sales are derived from proprietary products that have either been internally developed or designed, or individually customized. The artwork used in the Company's products is obtained from third parties through licensing rights. All products are designed to have a positive motivational or self-improvement theme that can be used by businesses and institutions to reinforce important work themes to motivate and recognize employees, and as gifts at meetings and conventions. The Company's products also appeal to many individuals for both personal and professional motivation and for gifts.

        The Company's proprietary wall decor product line includes dramatic photography and other art developed, designed or customized in-house, and printed on high-quality coated paper stock with various motivational captions. Company designers give each grouping of wall decor products a unique, uniform overall appearance, consistent visual themes, a range of predominant colors, and distinctive border design and lettering, thereby providing each grouping with a distinctive trade dress. Framed art comes with various framing and matting options. High-quality tempered glass is used for safety reasons and to protect against damage. The Company's wall decor includes framed and unframed lithographs in various sizes ranging from 16-inch by 20-inch to 20-inch by 36-inch. The Company's merchandise is categorized into the product "groupings" that convey a specific theme and trade dress.

        The Company markets smaller versions (5-inch by 7-inch to 6-inch by 12-inch) of its wall decor as well as other products designed to be placed on desktops and countertops. All desktop accessories contain motivational words and/or images.

        All books and stationery sold by the Company are specifically selected for their motivational or inspirational content and include those published by the Company as well as by third parties. The Company markets collections of motivational or inspirational quotations and educational books for sales, customer service, human resource and education personnel.

        The Company offers a wide variety of customized products to its customers. In-house custom capabilities include hot-stamping, silk screening, and engraving for logos and personalized messages.

2

Etched brass and crystal products are also available. Some of the products with customized features include employee awards, promotional items and corporate gifts.

        The Company has four reportable segments: Direct Marketing—Successories, Retail Company-owned stores, sales to Franchisees, and other segments (Direct Marketing,—Golf, Wholesale and Contract Framing). See Note 13 to the Company's consolidated financial statements included in this report for certain financial information regarding these segments.

Sales and Marketing

        The Company generates revenue through direct marketing, Company-owned retail stores, franchise stores, wholesale distribution, list rental and licensing agreements. Customers are categorized as follows:

•

corporate buyers including executives, sales managers, human resource managers and production managers of larger corporations



•

management personnel



•

teachers and administrative staff in educational organizations



•

entrepreneurial buyers including small business owners, home office businesses and sales professionals



•

consumers who are primarily purchasing the Company's products for themselves or as a gift

        The Company believes that the optimal way to reach its diverse customer base is to market its products through several distribution channels. In addition, the Company believes that its different distribution channels provide numerous benefits in cross-marketing.

        The Company's revenue base is comprised of a wide range of customers including Fortune 500 companies, mid-sized and small businesses, corporate management personnel, governmental and institutional, and retail customers. No individual customer accounted for more than 10% of the Company's net sales during the fiscal year ended February 2, 2002.

        The Company emphasizes customer service to achieve its goal of producing a high level of customer satisfaction.

Direct Marketing

        Through the use of its catalogs, the Company targets sales managers, business executives, meeting planners, human resource managers, corporate training managers and educators who have purchased or shown a willingness to purchase the Company's products in the past. In addition, the Company is constantly prospecting for new customers by mailing its catalogs to prospective customers who have favorable demographic profiles or purchasing patterns. The Company maintains a large proprietary in-house database. Building on this foundation, the Company maintains an ongoing prospecting effort by testing various mailing lists and evaluating the recipient's responsiveness to the Company's product offerings. A group of corporate sales representatives handle larger corporate accounts through telemarketing.

        The Company's Successories catalog features the entire line of proprietary products and some third-party products. The two types of catalogs currently being mailed are a 64/72-page version mailed to existing customers and catalog requesters, and a 40-page version mailed to prospective customers obtained from rented mailing lists. When a prospective customer makes an initial purchase, they are subsequently sent a 64/72-page catalog using selection criteria based on purchase history. The Company also mails a separate 32-page recognition awards catalog offering a wide range of proprietary awards

3

and gifts that can be engraved or personalized, and an annual 40-page clearance catalog. During the fiscal year ended February 2, 2002, the Company mailed approximately 14 million Successories catalogs.

        The Company has an interactive Internet website, www.successories.com. Visitors to the website are able to view product offerings and place orders for products featured in the Company's catalogs. Customer interest in the website has steadily increased. Internet orders during the fiscal year ended February 2, 2002 increased 24% in comparison to the prior fiscal year. The Company believes the Internet offers a significant marketing and sales opportunity.

        Successories products are also marketed through the Skymall catalogs circulated on various airlines.

Retail

        The Company-owned retail locations consist of stores and temporary locations located in shopping malls. The Company's stores were introduced in early 1991. As of February 2, 2002, the Company owned a total of 24 retail locations, including 22 stores and 2 temporary locations. The following table shows the number of Company-owned retail locations that were opened, closed, converted from franchise, converted to franchise, and in operation for each of the last three fiscal years.

        As of February 2, 2002, the Company's retail locations in the United States are located in:

        In addition, the Company has one location in Canada.

        As of February 2, 2002, the Company has three joint venture stores in Minnesota and Texas.

        The retail stores typically carry many of the Company's proprietary products and also a variety of non-proprietary products purchased from outside vendors.

Wholesale

        The Company sells products to a number of wholesale customers. Wholesale customers include other direct marketing distributors and a distributor who has acquired distribution rights for the Company's products in the United Kingdom.

        The Company licenses some of its proprietary designs to third parties for use in their products for which the Company receives licensing revenue. These third parties generally market office supply products.

4

Franchise

        As of February 2, 2002, there were 35 franchised retail stores. The following table shows the number of franchised stores that were opened, closed, converted to Company-owned, converted from Company-owned and in operation for each of the last three fiscal years.

        The franchisee purchases for resale Company manufactured products or products from third parties that are subject to Company approval. Due to the proprietary nature of most of the Company's products, the Company is the only available source for many products sold by franchisees. Product sales to franchisees are typically made at a discount from retail or at product cost plus a certain percentage.

        All franchisees must comply with Company-established operational policies and procedures relating to, among other things, quality of service, training, design and decor of stores, and trademark usage. The Company retains the right to receive an assignment of leasehold interest if the franchisee fails to comply with the Company's operational policies and procedures or upon expiration of the franchise agreement. The Company reviews all proposed franchise store locations and reserves the right to review the lease terms. The Company provides franchisees with training which focuses on the various aspects of store management, including marketing fundamentals, and product knowledge.

        Franchisees currently pay a monthly royalty to the Company of 2% of franchise gross sales. The franchise agreements have an initial term of five years with a renewal option for three additional successive terms of five years each. The agreements also provide the Company with the right to purchase the franchisee's store assets upon termination or expiration of the franchise agreement, and a right of first refusal if the franchise is to be sold. The franchisee must obtain the Company's approval in all instances prior to the sale of a franchised store. The franchise agreement is granted for the operation of a single retail store at a specified location. The Company reserves certain rights to sell products through other channels of distribution distinct from that of a franchised retail business.

Manufacturing, Order Fulfillment and Distribution

        The Company's manufacturing operations consist primarily of framing, product-engraving, and hot-stamping and silk screening. The Company mounts and assembles its framed wall and desk decor in-house and has developed a special packaging system designed to reduce the risk of breakage in shipping. The Company uses the services of third party vendors to manufacture some of the motivational products, primarily desktop accessories, books and stationery.

        Generally, the Company's catalog customers may choose to have their orders sent via ground shipment (7 - 10 days), economy (4 - 6 days), express (2 - 3 days) or next day shipment. The Company's manufacturing operations and order fulfillment capabilities enable it to accommodate last-minute orders for a variety of products, and to produce samples of products for existing and potential customers. These capabilities further enable the Company to produce and test products before inclusion in the distribution channels.

        The Company depends upon outside suppliers for many items such as mugs, stationery and components for framing, all of which are readily available from a number of suppliers. In addition, the Company outsources its film work and printing, although its creative staff works closely with outside film houses and printers to assure that all work is done to the Company's specifications and satisfaction.

5

Seasonality

        See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Seasonality."

Competition

        The industry supplying motivational, self-improvement and custom awards is highly competitive and fragmented. The Company competes principally on the basis of product exclusivity, selection, quality, name recognition and price of its products. The Company believes that the proprietary products it offers provide a competitive advantage in its merchandising offering.

Trademarks and Service Marks

        The Company owns a federal registration for the service mark "Successories" in Class 42 on the Principal Register of the United States Patent and Trademark Office ("PTO"). The Company believes the use of the service mark Successories is important in establishing and maintaining its reputation and is committed to protecting this service mark by vigorously challenging any unauthorized use.

        Although many of the quotations and other art work used by the Company are in the public domain and are not individually protectable under copyright and trademark laws, the Company continually endeavors to protect its products by giving its products a distinctive trade dress.

Employees

        As of February 2, 2002, the Company employed 286 persons, of whom 204 were employed full time. Of this total, 168 were employed at the corporate headquarters in marketing, manufacturing, order fulfillment and administrative capacities, and 118 were field personnel, store managers or store personnel. In addition, the Company uses contracted labor to meet its seasonal demands. The Company is not a party to any collective bargaining agreements and has not experienced a strike or work stoppage. The Company believes that its employee relations are good.

Item 2. Properties

        The Company leases its corporate office and manufacturing/warehouse facility in Aurora, Illinois, under the terms of a lease agreement which expires in July 2009. The lease is for approximately 20,000 square feet of office space and 110,000 square feet of manufacturing/warehouse space.

        The Company leases all 24 Company-owned stores from various property owners under terms typical to enclosed shopping malls. Lease terms generally vary from five to ten years for stores, and six months to one year for temporary store locations. None of the Company's store leases are individually material to the operations of the Company.

Item 3. Legal Proceedings

        The Company was one of two named defendants in a case filed by Tower City Properties LTD ("Plaintiff"). Tower City Properties LTD v Getting The Edge Company and Celex Group, Inc. (now Successories, Inc.) (Case No. CV-435521) was filed in the Common Pleas Court of Cuyahoga County, Cleveland, Ohio on April 13, 2001 with the Company being served in July of 2001. Plaintiff alleged that: Getting The Edge Company entered into a lease agreement with Plaintiff; Getting The Edge Company is in default under the lease agreement due to failure to pay rent; and Company guaranteed Getting The Edge Company's performance of the lease terms and obligations. Plaintiff sought (i) compensatory damages of $73,779 as of April 2, 2001, plus further rent that accrues prior to the trial; (ii) pre-judgment and post-judgment interest of 10% per annum; (iii) costs; (iv) attorney's fees and (v) such other and further relief as the Court deemed just and equitable. The parties entered into

6

a Settlement Agreement and Release. A stipulation for dismissal with prejudice was ordered by the Court on or about March 11, 2002. The settlement amount of $50,000 is included in accrued expenses at February 2, 2002.

        In a related matter, on August 29, 2001 the Company filed a complaint against Getting The Edge Company and Victor S. Voinovich, Sr. ("Defendants") in the United States District Court of the Northern District of Illinois in Cook County, Chicago, Illinois (Case No. 01 C 6745). The Company alleged that: Defendants executed franchise agreements, including personal guarantees, to operate three (3) Successories stores in Ohio; Mr. Voinovich executed a promissory note to the order of the Company; Defendants breached the franchise agreements and promissory note by non-payment of monies due the Company; and Defendants are infringing on the Company's federally registered trademarks and service marks. The initial relief sought by the Company included: (i) a temporary restraining order, a preliminary injunction and a permanent injunction prohibiting, enjoining and/or restraining Defendants from infringing on the Company's intellectual property; (ii) an order directing Defendants to eliminate all advertising under the Successories name or the Company's intellectual property; (iii) an order directing Defendants to render an accounting to the Company of the gross sales by Defendants under the infringing marks; (iv) an award of three times the damages to the Company's goodwill and intellectual property resulting from Defendant's infringing use of the Company's name and marks; (v) an award of punitive damages from Defendant's of at least $500,000; (vi) an award from Defendants of attorney's fees, expenses and costs; (vii) an award of the full amount due from Defendants under the franchise agreements and the promissory note of at least $209,495 as of August 27, 2001; and (viii) such other further and different relief as the Court deems just and appropriate. On October 4, 2001, the Court entered a temporary restraining order enjoining the Defendants from using the Successories' trademark or from violating the non-compete provision in the franchise agreements. The temporary restraining order was stayed by agreement until November 2, 2001 at which time it became a preliminary injunction. On March 13, 2002 the Company filed a Motion for Summary Judgment to enjoin further use of the Successories trademarks, service marks, logos and trade name; to collect more than $276,395 past due from the Defendants and to enforce a non-compete agreement with the Defendants. On March 20, 2002 the parties agreed to enter into an Agreed Judgment Order. On April 25, 2002 an Agreed Judgment Order was granted for the Company for $276,395 plus attorney fees and costs against Getting the Edge Company and for $226,305 plus attorney fees and costs against Victor S. Voinovich, Sr. The Company plans to vigorously pursue collection.

        On September 25, 2001 the Company filed a complaint against TGMK Group, Inc., TMK Group, Inc. and Terry Keenan. ("Defendants") in the United States District Court of the Northern District of Illinois in Cook County, Chicago, Illinois (Case No. 01C7405). The Company alleged that: Defendants executed franchise agreements, including personal guarantees, to operate Successories stores in Illinois; Mr. Keenan executed promissory notes to the order of the Company; Defendants breached the franchise agreements and promissory notes by non-payment of monies due the Company; and Defendants are infringing on the Company's federally registered trademarks and service marks. The relief sought by the Company includes: (i) a temporary restraining order, a preliminary injunction and a permanent injunction prohibiting, enjoining and/or restraining Defendants from infringing on the Company's intellectual property; (ii) an order directing Defendants to eliminate all advertising under the Successories name or the Company's intellectual property; (iii) an order directing Defendants to render an accounting to the Company of the gross sales by Defendants under the infringing marks; (iv) an award of three times the damages to the Company's goodwill and intellectual property resulting from Defendant's infringing use of the Company's name and marks; (v) an award of punitive damages from Defendant's of at least $500,000; (vi) an award from Defendants of attorney's fees, expenses and costs; (vii) an award of the full amount due from Defendants under the franchise agreements and the promissory notes of at least $480,350 as of September 25, 2001; and (viii) such other further and different relief as the Court deems just and appropriate. A preliminary injunction against the

7

Defendants became effective on October 10, 2001. On or about January 31, 2002 the Defendants filed an answer to the complaint and a counterclaim. In the counterclaim Defendants claim that the Company: (i) breached a duty of good faith and fair dealing, and breached the asset purchase agreement between the parties; (ii) had a duty to correct and supplement historical sales information which it knew to be false or inaccurate; (iii) violated the Consumer Fraud and Deceptive Business Practices Act by fraud and misrepresentation; (iv) engaged in a prohibited practice of selling an unregistered franchise; and (v) converted fixtures, inventory and product of the Defendants. Defendants seek the following relief: (i) recission of the asset purchase and franchise agreements; (ii) compensatory damages in excess of $1,000,000; (iii) treble damages; (iv) attorneys' fees and costs; and (v) such other further and different relief as the Court deems just and appropriate. On February 22, 2002, the Company moved to compel arbitration of Defendants' counterclaims and affirmative defenses. On March 7, 2002 Defendants responded to the Company's motion and the Company replied to the response on March 18, 2002. The Motion was fully briefed on March 20, 2002. Management intends to vigorously defend this matter and does not expect it to have a material adverse effect on the Company's consolidated financial position or results of operations.

        On October 24, 2001 the Company filed a complaint against Successories of Missouri, Inc. and Chad Everett in the Circuit Court of The Eighteenth Judicial Circuit in DuPage County, Wheaton, Illinois (Case No. 01AR002620). The Company alleged that: Successories of Missouri executed a promissory note to the order of the Company; Successories of Missouri had failed to make payments on the Note; and Chad Everett guaranteed Successories of Missouri's performance on the note. On February 20, 2002 the Company received an award of arbitration for $24,327. The Company plans to vigorously pursue collection.

        On March 12, 2002 the Company filed a complaint against Sloan Enterprises, L.C., J. Sloan Cownie and Mindy Cownie in the Circuit Court of The Eighteenth Judicial Circuit in DuPage County, Wheaton, Illinois (Case No. 2002L000261). The Company alleged that: Defendants executed franchise agreements, including personal guarantees, to operate Successories stores in Iowa and Nebraska; and breached the franchise agreements by non-payment of monies due the Company. The Company seeks: (i) $85,956 plus interest; (ii) attorney's fees, expenses and costs; and (iii) such other further and different relief as the Court deems just and appropriate.

        On March 12, 2002 the Company filed a complaint against Wascher Corp. and Greg Wascher in the Circuit Court of The Eighteenth Judicial Circuit in DuPage County, Wheaton, Illinois (Case No. 2002AR000709). The Company alleged that: Defendants executed a franchise agreement, including a personal guarantee, to operate Successories stores in Wisconsin; and breached the franchise agreement by non-payment of monies due the Company. The Company sought: (i) $43,546; (ii) attorney's fees, expenses and costs; and (iii) such other further and different relief as the Court deems just and appropriate. The parties settled the matter and on May 7, 2002 the Court ordered the matter dismissed without prejudice with the Court maintaining jurisdiction to enforce the settlement agreement between the parties.

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

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

        None.

8

Executive Officers of the Registrant

9

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        The Company's common stock is quoted on the Nasdaq National Market under the symbol "SCES". The following table sets forth the high and low bid prices for the Company's common stock as reported by the Nasdaq National Market for the applicable periods shown.

        The above noted high and low bid prices do not necessarily represent actual sale prices for the Company's common stock.

        As of March 31, 2002, the number of holders of record of the Company's common stock was approximately 558, and there were approximately 443 beneficial owners of the Company's common stock.

        The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain its earnings to finance future growth and therefore has no present intention of paying cash dividends on its common stock in the foreseeable future. Under the Company's current credit facility with Provident Bank, the payment of cash dividends on common and preferred stock by the Company is prohibited, except, cash dividends on preferred stock are allowed under certain conditions.

        On April 25, 2002, the Company received notification from NASDAQ with regards to the Company's noncompliance with the listing requirements under NASDAQ Marketplace Rules 4450(a)(2) and 4450(a)(5) (the "Rules"), respectively. For 30 consecutive trading days, the Company's common stock did not maintain a minimum market value of publicly held shares ("MVPHS") of at least $5,000,000 and a minimum bid price per share of at least $1.00 as required for continued inclusion on the NASDAQ National market under the Rules. In accordance with the Rules, the Company has been provided 90 calendar days, or until July 24, 2002 to become compliant. If at anytime before July 24, 2002, the MVPHS is $5,000,000 or more and the bid price of the Company's common stock closes at $1.00 per share or more for a minimum of 10 consecutive trading days, NASDAQ will provide written notification to the Company that it complies with the Rules. If compliance with these Rules cannot be met by July 24, 2002, NASDAQ will provide written notification to the Company that the Company's common stock will be delisted. At that time, the Company may appeal NASDAQ's determination to a Listing Qualifications Panel.

10

Item 6. Selected Financial Data

        Set forth below is selected consolidated financial data for the Company as of and for each of the last five fiscal periods. Certain prior year amounts have been reclassified to conform with the current year presentation.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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

        The Company's products are marketed primarily under its Successories trade name through direct marketing (catalog, electronic commerce and telemarketing), retail channel (Company-owned stores), sales to franchisees and wholesale distribution. Although the Company utilizes multiple distribution channels for its products, the Company's products have similar purposes and uses in each channel of distribution. The profitability varies among products and distribution channels. The Company utilizes its facilities interchangeably for each distribution channel. Furthermore, the marketing channels are directed at a customer base located primarily in the United States and Canada. In addition, the Company generated revenue from providing framing services to outside corporate businesses on a contract fee basis

11

        For the fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000, net product sales for the various distribution channels, as a percentage of total net product sales, were as follows:

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

        Due to the continuing soft economic climate and the substantial loss before income taxes and extraordinary items of $5,712,000 sustained in fiscal 2001, the Company retained the professional services of Duff & Phelps, LLC, an investment banking and financial advisory firm. Duff & Phelps is assisting the Company in identifying, assessing and pursuing strategic alternatives. No assurance can be given that a strategic alternative shall be effected.

        The Company will continue its primary focus on sales growth in the direct marketing channel and support of its current franchisees. In the process of reviewing its strategic options, the Company has decided to take immediate steps to close all of its 100% owned retail stores. The cost of store closures will be dependent upon the terms and conditions of lease termination to be negotiated with landlords. The retail Company-owned stores segment reported a loss of $1,936,000 on net sales of $9,403,000 for fiscal 2001 and the Company anticipates future losses.

        At the end of the first quarter in fiscal 2002, the Company discontinued contract-framing services for third party products, which accounted for a loss of $79,000 on $873,000 of net sales in fiscal 2001. Any future contract framing services shall be limited primarily to large and multiple unit production runs.

        The Company and its lender, Provident Bank, have reached an agreement in principal which will allow continued access to its credit facility through May 31, 2003. The revised agreement will on a going forward basis provide relaxed financial covenants, modified advance rates and reduced loan limits. Based upon current operating forecasts the revised agreement will provide equal or greater borrowing capabilities than the existing agreement.

        The Company's focus on profitable business segments, direct marketing and sales to franchisees; exit from under-performing segments, retail Company-owned stores and contract framing; and continued access to additional funding through the revised line of credit should allow adequate time and working capital to assess strategic alternatives and return to profitability.

12

Results of Operations

        The following table sets forth the results of operations for the last three fiscal years and the change from the previous year, as taken from the Company's consolidated statements of operations. The Company's fiscal year 2001 consisted of the 52 weeks ended February 2, 2002. The Company's fiscal year 2000 consisted of the 53 weeks ended February 3, 2001. The Company's fiscal year 1999 consisted of the 52 weeks ended January 29, 2000.

13

Year Ended February 2, 2002 (Fiscal 2001), Compared to Year Ended February 3, 2001 (Fiscal 2000)

        Net product sales were $42,321,000 for year ended February 2, 2002, compared to $53,330,000 for the prior year ended February 3, 2001. The $11,009,000 or 20.6% decrease in net sales is comprised of direct marketing Successories of $6,187,000 or 18.4%, retail Company-owned stores of $1,980,000 or 17.4%, sales to franchisees of $2,265,000 or 35.0%, and other channels of $577,000 or 44.9%.

        In the current fiscal year 2001, the decrease in net product sales across the channels can be primarily attributed to the challenging economic business environment. Direct marketing Successories sales starting in the second quarter of fiscal 2001 were further impacted by a planned reduction in prospect catalog circulation in light of lower response rates experienced as a result of the current economic slow-down. The Company's direct marketing efforts continue to focus on aggressively targeting opportunities in niche markets and refining marketing strategies focused on increasing sales from its existing customer base and acquiring new customers. Internet sales, which are included in the direct marketing channel, increased to 25.0% in fiscal 2001 compared to 17.9% in fiscal 2000. The comparable store sales in retail Company-owned stores decreased by 21.1% in the current year in comparison to the prior year. The total number of retail Company-owned stores in operation in the current year were 24, compared to the 25 in operation in the prior year. The sales to franchisees were impacted by fewer stores in operation in the current year—35 in the current year versus 50 in the prior year. The decrease in sales from other channels is primarily due to loss of sales in contract framing compared to the prior year. The decline in sales in contract framing was due to a major customer in fiscal 2000 who was no longer in business in fiscal 2001.

        Gross margin decreased in fiscal 2001 to $22,260,000 from $30,299,000 in fiscal 2000. The decrease in gross margin can be primarily attributed to a decrease in sales volume and a decline in gross profit, as a percentage of net sales, to 52.6% in fiscal 2001 from 56.8% in fiscal 2000. The decline in gross profit percentage can be attributed to increased promotional discounting undertaken in fiscal 2001 to encourage consumer spending. In addition, the gross profit percentage was lower as a result of higher fixed production costs per unit resulting from lower sales volume being generated through the manufacturing facility in fiscal 2001. The decline in fees, royalties and other income in fiscal 2001 was also negatively impacted by the challenging economic environment.

        Operating expenses decreased in the current year to $27,671,000 from $27,843,000 in the prior year. The operating expenses for fiscal 2001 included additional charges of $1,564,000. The additional charges related to bad debt reserves for franchisee related receivables; write-off of the net book value of fixed assets pertaining to six Company-owned store leases expiring in fiscal 2001 or in fiscal 2002, and two under-performing Company-owned stores; acceleration of goodwill amortization for Company-owned retail stores from a useful life of 15 years to the end of the current lease term; discontinuance of a warehouse management system enhancement project due to lower than anticipated production volumes; and severance payments related to the reduction in workforce instituted during the third quarter. The variable operating expenses decreased from year to year with the decline in net product sales. The operating expenses, as a percentage of net sales, increased in fiscal 2001 to 65.4% from 52.2% in fiscal 2000 as a result of fixed operating expenses being spread over a lower sales volume base.

        In the current fiscal year 2001, the Company recorded an income tax expense of $4,873,000 to increase the valuation allowance to fully reserve for the deferred tax asset balance. As a result of the current challenging economic environment which has negatively impacted the operating results for fiscal 2001, the Company's management has taken a conservative approach due to the reduced likelihood that all the benefits of the deferred tax asset related to the net operating loss (NOL) carryforwards and other temporary differences would be fully utilized before they expire.

        In the current fiscal year 2001, the Company recorded an extraordinary loss of $219,000 related to early debt extinguishment. As a result of pre-payment of the term loan and fixed rate loan with the

14

Company's bank, the Company recorded an additional expense to write-off the unamortized debt discount associated with the term loan and fixed rate loan.

        In the current fiscal year 2001 the Company had a net loss of $10,804,000 in comparison to a net income of $430,000 in the prior fiscal year 2000. The decline in net income in the current year can be primarily attributed to the decline in gross margin and additional charges recorded to operating expenses as a result of decline in sales volume due to economic downturn, income tax expense recorded to increase the valuation allowance associated with the deferred tax asset, and extraordinary loss recorded for the early extinguishment of debt, offset by a decrease in interest expense due to lower outstanding debt balance.

Year Ended February 3, 2001 (Fiscal 2000), Compared to Year Ended January 29, 2000 (Fiscal 1999)

        Net product sales were $53,330,000 for the year ended February 3, 2001, compared to $51,702,000 for the prior year ended January 29, 2000. The $1,628,000 or 3.1% increase in sales is comprised of an increase of $4,719,000 or 16.3% in direct marketing-Successories, $306,000 or 3.1% in comparable retail Company-owned store sales (same store sales), offset by a decrease of $2,329,000 or 68.0% in non-comparable retail Company-owned store sales, $564,000 or 8.0% in sales to franchisees and $504,000 or 21.3% in other channels sales.

        The 16.3% increase in direct marketing-Successories sales was attributable to an increase in catalog circulation by approximately 10%, an increase in customer catalog page count, and continued improvements in merchandising, creative presentation and circulation strategy. Internet sales, which are included above, were 17.9% of the total direct marketing-Successories sales. Internet orders grew five-fold in fiscal 2000. The non-comparable retail Company-owned store sales declined due to 11 fewer stores in operation in fiscal 2000. The Company converted some of the Company-owned retail stores to franchised stores, and closed some of the under-performing stores in fiscal 1999. Sales to franchisees decreased by 8% due to 8 fewer stores in operation in fiscal 2000 in comparison to fiscal 1999, and in fiscal 1999 there were non-recurring initial sales related to the conversion of retail Company-owned stores to franchised stores. The decrease in direct marketing-golf and wholesale sales can be attributed to the planned discontinuation of the golf catalog and reduction in the scope of wholesale business with the office supply companies, offset by additional sales in fiscal 2000 from contract framing services. Contract framing, undertaken in earnest in fiscal 2000, consists of framing third party products on a fee basis primarily during the Company's seasonally slower production periods. The Company's focus in fiscal 2000 was on growing its core motivational products business through the direct marketing-Successories, retail Company-owned stores and sales to franchisees distribution channels.

        Gross margin increased in fiscal 2000 to $30,299,000 from $29,341,000 in fiscal 1999. The increase in gross margin can be primarily attributed to the increase in net product sales.

        Operating expenses, excluding certain channel exit costs incurred in fiscal 1999, were slightly down in fiscal 2000 eventhough net product sales increased from fiscal 1999. The exit costs of $961,000 incurred in fiscal 1999 were primarily related to the under-performing retail store closings, and exiting costs associated with the golf and Europe catalog business and wholesale activity with office supply companies. Comparable operating expenses in fiscal 2000 were $27,843,000 or 53.5% (as a percentage of net product sales), in comparison to $27,913,000 or 54.0% (as a percentage of net product sales) in fiscal 1999.

        In fiscal 2000 the Company achieved a pre-tax net income of $731,000, in comparison to a net loss of $1,067,000 in fiscal 1999. The improvement in the operating results can be primarily attributed to the streamlining of the operations by focusing on the Company's most profitable distribution channels and core motivational products business. In addition, cash interest expense decreased by $505,000 or 40.1% in fiscal 2000 in comparison to fiscal 1999, due to lower outstanding debt balance. The outstanding debt balance decreased by $3,995,000 in fiscal 2000 in comparison to fiscal 1999. Income tax expense

15

for fiscal 2000 increased by $241,000 in comparison to fiscal 1999, however, it is primarily a non-cash expense as a result of the Company being able to utilize approximately $1.4 million of its net operating loss carryforwards.

Liquidity and Capital Resources

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

        Operating activities provided cash of $692,000, $2,182,000 and $1,648,000 in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The decrease in cash flow in fiscal 2001 in comparison to fiscal 2000 can be primarily attributed to a reduction in cash flow from operating results, offset by a decrease in accounts receivable and inventory, and an increase in accounts payable. The improvement in cash flow in fiscal 2000 in comparison to fiscal 1999 can be primarily attributed to improved operating results, offset by a reduction in accounts payable.

        Investing activities used cash of $271,000, $355,000 and $431,000 in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The principal use of cash was capital expenditures. In fiscal 2001, the Company expended funds primarily for Internet website development, retail Company-owned stores fixed assets upgrades, and equipment replacements and upgrades. In fiscal 2000, the Company expended funds primarily for the Internet website development, new manufacturing and distribution software (implementation planned in 2001, subsequently the project was discontinued in 2002 and the costs for the project were written-off) and equipment upgrades and replacements. Currently, the Company's credit facility limits annual capital expenditures to $1 million.

        Financing activities used cash of $2,287,000, $298,000 and $1,593,000 in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The principal uses of cash were scheduled repayments and pre-payments on the outstanding bank debt. The principal sources of cash were borrowings on the revolver, proceeds from the sale of common stock issuance in fiscal 2000 and preferred stock issuance in fiscal 1999. The above noted equity infusions have helped the Company lower its outstanding debt levels and related interest expense, increase the working capital available for investing in the growth of the business, and improve the overall liabilities to equity position of the Company.

        On December 3, 2001, the Company obtained an amendment to the credit facility to waive certain financial covenants for the quarter ended November 3, 2001. In addition, the amendment included an adjustment to the interest rate on the revolver and the borrowing base, prospectively.

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

        In February 2001 the Company pre-paid the entire outstanding Bank term loan and fixed rate loan balance in the amount of $3,590,000. The above noted loans had payment terms through June 2003. The Company recorded an extraordinary loss of $219,000 related to the early debt extinguishment in the current year. The extraordinary loss represents the write-off of the unamortized debt discount associated with the term loan and fixed rate loan. In addition, the Company and the bank have reached an agreement in principal which will allow continued access to its credit facility through May 31, 2003. The revised agreement will on a going forward basis provide relaxed financial covenants, modified advance rates and reduced loan limits. Based upon current operating forecasts the revised agreement will provide equal or greater borrowing capabilities than the existing agreement.

        The credit facility also contains, among other provisions, requirements for maintaining certain earnings levels and financial ratios, limits on capital expenditures and additional indebtedness, and use

16

of proceeds from certain equity offerings. On May 7, 2002, the Company obtained a waiver to the credit facility to waive certain financial covenants for the year ended February 2, 2002 (fiscal 2001). The bank waiver fee of $10,000 will be recorded in the first quarter of fiscal 2002.

        See Note 6 in the Notes to the Consolidated Financial Statements in Part IV of this document for the current terms under the credit facility agreement.

        The Company believes that internally generated funds and the credit facility will be sufficient to meet its current operating needs, fund debt service and anticipated capital expenditures. At February 2, 2002, the available borrowings on the revolving credit loan were $1,573,000.

Seasonality

        The Company's business is subject to seasonal variations in demand. Historically, a significant portion of the Company's sales and net income have been realized during the period from October through January. The effects of seasonality are greater in the Company's retail operations than the other segments of its business. Most operating expenses are incurred evenly throughout the year, although some selling and administrative expenses are variable depending on sales, and direct marketing catalog advertising expenses as a percentage of sales are higher in the first calendar quarter due to more prospecting. The Company's operating results may also vary depending upon such factors as catalog mailings, and the timing of new product introductions and promotions by the Company. The Company's cash requirements generally reach a seasonal peak in the second half of the fiscal year to finance increased inventory levels needed to meet the third and fourth quarter sales demand.

Inflation

        The Company does not believe that inflation has had a material impact on its operations during the last fiscal year.

Disclosure Regarding Forward-Looking Statements

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

17

reliance should not be placed on such statements. The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date on this report.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

        The Company is subject to market risk associated with adverse changes in interest rates and foreign currency exchange rates, but does not hold any market risk sensitive instruments for trading purposes. The Company uses variable rate debt, as described in Note 6 of the Notes to Consolidated Financial Statements. At February 2, 2002, principal exposed to interest rate risk is limited to $1,483,000 in variable rate debt. The variable rate debt level varies periodically and the maximum borrowings available at February 2, 2002 was $3,056,000. The impact of 1% change in interest rates on the variable rate debt is approximately $15,000. The Company's exposure to foreign currency exchange rate risk relates primarily to the financial position and results of operations in Canada. The Company's exposure to foreign currency exchange rate risk is difficult to estimate due to factors such as balance sheet accounts, and the existing economic uncertainty and future economic conditions in the international marketplace. The Company does not expect significant impact from foreign currency exchange rate risk. The Company's Canadian operations annual sales are approximately $2,500,000.

Item 8. Financial Statements and Supplementary Data

        See the Index to Financial Statements and Financial Statement Schedules on page F-1. Such Financial Statements and Schedules are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None

18

PART III

Item 10. Directors and Executive Officers of the Registrant

        Information regarding the Company's Directors will be included under the caption, "Election of Directors," in the Company's Proxy Statement for its 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after February 2, 2002, and is incorporated herein by reference. Information regarding the Company's executive officers is included under a separate caption in Part I hereof.

Item 11. Executive Compensation

        Information regarding the Executive Compensation will be included under the caption, "Compensation and Other Transactions with Management," in the Company's Proxy Statement for its 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after February 2, 2002, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        Information regarding the above will be included under the caption, "Security Ownership," in the Company's Proxy Statement for its 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after February 2, 2002, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

        Information regarding the above will be included under the caption, "Compensation and Other Transactions with Management," in the Company's Proxy Statement for its 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after February 2, 2002, and is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

19

Index to Financial Statements and Financial Statement Schedules

        All other financial schedules called for under Regulation S-X are not submitted because they are not applicable, or not required, or because the required information is not material or is included in the consolidated financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and the Stockholders of
    Successories, Inc.

        We have audited the accompanying consolidated balance sheets of Successories, Inc. (an Illinois corporation) as of February 2, 2002 and February 3, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two fiscal years then ended. Our audits also included the financial statement schedules listed in the Index at Item 8, Financial Statements and Supplementary Data—page F-31. These financial statements and the financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

        We conducted our audit 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, the financial statements referred to above present fairly, in all material respects, the financial position of Successories, Inc. as of February 2, 2002 and February 3, 2001, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

Crowe, Chizek and Company LLP

Oak Brook, Illinois
March 22, 2002
(except with respect to Note 6, as to
which the date is May 16, 2002)

F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and the Stockholders of
    Successories, Inc.

        We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Successories, Inc. (an Illinois corporation) and subsidiaries for the year then ended January 29, 2000. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Successoriess, Inc. and subsidiaries' operations and cash flows for the year ended January 29, 2000 in conformity with accounting principles generally accepted in the United States.

        Our audit was made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The schedule on Page F-31 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole.

Arthur Andersen LLP
Chicago, Illinois
March 24, 2000
(except with respect to the matters discussed in
Note 6, as to which the date is April 6, 2000)

F-3

SUCCESSORIES, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

F-4

SUCCESSORIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these statements.

F-5

SUCCESSORIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these statements.

F-6

SUCCESSORIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY