SOURCE INFORMATION MANAGEMENT CO, 424B4, 1998-06-16

SOURCE INFORMATION MANAGEMENT CO
424B4, 1998-06-16
DIRECT MAIL ADVERTISING SERVICES

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<PAGE> 1

2,000,000 SHARES

PROSPECTUS THE SOURCE INFORMATION MGMT LOGO
Common Stock
---------------------

Of the 2,000,000 shares of Common Stock offered hereby, 1,500,000 shares
are being offered by The Source Information Management Company, a Missouri
corporation (the "Company") and 500,000 shares are being offered by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from the
sale of Common Stock by the Selling Shareholders.

The Common Stock is quoted on The Nasdaq National Market ("Nasdaq") under
the symbol "SORC". On June 12, 1998, the last sale price of the Common Stock, as
reported on Nasdaq, was $6.125 per share. See "PRICE RANGE OF COMMON STOCK".

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 7.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS(1) COMPANY(2) SELLING SHAREHOLDERS
--------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C>
Per Share......................... $6.00 $0.435 $5.565 $5.565
Total(3).......................... $12,000,000 $870,000 $8,347,500 $2,782,500
</TABLE>

(1) Does not include additional compensation payable to Donald & Co. Securities
Inc., acting as representative (the "Representative") of the several
underwriters identified elsewhere herein (the "Underwriters"), in the form
of a non-accountable expense allowance equal to $153,000. The Company has
also agreed to sell the Representative warrants to purchase up to 200,000
shares of Common Stock at an exercise price of $8.40 per share, subject to
adjustment, exercisable over a period of four years commencing one year from
the date hereof (the "Representative's Warrants") and to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"UNDERWRITING."

(2) Before deducting expenses estimated to be $425,000 payable by the Company,
including the Representative's nonaccountable expense allowance, of which
$25,000 has been paid to date.

(3) The Company and the Selling Shareholders have granted the Representative an
option exercisable within 45 days after the date of this Prospectus (the
"Over-Allotment Option") to purchase up to 300,000 additional shares of
Common Stock solely to cover over-allotments, if any, on the same terms and
conditions as set forth above; provided that the non-accountable expense
allowance shall be reduced to 0.5% of the gross proceeds derived from the
sale of shares of Common Stock upon exercise of the Over-Allotment Option.
If such option is exercised in full, the total Price to Public, Underwriting
Discounts, Proceeds to Company and Proceeds to Selling Shareholders will be
$13,800,000, $1,000,500, $8,625,750 and $4,173,750, respectively. The
Company will not receive any of the proceeds from the sale of Common Stock
by the Selling Shareholders. See "PRINCIPAL AND SELLING SHAREHOLDERS" and
"UNDERWRITING."
---------------------

The Common Stock is being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this offering and to reject any order in whole or in part. It is expected
that delivery of the certificates evidencing the Common Stock will be made
against payment therefor on or about June 19, 1998 at the offices of Donald &
Co. Securities Inc., New York, New York or through the facilities of the
Depository Trust Company.

DONALD & CO. SECURITIES INC.

The date of this Prospectus is June 15, 1998
<PAGE> 2

[MAP]

The Company is currently a reporting company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and furnishes its shareholders
with annual reports containing audited financial statements after the close of
each fiscal year.
---------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data, including the notes related thereto, appearing
elsewhere in this Prospectus. All share and per share data in this Prospectus
(i) have been restated to give effect to a 1-to-1.21 reverse stock split
effected on October 6, 1997 and (ii) assume that the Representative's
Over-Allotment Option, the Representative's Warrants and all other options and
warrants outstanding on the date of this Prospectus will not be exercised.

THE COMPANY

For more than 20 years, The Source Information Management Company (the
"Company") and its predecessors have provided information gathering, consulting
and other information based services to operators of mass merchandise, grocery,
convenience and pharmacy stores located throughout the United States and eastern
Canada. Currently, the Company provides monitoring and documentation services to
approximately 725 retailers, such as Wal-Mart Stores, Inc., Kmart Corporation,
Target Stores, Inc., Food Lion, Inc., and W.H. Smith, Inc., in connection with
processing and collection of incentive payments from magazine publishers on
single copy sales of approximately 6,000 magazine titles offered in more than
65,000 stores. As an extension of this service, the Company established its
Advance Pay Program, under which the Company advances an agreed upon percentage
of the incentive payments due to the retailer from magazine publishers. It then
collects directly from the publishers the claims due to the retailer. In fiscal
1997 and 1998, the Company advanced approximately $15 million and $39 million
under the Advance Pay Program, respectively. In October, 1996, the Company
expanded its services and potential client base with the introduction of the
Periodical Information Network ("PIN"), an information service in which the
Company offers and provides subscribing magazine publishers, advertisers and
others with industry-wide, single copy magazine sales information in a user
friendly format. Based on discussions with representatives of magazine
publishers, the Company believes that publishers and advertisers perceive that
PIN provides a valuable basis on which to formulate marketing, distribution,
advertising and other policies.

The Company intends to continue to capitalize on its retailing experience
and extensive database of single copy magazine sales information through
introduction of new and enhanced products and services, application of the
Company's services to new product categories, and acquisition of complementary
businesses. Since the introduction of PIN, most leading publishers have
subscribed, including Time Distribution Services, ICD/The Hearst Corp. and Globe
Marketing Services. In May 1998, the Company began a 90-day beta test of its
uniform product code ("UPC") information service in selected retail chains. This
UPC information service will enable subscribing publishers and retailers to
efficiently access the data necessary to verify and correct price changes and
other information contained in the product code of each magazine. Management
expects that publishers will recognize the potential savings to be realized by
using the Company's new UPC information service to minimize fines imposed by
retailers for erroneous product codes and expenses associated with correcting
improperly assigned codes.

The Company's integrated software system is designed to efficiently and
accurately accumulate and manage sales data with respect to sales of low-cost,
high volume consumer products, allowing the Company's retailer clients to
optimize the effectiveness of their marketing effort. While the Company's
software system was developed to aid retailers in the collection of sales
incentive payments and the merchandising of magazines, it has been used in
connection with confections and other consumer products, including high volume
items such as razors and batteries. Such capability has enabled the Company to
launch its front-end management program. Front-end management was introduced in
July 1997 with a contract to manage the front-end of approximately 2,200 Kmart
stores. The Company's front-end management includes ongoing services with
respect to the management of checkout area merchandising, including
reconfiguration and design of fixtures, product selection, plan-o-gramming,
vendor negotiation, vendor billing and collection, fixture prototype review and
supervision of fixture installation. As of the date of this Prospectus, the
number of stores for which the Company is providing front-end management
services has grown from the 2,200 stores initially involved in the Kmart
Corporation contract to more than 10,000, with contracts for an additional 8,000
stores in active negotiation.

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<PAGE> 4

The Company was formed by the consolidation of Display Information Systems
Corporation ("DISC") and Periodical Management and Marketing, Inc. ("PMM"), each
of which were significant providers of information services to retailers of
magazines. The Company has expanded, and intends to continue to expand, through
the acquisition of businesses and technologies that address additional services
or products, market segments or geographic regions in which the Company is not
currently active and which would allow the Company to expand the services
offered to its clients, or its ability to support existing or planned services.

CLIENT SERVICES

The Company is dedicated to providing full information services to its
clients. Such services include the following:

Claim Submission. Through its software system, the Company offers to
assist retailers in accurately monitoring, documenting, claiming and
collecting publisher incentive payments. Based on information gathered with
respect to the titles and number of copies actually sold, the Company
prepares publisher supplied claim forms and submits the documented claim
for payment to the appropriate national distributor, which acts as payment
agent for the publisher. Typically, the Company receives payment to the
order of the retailer, records the payment and forwards it to the retailer.
The Company charges the retailer a negotiated percentage of the cash
collected. As an extension of its claim submission service, the Company has
established an Advance Pay Program. Under this program, the Company
advances an agreed upon percentage of the incentive payments due the
retailer from magazine publishers. It then collects directly from the
publishers the claims due to the retailer. Service revenues earned under
the Advance Pay Program generally exceed those charged under the
traditional method.

Periodical Information Network. The Company's large and sophisticated
database of magazine industry information has resulted in it becoming a
magazine information center which management believes is used by many
companies in the magazine industry to formulate and manage their publishing
and distribution strategies. PIN is a comprehensive system designed to use
current computer technologies, including CD ROM, to effectively manage all
elements of its database including information packaging and efficient
inbound, outbound access. The network provides access to periodically
updated historical information concerning the titles and quantity of each
title sold by retailers for analysis purposes. Most leading publishers have
subscribed to PIN.

Front-end Management. The Company assists retailers in maximizing sales
and incentive payment revenues by reconfiguring and designing front-end
merchandising fixtures, supervising fixture installation, selecting
products, negotiating with vendors and performing the burdensome task of
billing and collecting incentive payments from vendors. The Company
utilizes its knowledge of local consumer preferences and incentive payment
programs and its proprietary SOURCEPRO three dimensional fixture design and
imaging system to analyze the retailer's store layout, customer traffic
patterns and available front-end merchandising alternatives, and develop an
appropriate checkout display configuration. Thereafter, the Company
relieves the retailer of the burden of managing the invoicing and
collection of payments due from the numerous vendors participating in any
particular display configuration.

UPC Information Service. The Company has designed its UPC Information
Service to enable publishers and retailers to efficiently communicate price
changes, product code corrections and changes in the lists of titles
authorized by a retailer for front-end merchandising in any particular
store.

Marketing and Promotional Program. As part of its full-service philosophy,
the Company offers its clients advice and suggestions concerning
specialized marketing and promotional programs which may include, for
example, special mainline and checkout displays and cross-promotions of
magazines and products of interest to readers of such magazines. Such
services are offered to enhance single copy magazine sales by the Company's
clients, and thereby increase service revenue due the Company in connection
with the submission of incentive payment claims; accordingly, no separate
charge is made for these services.
---------------------

The Source Information Management Company was organized under the laws of
the State of Missouri on March 22, 1995. Its principal executive offices are
located at 11644 Lilburn Park Road, St. Louis, Missouri 63146, and its telephone
number is (314) 995-9040.
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<PAGE> 5

THE OFFERING

SECURITIES OFFERED BY

The Company................ 1,500,000 shares

Selling Shareholders....... 500,000 shares

Total.................... 2,000,000 shares

Common Stock outstanding
prior to the offering(a)
......................... 8,023,289 shares

Common Stock outstanding
after the offering......... 9,523,289 shares

Use of Proceeds............ To fund the expansion of the Company's Advance Pay
Program, the possible acquisition by the Company of
one or more businesses, the development of new or
enhanced products and services and to fund working
capital and other general corporate activities,
including the continued upgrade of the Company's
computer hardware and software systems. See "USE OF
PROCEEDS."

Risk Factors............... This offering involves a high degree of risk. See
"RISK FACTORS" beginning on page 7.

Nasdaq National Market
Trading Symbol........... SORC

- ---------------

(a) Based on shares outstanding as of June 1, 1998. Excludes shares reserved for
issuance under the Company's stock option and other stock based plans and
upon exercise of the Over-Allotment Option and the Representative's
Warrant, as well as 606,090 reserved for issuance under other outstanding
warrants. See "CAPITALIZATION" and "UNDERWRITING."
5
<PAGE> 6

SUMMARY FINANCIAL DATA

The summary financial data should be read in conjunction with the
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Service Revenues.................................... $11,795,496 $7,056,270 $7,195,176
Merchandise Revenues................................ 8,348 242,177 926,008
----------- ---------- ----------
Total Revenue..................................... 11,803,844 7,298,447 8,121,184
----------- ---------- ----------
Gross Profit...................................... 5,943,191 2,233,859 3,711,962
Selling, General & Administrative Expense........... 2,350,622 2,904,372 2,799,841
----------- ---------- ----------
Operating Income (Loss)........................... 3,592,569 (670,513) 912,121
Other Expense, Net.................................. 772,561 309,992 314,127
----------- ---------- ----------
Income (Loss) Before Income Taxes................... 2,820,008 (980,505) 597,994
Net Income (Loss)................................. 1,589,008 (603,317) 191,994
Earnings (Loss) Per Share
Basic............................................. $ 0.23 $ (0.11) $ 0.04
Diluted........................................... 0.22 (0.11) 0.04
Weighted Average Outstanding Shares
Basic............................................. 6,561,761 5,557,223 5,028,547
Diluted........................................... 6,693,666 5,557,223 5,028,547
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital............................................. $16,988,047 $16,988,047
Total Assets................................................ 23,807,857 23,807,857
Long-term debt, less current portion........................ 8,604,057 681,557
Stockholders' Equity........................................ 12,494,713 20,417,213
</TABLE>

- ---------------

(1) Based upon an offering price of $6.00 per share. Assumes the net proceeds of
this offering will be applied initially to the temporary reduction of the
outstanding principal balance of the Company's credit facility resulting in
total availability thereunder of $14,324,500. Any proceeds remaining after
repayment of such outstanding balance in full will be invested in
short-term, interest-bearing securities or deposited in interest-bearing
bank accounts and will be included in working capital.

6
<PAGE> 7

RISK FACTORS

Any forward-looking statements set forth in this Prospectus are necessarily
subject to significant uncertainties and risks, including, but not limited to
those set forth in "RISK FACTORS." When used in this Prospectus, the words
"believes," "anticipates," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Actual results could be
materially different as a result of various possibilities, including increased
competition, significant changes in the marketing strategies of publishers, the
inability of the Company to successfully manage its expansion and the
availability of suitable acquisition candidates. Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating an
investment in the Common Stock offered hereby.

DEPENDENCE ON THE MARKETING AND DISTRIBUTION STRATEGY OF PUBLISHERS

Approximately 80% of the Company's revenues are currently derived from the
service revenues earned in connection with the collection of payments owed to
the Company's retailer clients from magazine publishers under programs designed
by publishers to provide magazine retailers with an incentive to increase single
copy magazine sales. Although these incentive programs have been offered as part
of the publishers' overall marketing strategy for more than 20 years, the
incentive programs are governed by short-term contracts and, accordingly,
magazine publishers are under no long-term contractual obligation to continue
the incentive programs in their present form or otherwise. Although largely
unsuccessful, certain magazine publishers have experimented from time to time
with direct distribution of selected titles. Such arrangements replace the
traditional incentive payment programs with discounted sale pricing. If magazine
publishers successfully develop and implement a direct distribution program
which does not include an incentive payment component, or otherwise discontinue
or significantly modify the incentive programs to which the Company's services
relate in a manner which is not compatible with the Company's services, the
Company's results of operations and financial condition may be materially and
adversely affected. See "BUSINESS -- The Magazine Industry."

RISK ASSOCIATED WITH THE ADVANCE PAY PROGRAM

The recent increases in revenue and profitability recorded by the Company
result, in part, from the admission of existing retailer clients to the Advance
Pay Program. The profitability of the Advance Pay Program is dependent, in part,
on (a) the difference between the service revenues collected by the Company with
respect to the Advance Pay Program and the interest paid by the Company for
borrowed funds advanced thereunder and (b) the length of the collection period
of the trade accounts receivable associated with the Advance Pay Program.
Interest rates applicable to borrowings made by the Company are subject to
fluctuation and any decrease in the spread between service revenues collected
and interest paid would have a negative effect on the Company's results of
operations and financial condition. The availability of funds under the
Company's credit facility is conditioned on the maintenance of certain financial
ratios. There can be no assurance that the Company will be able to satisfy such
conditions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources." Additionally, any
increase in the average collection period for trade accounts receivable
associated with the Advance Pay Program will increase the Company's interest
expense and have a negative effect on the Company's results of operations and
financial condition.

Furthermore, in connection with the Advance Pay Program, the Company
assumes the risk otherwise borne by the retailer client that magazine publishers
will refuse or be unable to pay the amount of incentive payments claimed. Based
on historical experience, the Company maintains a reserve of 2% of all claims
submitted against such refusal or inability to pay. However, if a prominent
magazine publisher files a petition in bankruptcy or otherwise seeks protection
from its creditors, such reserve may be inadequate and the results of operations
and financial condition of the Company could be materially and adversely
affected.

7
<PAGE> 8

RISK OF INCREASED COMPETITION

Competition among providers of many of the Company's products and services,
particularly the processing of incentive payment claims, is intense. While such
competition is fragmented, the Company recognizes approximately 32 direct
competitors, all of which are closely-held private companies. Based on its
review of the industry and informal discussions with magazine publishers and
retailers, the Company believes that none of its direct competitors have greater
financial, technological, marketing and sales resources than the Company.
However, it is possible that certain services offered by the Company could be
performed directly by its retail customers or otherwise offered or performed in
the future by publishers, distributors or other organizations, such as Nielsen
IRI and Audit Bureau of Circulation. Many of such organizations have greater
financial, technological, marketing and sales resources than the Company.
Additionally, competitors may develop new or different service programs which
are perceived by customers to be of similar or superior quality at the same or
lower prices than the Company's services. There can be no assurance that its
present competitors or companies that choose to enter its marketplace in the
future will not exert significant competitive pressures on the Company resulting
in a deterioration of the business environment in which the Company operates,
including a decrease in the number of clients served by the Company and a
decrease in the service revenues chargeable by the Company. See "BUSINESS --
Competition."

MANAGEMENT OF EXPANSION

The Company intends to continue to implement its expansion strategy through
the acquisition of one or more companies which offer products and services
compatible to those of the Company, some of which may involve products or
services with which management of the Company has little or no experience. Such
acquisitions also could continue to place a significant strain on the Company's
capital and human resources. There can be no assurance that the Company will be
able to adequately manage its expansion successfully, introduce new services or
products, or integrate any business which it may acquire, the failure of any of
which could have a material adverse effect on the Company.

NEED TO MANAGE NEW SERVICE INTRODUCTION

The Company believes that its future growth is dependent, in part, on its
ability to anticipate the informational needs of existing and potential clients
and develop and introduce, in a timely manner, new services that adequately
address such needs. There can be no assurance that the Company will be
successful in developing, introducing and marketing new services. If the Company
is unable to introduce new services or if the Company's new services do not
receive sufficient market acceptance, the Company's ability to achieve its
financial objectives may be adversely affected.

UNSPECIFIED ACQUISITIONS

The Company has allocated $1,500,000 (or 16.7%) of the gross proceeds of
this offering to acquire businesses. At the date of this Prospectus, the Company
has no commitments or contracts to acquire any businesses. Furthermore,
management has not selected any specific business for investment of any of the
proceeds of this offering and there can be no assurance that the Company will be
able to identify suitable acquisition candidates or consummate any such
acquisitions on acceptable terms. Purchasers of Common Stock will not have the
opportunity to vote on any such potential acquisitions or review the financial
status of any business to be acquired. Shareholders of the Company must rely
upon management for prudent expenditure of the funds of the Company in making
such acquisitions. Management of the Company does not anticipate seeking
independent appraisals of any businesses which it may acquire.

SHARES ELIGIBLE FOR FUTURE SALE; PREFERRED STOCK; REGISTRATION RIGHTS

Of the 8,023,289 shares of Common Stock outstanding on June 1, 1998,
4,600,528 shares are currently eligible for sale to the public by persons who
are not "affiliates" of the Company without restriction. All the remaining
shares of Common Stock outstanding are "restricted" within the meaning of Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"), and may
not be sold in the absence of registration

8
<PAGE> 9

under the Securities Act or an exemption therefrom. However, the executive
officers, directors and certain other shareholders of the Company, who as of
June 1, 1998 beneficially held an aggregate of 4,250,169 Common Stock, have
agreed that they will not without the prior consent of the Representative, sell
or otherwise dispose of any shares of Common Stock beneficially owned by them
for a period ending on October 7, 1998. Thereafter, such persons are entitled to
sell, without the consent of the Representative, an increasing portion of the
shares beneficially owned by them, subject in some cases to the volume and other
conditions of Rule 144.

Pursuant to authority granted by its Articles of Incorporation, the
Company's Board of Directors (the "Board") has authority to issue up to
2,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions thereof, including voting rights,
without any further vote or action by the Company's shareholders. The voting and
other rights of the holders of Common Stock will be subject to and may be
adversely affected by the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with obtaining necessary capital resources
and for other corporate purposes, could have the effect of delaying, deferring
or preventing a change of control of the Company. The Company has no current
arrangements to issue any additional shares of Preferred Stock. See "DESCRIPTION
OF CAPITAL STOCK."

The Company has filed a registration statement under the Securities Act to
register an aggregate of 520,661 shares of Common Stock issued or reserved for
issuance under the Company's 1995 Incentive Stock Option Plan and 41,322 shares
issued or reserved for issuance under the Company's Stock Award Plan. In
addition, the Company intends to file a registration statement under the
Securities Act to register an aggregate of 600,000 shares of Common Stock
reserved for issuance under the Company's 1998 Omnibus Plan. Certain holders of
the Company's securities have the right to require the Company to file a
registration statement with respect to the sale of approximately 216,528 shares
of Common Stock held by them. No prediction can be made as to the effect, if
any, that future sales of Common Stock or the availability of such shares for
sale will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales might occur, could adversely affect the prevailing market price of the
Common Stock. See "CAPITALIZATION" and "SHARES ELIGIBLE FOR FUTURE SALE."

CONTINUED CONTROL BY MANAGEMENT

Upon completion of this offering, the Company's executive officers and
directors will beneficially own approximately 32.5% (29.9% if the Over-Allotment
Option is exercised in full) of the outstanding shares of Common Stock. As a
result, the Company's executive officers and directors will have effective
voting control of the Company and the practical ability to elect all of the
Company's directors and determine the vote on any matter being voted on by the
Company's shareholders, including any merger, sales of assets or other change of
control of the Company. The Company's Articles of Incorporation and Bylaws do
not provide for cumulative voting in the election of directors. See "PRINCIPAL
AND SELLING SHAREHOLDERS" and "CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BYLAWS."

RELATED PARTY TRANSACTIONS; POTENTIAL CONFLICTS OF INTEREST

From time to time prior to the commencement of the Company's operations in
May 1995, the Company's predecessors engaged in various transactions with its
directors, executive officers and other affiliated parties. The terms and
conditions of such transactions were not negotiated on an arms-length basis and
inherently involve conflicts of interest between the predecessor and the related
party. However, since May 1995, all transactions between the Company and its
officers, directors, principals, shareholders and affiliates have been, and all
future transactions are required to be, approved by a majority of the
independent and disinterested outside directors and must be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
under similar circumstances.

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<PAGE> 10

DEPENDENCE ON KEY AND OTHER PERSONNEL

The Company believes that its success is dependent, in part, on the efforts
of its key executives, including S. Leslie Flegel and William H. Lee. The
Company has entered into employment agreements with all its key executives.
Although the Company believes that the loss of no single executive will have a
material adverse effect on the Company, certain events, many of which are beyond
the control of the Company, could result in the loss of the services of such
executives. The Company has procured and intends to maintain policies of
insurance on the lives of certain members of its senior management, including
Messrs. Flegel and Lee. See "MANAGEMENT."

NO DIVIDENDS WITH RESPECT TO COMMON STOCK

The Company currently anticipates that it will retain all its future
earnings, if any, for use in the expansion and operation of its business, and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. There can be no assurance that the Company will pay cash
dividends at any time with respect to the Common Stock, or that the failure to
pay dividends for a period of time will not adversely affect the market price
for the Company's Common Stock. See "PRICE RANGE OF COMMON STOCK AND DIVIDEND
POLICY."

ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION AND BYLAWS

The Board has authority to issue up to 2,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions
thereof, including voting rights, without any further vote or action by the
Company's shareholders. The voting and the rights of the holders of Common Stock
will be subject to and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
obtaining necessary capital resources and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current arrangements to issue any additional shares
of preferred stock. See "DESCRIPTION OF CAPITAL STOCK." In addition, the
Company's Articles of Incorporation and Bylaws include certain provisions
providing for the staggered election of directors and restrictions on the
ability of shareholders to call special meetings of shareholders. See "CERTAIN
PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS." The Company is
currently subject to the Missouri Takeover Bid Disclosure Act, which under
certain circumstances may prohibit a business combination between the Company
and a shareholder owning 20% or more of the outstanding voting power of the
Company. The Board has adopted a resolution which, if approved by the
shareholders of the Company at the 1998 annual meeting of shareholders, would
amend the Bylaws to include an express election of the Company to not be subject
to such provisions to the extent allowable under Missouri law. If such
resolution is not adopted, such provisions could have the effect of delaying,
deferring or preventing a change in control of the Company.

REPRESENTATIVE'S WARRANTS

In connection with an October 1997 public offering of its Common Stock, the
Company sold to the Representative, for nominal consideration, a warrant to
purchase from the Company up to 200,000 shares of Common Stock at a purchase
price of $4.80 per share (the "1997 Warrants"). Upon consummation of this
offering, the Company has agreed to sell to the Representative and/or its
designees, for nominal consideration, the Representative's Warrants to purchase
from the Company up to an additional 200,000 shares of Common Stock. The
Representative's Warrants are exercisable for a period of four years commencing
on the first anniversary of the date of this Prospectus, at an exercise price
equal to $8.40 per share. For the life of the 1997 Warrants and the
Representative's Warrants, the holders are given, at nominal cost, the
opportunity to profit from a rise in the market price for the securities of the
Company without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. As long as the 1997 Warrants and the
Representative's Warrants remain unexercised, the terms under which the Company
could obtain additional capital may be adversely affected. Moreover, the holders
of the 1997 Warrants and the Representative's Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
10
<PAGE> 11

obtain any needed capital by a new offering of its securities on terms more
favorable than those provided by the 1997 Warrants and the Representative's
Warrants. Additionally, if the holders of the 1997 Warrants and the
Representative's Warrants should exercise their registration rights to effect a
distribution of the 1997 Warrants and the Representative's Warrants or
underlying securities, the Representative, prior to and during such
distribution, will be unable to make a market in the Company's securities and
will be required to comply with other limitations on trading set forth in Rules
101, 103, and 104 of Regulation M promulgated under the Exchange Act. Such rules
restrict the solicitation of purchasers of a security when a person is
interested in the distribution of such security and also limit market making
activities by an interested person until the completion of the distribution. If
the Representative must cease making a market, the market and market price for
such securities may be adversely affected and the holders of such securities may
be unable to sell such securities. See "UNDERWRITING."

11
<PAGE> 12

USE OF PROCEEDS

The following table sets forth the Company's anticipated use of proceeds,
expressed in dollars and as a percentage of gross proceeds.

<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Gross proceeds.............................................. $9,000,000 100.0%
Less:
Underwriting discounts................................. 652,500 7.25%
Offering expenses...................................... 425,000 4.7%
---------- -----
Net proceeds................................................ $7,922,500 88.0%
---------- -----
Use of Proceeds:
Expansion of Advance Pay Program............................ 6,000,000 66.6%
Acquisition of one or more businesses....................... 1,500,000 16.7%
Development of new or enhanced products and services........ 200,000 2.2%
Working Capital and general corporate purposes, including
the continued upgrade of the Company's computer hardware
and software systems...................................... 222,500 2.5%
---------- -----
Total Use of Proceeds....................................... $7,922,500 88.0%
========== =====
</TABLE>

Pending the use of the net proceeds from the sale of the shares of Common
Stock as described above such funds will be used to temporarily reduce the
principal balance under the Company's credit facility. Such credit facility
provides for the availability of up to $15,000,000 of borrowings until
termination by Wachovia Bank, N.A. on not less than 13 months prior notice. At
January 31, 1998, the outstanding principal balance under this credit facility
was $8,598,000, the effective interest rate thereon was 8.48% and the unused
availability thereunder was approximately $6,402,000. After application of the
net proceeds of this offering to the temporary repayment of the outstanding
principal balance on its credit facility, the Company intends to make additional
borrowings under the credit facility for the foregoing purposes.

The foregoing represents the Company's present intentions for the use of
the proceeds of this offering based on its currently contemplated operations,
business plan and currently prevailing economic and industry conditions. The
Company's business plan contemplates that the Company may acquire businesses or
introduce additional products and services. Although the Company has had and
will continue to have discussions with potential acquisition candidates it does
not have any present agreements or understandings with respect to any
significant acquisitions. Changes in the proposed expenditures may be made in
response to, among other things, requirements of and opportunities related to
the Advance Pay Program, the ability of the Company to complete a strategic
acquisition, and changes in the Company's plans, future revenues and
expenditures, as well as changes in general industry conditions and technology.

The Company believes that the net proceeds of this offering, cash flow from
operations, trade credit and existing lines of credit will be sufficient to meet
its immediate cash needs and finance its plans for expansion for the indefinite
future, and in any case for not less than twelve months from the date of this
Prospectus. This belief is based upon certain assumptions regarding the
Company's business and cash flow as well as prevailing industry and economic
conditions. The Company's funding requirements may vary significantly, depending
on how rapidly management seeks to expand the business and the expansion
strategies elected. Accordingly, the Company may, in the future, require
additional financing to continue to expand its business. There is no assurance
that the Company will be successful in obtaining additional financing, if
required, on favorable terms, or at all. If the Company were unable to obtain
additional financing, its ability to meet its current plan for expansion could
be materially and adversely affected. See "CAPITALIZATION" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

12
<PAGE> 13

PRICE RANGE OF COMMON STOCK

From June 22, 1995 until February 12, 1996, the Company's Common Stock was
quoted on the Nasdaq OTC Bulletin Board. From February 12, 1996 until June 12,
1998, the Common Stock was quoted on Nasdaq SmallCap under the symbol "SORC."
From October 7, 1997 until June 12, 1998, the Common Stock was listed on the
Boston Stock Exchange. Beginning on June 12, 1998, the Common Stock was quoted
on Nasdaq under the symbol "SORC." The following table sets forth, for the
periods indicated, the high and low closing bid prices for the Common Stock as
reported by the OTC Bulletin Board and Nasdaq SmallCap, as applicable.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1997
First Quarter............................................. $6.96 $5.30
Second Quarter............................................ $5.75 $4.84
Third Quarter............................................. $5.75 $3.18
Fourth Quarter............................................ $3.93 $2.72
FISCAL 1998
First Quarter............................................. $3.48 $2.58
Second Quarter............................................ $3.71 $1.21
Third Quarter............................................. $4.75 $3.18
Fourth Quarter............................................ $5.38 $3.56
FISCAL 1999
First Quarter............................................. $6.69 $5.13
</TABLE>

The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. On June 12, 1998, the last sale price for the Common Stock as
reported by Nasdaq was $6.125 per share. As of June 1, 1998, there were 112
holders of record of the Common Stock.

DIVIDEND POLICY

During the last two years, the Company has not declared or paid any cash
dividends on its Common Stock. The Board presently, and for the foreseeable
future, intends to retain all its earnings, if any, for the development of the
Company's business. The declaration and payment of cash dividends in the future
will be at the discretion of the Board and will depend upon a number of factors,
including among others, future earnings, operations, funding requirements, the
general financial condition of the Company and such other factors that the Board
may deem relevant.

13
<PAGE> 14

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
January 31, 1998 and (ii) as adjusted to reflect the sale by the Company of the
shares of Common Stock offered hereby and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the financial
statements of the Company, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "DESCRIPTION OF CAPITAL STOCK" included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JANUARY 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(A)
----------- --------------
<S> <C> <C>
Long-term debt (less current portion)....................... $ 8,604,057 $ 681,557
----------- -----------
Stockholders' equity:
Common Stock, par value $0.01 per share, 16,528,925
authorized 8,016,367 shares outstanding actual, 9,516,367
shares outstanding as adjusted............................ 80,163 95,163
Additional paid-in capital.................................. 10,513,949 18,421,449
Retained earnings........................................... $ 1,900,601 $ 1,900,601
----------- -----------
Total stockholders' equity................................ $12,494,713 $20,417,213
----------- -----------
Total capitalization...................................... $21,098,770 $21,098,770
=========== ===========
</TABLE>

- ---------------

(a) Based upon an offering price of $6.00 per share. Assumes the net proceeds of
this offering will be applied to the temporary reduction in the outstanding
principal balance of the Company's credit facility resulting in total
availability thereunder of $14,324,500. Any proceeds remaining after
repayment of such outstanding balance in full will be invested in
short-term, interest-bearing securities or deposited in interest-bearing
bank accounts and will be included in working capital.

14
<PAGE> 15

SELECTED FINANCIAL DATA

The selected financial data as of and for the periods presented below have
been derived from the financial statements of the Company. The financial
statements of the Company as of and for the fiscal years ended January 31, 1998
and 1997 have been audited by BDO Seidman, LLP, and its report thereon is
included elsewhere herein. The selected financial data should be read in
conjunction with the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------------------
1998
-----------------------------
ACTUAL AS ADJUSTED(1) 1997 1996
----------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital...................... $16,988,047 $16,988,047 $ 2,322,778 $1,305,679
Total Assets......................... 23,807,857 23,807,857 15,569,649 5,346,384
Long-term debt, less current
portion............................ 8,604,057 681,557 22,814 32,341
Stockholders' Equity................. 12,494,713 20,417,213 3,145,622 2,017,626
</TABLE>

- ---------------

15
<PAGE> 16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

For more than 20 years, The Source Information Management Company (the
"Company") and its predecessors have provided information gathering, consulting
and other information based services to operators of mass merchandise, grocery,
convenience and pharmacy stores located throughout the United States and eastern
Canada. Currently, the Company provides monitoring and documentation services to
approximately 725 retailers, such as Wal-Mart Stores, Inc., Kmart Corporation,
Target Stores, Inc., Food Lion, Inc., and W.H. Smith, Inc., in connection with
processing and collection of incentive payments from magazine publishers on
single copy sales of approximately 6,000 magazine titles offered in more than
65,000 stores. As an extension of this service, the Company established its
Advance Pay Program, under which the Company advances an agreed upon percentage
of the incentive payments due to the retailer from magazine publishers. It then
collects directly from the publishers the claims due to the retailer. In fiscal
1997 and 1998, the Company advanced approximately $15 million and $39 million
under the Advance Pay Program, respectively. In October 1996, the Company
expanded its services and potential client base with the introduction of the
Periodical Information Network ("PIN"), an information service in which the
Company offers and provides subscribing magazine publishers, advertisers and
others with industry-wide, single copy magazine sales information in a user
friendly format. Based on discussions with representatives of magazine
publishers, the Company believes that publishers and advertisers perceive that
PIN provides a valuable basis on which to formulate marketing, distribution,
advertising and other policies.

A majority of the Company's revenues are derived from service fees earned
in connection with the collection of incentive payments owed to the Company's
retailer clients from magazine publishers. Most incentive payment programs offer
the retailer a cash rebate, equal to a percentage of the retailer's net sales of
the publisher's titles, which is payable quarterly upon submission of a properly
documented claim. Under agreements with its retailer clients, the Company
gathers sales data, submits claims for payment, collects payments and receives a
percentage of the aggregate payments collected on the retailers' behalf. Claims
for incentive payments are generally submitted to the publisher quarterly based
on net sales of the publishers' titles recorded in the previous calendar
quarter. Except in connection with its Advance Pay Program, the Company does not
guarantee to its retailer clients any payments due to the client from magazine
publishers, and accordingly, does not assume any credit risk associated with
such incentive payments. In substantially all the contracts under the Advance
Pay Program, which is continuing to represent an increasing percentage of the
payments collected, the Company bears the risk of uncollectibility associated
with collecting payments from publishers. To date, management believes that the
reserve maintained by the Company as an allowance for doubtful accounts in the
amount of approximately 2% of accounts receivable is adequate to satisfy any
losses incurred by the Company from uncollectible accounts receivable.

Under both the standard arrangement and the Advance Pay Program, commission
revenue is recognized at the time claims for incentive payments are
substantially completed for submission to the publishers based on the amount
claimed, less an estimated reserve necessary to maintain an allowance for
doubtful accounts of approximately 2% of trade accounts receivable. However,
under the standard arrangement, invoices for services provided by the Company in
connection with the claim process are not issued until the Company receives
settlement of the claim. Under the Advance Pay Program, the revenue recognized
by the Company represents the difference between the amount advanced to the
retailer customer and the amount claimed against the publisher.

16
<PAGE> 17

RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, certain
information relating to the operations of the Company expressed as a percentage
of Total Revenues:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
-----------------
1998 1997
------ -------
<S> <C> <C>
Service Revenues............................................ 99.9% 96.7%
Merchandise Revenues........................................ 0.1 3.3
----- ------
Total Revenues.............................................. 100.0 100.0
Cost of Service Revenues.................................... 49.4 66.6
Cost of Merchandise Sold.................................... 0.3 2.8
----- ------
Gross Profit................................................ 50.3 30.6
Selling, General & Administrative Expense................... 19.9 39.8
----- ------
Operating Income (Loss)..................................... 30.4 (9.2)
Interest, Net............................................... (5.9) (3.9)
Other Income (Expense), Net................................. (0.7) (0.4)
----- ------
Income (Loss) Before Income Taxes........................... 23.8 (13.4)
Net Income (Loss)........................................... 13.5% (8.3)%
</TABLE>

SERVICE REVENUES

Increased retailer participation in the Advance Pay Program, the
acquisition of Mike Kessler and Associates, Inc. and the growth in subscriptions
to PIN contributed to an increase in service revenues of approximately
$4,739,000, or 67%, over fiscal 1997. Of the total, claims, PIN and Advance Pay
Program revenues increased approximately $3,898,000, or 61% over the prior year.
Revenue from front-end management services increased from $636,000 in the prior
year to $1,477,000 in fiscal 1998, or 132%, resulting from an increase in the
number of reconfiguration programs undertaken by the Company on behalf of its
retailer clients, including the Kmart program. Historically, front-end
management revenues have fluctuated as a result of a variety of factors
including the number and magnitude of reconfiguration programs undertaken by the
Company's retailer clients and the timely shipping of front-end merchandising
fixtures by manufacturers. Consequently, variations in the timing and amounts of
front-end management revenues could have a material positive or negative effect
on the Company's operating results of any given quarter. In June 1998, the
Company introduced its proprietary SOURCEPRO software, which enables retailers
to visualize alternative checkout configuration in a three-dimensional graphic
environment and analyze the relative profit potential which can be achieved by
the retailer from alternative configurations.

MERCHANDISE REVENUES AND COST OF MERCHANDISE SOLD

As a result of its relationships with the leading retailers in the United
States, the Company has had opportunities from time to time to purchase
merchandise, such as gift and greeting cards, caps and other leisure time
products for resale to its retailer clients. However, at the end of fiscal 1997,
management decided to de-emphasize this portion of its business in order to
dedicate more resources to its core services. As a result, the revenues derived
from merchandising sales declined in fiscal 1998 as the related merchandise
inventory was liquidated.

COST OF SERVICE REVENUES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("TOTAL
COSTS")

Despite a 67% increase in Service Revenues, Total Costs increased only
$412,000, or 5%. Increased costs incurred in connection with the acquisitions of
Magazine Marketing, Inc., Readers Choice, Inc. and Mike Kessler and Associates,
Inc., including wages, amortization, rent and depreciation, were more than
offset by the related revenue increases. In addition, wages increased as a
result of bonuses and the hiring of individuals

17
<PAGE> 18

formerly employed by Data-Pros, Inc., a data processing service company
purchased on January 1, 1997. However, the increase in wages in connection with
the acquisition was largely offset by a decrease in data processing expenses.

INTEREST EXPENSE

Interest Expense increased $402,000 principally due to increased borrowings
necessary to fund the growth in the Advance Pay Program and, to a lesser extent,
to fund the acquisition of Mike Kessler and Associates, Inc.

INCOME TAX EXPENSE (BENEFIT)

The effective income tax rate for fiscal year 1998 was 43.7%. This rate
varied from the federal statutory rate due to state income taxes and expenses
not deductible for income tax purposes. Such non-deductible expenses include
meals and entertainment, goodwill amortization, and officers' life insurance
premiums.

EARNINGS PER SHARE

In calculating earnings per share, net income for the year was reduced by a
constructive dividend of $109,937, which resulted from the exchange of all 5,600
outstanding shares of Preferred Stock for 186,667 shares of Common Stock and
nontransferable warrants, expiring in 2000, to purchase 310,709 shares of Common
Stock at an exercise price of $3.00 per share.

YEAR 2000 READINESS

The Company is aware of the Year 2000 issues associated with the practice
of encoding only the last two digits of four digit years in computer-based
systems. Year 2000 issues, if not properly addressed, could result in
disruptions of operations. Currently, management estimates that the incremental
cost to renovate other applications and test replacement applications and
systems to become year 2000 ready will not have a material effect on the
Company's financial condition, results of operations or liquidity. No assurance
can be given that the Company will successfully avoid all problems with the Year
2000 issue.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash requirements are for meeting the working capital
required in connection with the costs incurred in obtaining service revenues,
selling, general and administrative expenses (particularly salaries, travel and
entertainment) incurred in the maintenance of existing accounts and in
connection with the solicitation of new clients, and for funding the Advance Pay
Program. Historically, the Company has financed its business activities through
cash flow from operations, borrowings under available lines of credit and
through the issuance of equity securities.

Net cash used by operating activities was $5,520,000 and $6,511,000 during
the years ended January 31, 1998 and 1997, respectively. If, and so long as the
Advance Pay Program grows at the rate experienced in fiscal 1998, management
anticipates cash used by operations will continue to exceed cash provided by
operations. However, if and when the conversion of existing and new customer
accounts to the Advance Pay Program has been substantially completed, management
anticipates, based on its existing operations, that cash provided by operations
will exceed cash used by operations.

Accounts receivable increased $5,500,000 as a result of the significant
growth of the Advance Pay Program. The average collection period for 1998 was
136 days (considered to be within an acceptable range by management based on the
nature of the Company's business and historical experience) compared to 153 days
for 1997. The collection periods were calculated as follows: 365 days/(Revenues/
Average Accounts Receivable), where accounts receivable includes all trade
accounts receivable, but only the service fee portion of amounts due from
publishers in association with the Advance Pay Program.

18
<PAGE> 19

The Company is primarily engaged in the business of providing services to
its retailer clients; therefore, its capital expenditure requirements are
minimal. At January 31, 1998, the Company had no outstanding material
commitments for capital expenditures.

The Company has a credit agreement that provides for a revolving loan of up
to $15,000,000 with Wachovia Bank, N.A. Wachovia Bank has the right to terminate
the agreement upon not less than thirteen months prior written notice.
Borrowings bear interest at a rate related to the monthly LIBOR index rate plus
a percentage ranging from 2.5% to 3.5% depending upon the ratio of funded debt
to earnings before interest, taxes, depreciation and amortization. Borrowings
are secured by a security interest in substantially all of the Company's assets
including receivables, inventory, equipment, goods and fixtures, software,
contract rights, notes, and general intangibles. Under the credit agreement, the
Company is required to maintain certain financial ratios. At January 31, 1998,
the Company was in compliance with all financial ratios imposed by the credit
agreement.

At January 31, 1998, the Company's total long-term debt obligations were
$8,635,054. Of such amount, $30,997 will mature within 12 months. The Company
anticipates that the funds necessary to satisfy these obligations will be
derived from cash flows from operations.

At January 31, 1998, the Company had total deferred tax assets of $214,000
and total deferred tax liabilities of $1,086,000 resulting in a net deferred tax
liability of $872,000 reflecting the net tax effects of temporary differences
between the carrying amount of the assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting. Of this
liability, $316,000 results from a change in accounting method from cash to
accrual by (i) the Company's predecessors in connection with the formation of
the Company, (ii) Magazine Marketing, Inc. and (iii) Mike Kessler and
Associates, Inc. This liability is expected to be paid $222,000, $72,000 and
$22,000 over the next three years, respectively. The Company anticipates that
the funds necessary to satisfy this tax obligation will be derived primarily
from cash flows from operations.

In July 1997, the holders of the Company's 1996 Series 7% Convertible
Preferred Stock exchanged all 5,600 outstanding shares for 186,667 shares of
Common Stock at an effective price of $3.00 per share and non-transferable
warrants, expiring in 2000, to purchase 310,709 shares of Common Stock at an
exercise price of $3.00 per share. The exchange resulted in a one-time
constructive dividend of $109,937, which was reported in the fiscal quarter
ended July 31, 1997.

In September 1997, the Company issued to Aron Katzman, Harry L. Franc, III
and Timothy A. Braswell, each a director of the Company, non-transferable
warrants, expiring in 2000, to purchase an aggregate of 89,289 shares of Common
Stock at an exercise price of $3.00 per share. These warrants will vest at a
rate of 25% on August 1, 1998, 25% on November 1, 1998, 25% on February 1, 1999
and 25% on May 1, 1999. The related expense incurred of approximately $54,000
will be recognized ratably over those periods.

NEW ACCOUNTING STANDARDS

SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and losses
on available-for-sale securities. Components of the Company's comprehensive
income will be included in a financial statement that has the same prominence as
other financial statements starting in the first quarter of fiscal 1999. SFAS
No. 130's disclosure requirements will have no impact on the Company's financial
condition or results of operations.

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997, but interim reporting is not required in 1998. An operating
segment is defined under SFAS No. 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. The Company is currently
evaluating the impact of SFAS No. 131 on future financial statement disclosures.

19
<PAGE> 20

BUSINESS

OVERVIEW

FORMATION OF THE COMPANY

The Company was organized in 1995 by the consolidation of two significant
providers of services to retailers of magazines and other periodicals. The
Company has expanded through the acquisition of businesses and technologies that
addressed additional services or products, market segments or geographic regions
in which the Company was not previously active. These acquisitions have allowed
the Company to expand the services offered to its clients and enhanced its
ability to support existing and planned services. In 1995, the Company acquired
the business of Dixon's Modern Marketing Concepts, Inc. and Tri-State Stores,
Inc., both of Chicago Heights, Illinois. In 1996, the Company acquired the
businesses of Magazine Marketing, Inc. of Canton, Ohio and Readers Choice, Inc.,
a subsidiary of United Magazine Company located in Columbus, Ohio. In May 1997,
the Company acquired the business of Mike Kessler and Associates, Inc. of Fair
Lawn, New Jersey.

THE MAGAZINE INDUSTRY

Based on its knowledge of the industry and discussions with magazine
publishers and retailers, management of the Company believes that magazine
publishers are placing an increasing degree of importance on revenues derived
from single copy newsstand sales and that the emphasis placed on single copy
sales by publishers will continue to increase as: (i) mailing costs continue to
rise with respect to subscription distribution; and (ii) magazine advertisers
continue to value the improved target market accuracy achieved through single
copy sales.

The distribution of the approximately 6,000 magazine titles currently
published for single copy sales on a national basis is dominated by six national
distributors, which distribute to over 200 local independent distributors, which
in turn supply copies to magazine retailers. Although the nature of the
businesses in which magazine retailers are engaged is wide ranging, the largest
volume of single copy sales historically is achieved by grocery retailers and
mass merchandise stores. The primary function of the retailer is the display of
available titles in two store locations, at a dedicated section called a
"mainline display" and at displays located within the merchandise checkout area.
Because magazines are frequently purchased on impulse, publishers increasingly
compete for display spaces, referred to as "pockets," at the checkout.

National distributors receive a brokerage fee based on sales and
distribution to local distributors. Local distributors purchase copies at a
discount to the suggested retail price and resell to retailers, also at a
discount to the suggested retail price. Unsold copies are returnable by the
retailer for full credit to all parties in the
20
<PAGE> 21

distribution chain, such that payments are made only with respect to copies
actually sold. All accounting for copies is done by the local distributors which
invoice for distributed copies, credit retailers for returns and credit national
distributors for sales through a computer-assisted single entry information
system.

To provide further incentives to retailers to prominently display their
respective titles, publishers typically enter into Retail Display Allowance
("RDA") programs under which the retailer is entitled to receive, on a quarterly
basis, a cash rebate directly from the publisher equal to a percentage of the
retailer's actual net sales of the publisher's titles upon submission of a
properly documented claim. Conversely, certain publishers of high volume
magazines essentially rent "pocket" space from retailers for the display and
sale of specific titles. Such rent, referred to as "pocket payments" (or "RDP"
payments), is a fixed amount per pocket, per store based on the verified
location and other criteria of the pocket, and is paid quarterly. A majority of
RDA and RDP programs are administered on behalf of the publishers by the
national distributors.

Publishers have also implemented programs to encourage retailers to upgrade
their checkout and mainline display fixtures by making one-time incentive
payments, based on the pockets allocated to their respective titles. Similar to
RDA and RDP, such payments are made only upon submission of a properly
documented claim.

CLIENT SERVICES

The Company is dedicated to providing full information services to its
clients. Such services include the following:

Claim Submission. Through its information system, the Company assists
retailers in accurately monitoring, documenting, claiming and collecting
publisher incentive payments. The claim submission process begins at the end of
each calendar quarter when the Company obtains information from the local
distributors detailing the titles and number of copies actually sold by the
client retailer. Based on this information, the Company prepares publisher
supplied claim forms and submits the documented claim to the appropriate
national distributor, which acts as payment agent for the publisher. After
verification of the claim, the national distributor remits payment to the order
of the retailer in care of the Company, which records the payment and forwards
it to the retailer. The Company charges the retailer a negotiated percentage of
the cash collected.

As an extension of its claim submission service, the Company has
established an Advance Pay Program. Under the provisions of the written
agreement signed by each participating retailer, the Company collects the
incentive payments otherwise due the retailer directly from magazine publishers
with respect to the sale and display of magazines. In return, the Company pays
to the retailer a negotiated fixed percentage of the total incentive payments
otherwise due the retailer with respect to each calendar quarter generally not
later than ninety days after the end of each such quarter. The funds necessary
to make such payments are derived from cash flow from operations and borrowings
under the Company's existing $15.0 million credit facility. Typically, the
agreement provides for a minimum term of one year and thereafter is terminable
by either party on not less than ninety days notice. This service relieves the
retailer from the burdensome administrative task of processing multitudes of
small publisher checks. Service fees earned under the Advance Pay Program
generally exceed those charged under the traditional method; however the Company
generally assumes the risk of uncollectibility of the incentive payments. Based
on historical experience, the Company maintains a reserve for doubtful accounts
equal to approximately 2% of outstanding accounts receivable. The Company
believes such reserve will be adequate.

Periodical Information Network (PIN). The Company's large and
sophisticated database of magazine industry information has resulted in it
becoming a magazine information center which management believes is used by many
companies in the magazine industry to formulate their publishing and
distribution strategies. PIN is a comprehensive system designed to use current
computer technologies, including CD-ROM, to effectively manage all elements of
the Company's database including information packaging and efficient inbound,
outbound access. The network provides access to periodically updated historical
information concerning the titles and quantity of each title sold by retailers
for analysis purposes. Most leading publishers have subscribed to PIN. The PIN
subscription agreement provides that the Company will furnish each subscriber
with a historical database of sales information and quarterly updates capable of
generating three
21
<PAGE> 22

general types of reports: total sales, sales by class of trade, and sales by
retailer. Each report ranks titles in order of sales volume, and provides other
sales related information, including sales efficiencies, category contributions
and total sales ranking. Subscribers pay service fees equal to a one-time
enrollment fee and quarterly update fees. Subscriptions have a term of one year,
which are automatically renewed for successive one-year terms unless either
party terminates by notice to the other not later than ninety days before
commencement of the next renewal term. PIN accounted for approximately 4% of the
Company's 1998 revenues.

Front-End Management. The Company assists retailers in maximizing sales
and incentive payment revenues by reconfiguring and designing front-end
merchandising fixtures, supervising fixture installation, selecting products,
negotiating with vendors and performing the burdensome task of billing and
collecting incentive payments from vendors. The Company utilizes its knowledge
of local consumer preferences and incentive payment programs and its newly
developed SOURCEPRO three dimensional fixture design and imaging system to
analyze the retailer's store layout, customer traffic patterns and available
front-end merchandising alternatives, and develop an appropriate checkout
display configuration. Thereafter, the Company relieves the retailer of the
burden of managing the invoicing and collection of payments due from the
numerous vendors participating in any particular display configuration.
Front-end management was introduced in July 1997 with a contract to manage the
front-end of approximately 2,200 Kmart stores. The Company's front-end
management includes ongoing services with respect to the management of checkout
area merchandising, including reconfiguration and design of fixtures, product
selection, plan-o-gramming, vendor negotiation, vendor billing and collection,
fixture prototype review and supervision of fixture installation. As of the date
of this Prospectus, the number of stores for which the Company is providing
front-end management services has grown to more than 10,000, and involves
arrangements with other prominent retailers such as SuperValu, Hills, Southland
and Cub Foods. The Company is currently in active negotiation to provide
front-end management services with several prominent retailers who operate
approximately 8,000 stores. Front-end management services accounted for
approximately 13% of the Company's 1998 revenues.

UPC Information Service. The Company's UPC Information Service is an
interactive, internet-based information center designed to enable publishers and
retailers to efficiently communicate price changes, product code corrections and
changes in the lists of titles authorized by a retailer for front-end
merchandising in any particular store. Subscribers customize the package of
services perceived to have the greatest value under their respective
circumstances from a menu of services which include downloadable daily updates
of product code data and corrections and real time listings of titles authorized
for sale in each retail chain serviced by the Company. In May 1998, the Company
began a 90-day beta test of its uniform product code ("UPC") information service
in selected retail chains. Management believes that publishers will recognize
the potential savings to be realized by using the Company's new UPC information
service to minimize fines imposed by retailers for erroneous product codes and
expenses associated with correcting improperly assigned codes.

Marketing and Promotional Program. As part of its full-service philosophy,
the Company offers its clients advice and suggestions concerning specialized
marketing and promotional programs which may include, for example, special
mainline or checkout displays and cross-promotions of magazines and products of
interest to the readers of such magazines. Such services are offered to enhance
single copy magazine sales by the Company's clients, and thereby increase
service revenues due the Company in connection with the submission of incentive
payment claims; accordingly, no separate charge is made for these services.

GROWTH OPPORTUNITIES

Expansion of Services to New Product Categories. The Company's information
services are designed to efficiently and accurately accumulate and manage sales
data with respect to sales of low cost, high volume consumer products. While the
Company's services, including PIN and the Advance Pay Program, were developed
for use in the magazine industry, the Company has been engaged to provide its
services in connection with integrated magazine and confections and expects to
offer its services for use in connection with other consumer products, such as
razors and batteries.

22
<PAGE> 23

Development of New and Enhanced Products and Services. The Company
believes that its future success will be dependent upon its ability to
anticipate the informational needs of existing and potential clients and to
develop and introduce, in a timely manner, new products and services which
address such needs. A portion of the proceeds of this offering are expected to
be used to continue the Company's development of new and enhanced products and
services. The Company encourages creativity and originality in its sales
personnel and believes that one of the keys to the growth of the Company has
been the willingness of senior management to implement product and service
solutions suggested by the Company's personnel to address the needs of customers
with whom they interact. In addition, Messrs. Flegel and Lee, as well as various
members of the Company's senior management and sales staff, periodically meet
with its consumers to discuss industry trends and informational requirements.
After identifying an unsatisfied consumer need, members of the Company's senior
management and sales team meet to design new or enhanced products and services
addressing such need. Thereafter, a team is appointed to develop such products
and services for introduction to the market.

CUSTOMERS/CLIENTS

The Company provides services to approximately 725 operators of mass
merchandise, grocery, convenience and pharmacy stores located throughout the
United States and eastern Canada. Such retailers include Wal-Mart Stores, Inc.,
Kmart Corporation, Target Stores, Inc., Food Lion, Inc. and W.H. Smith, Inc. In
addition, the Company provides market data to publishers, including Time
Distribution Services, ICD/The Hearst Corp. and Globe Marketing Services. All of
the Company's services are rendered pursuant to short term contracts and,
accordingly, the Company's clients are under no long term contractual obligation
to continue to employ the Company's services.

MARKETING AND SALES

The Company markets its services through its own direct sales force. The
Company's sales group consists of ten regional managers and three divisional
vice presidents. Each manager is assigned to a specific geographic territory and
is responsible for the preparation of quotations, program presentations and the
general development of sales, as well as maintenance of existing accounts,
within his or her assigned territory.

COMPETITION

Competition among providers of many of the Company's products and services,
particularly the processing of incentive payment claims, is intense. While such
competition is fragmented, the Company recognizes approximately 32 direct
competitors, all of which are closely-held private companies. The Company
believes that, in virtually all cases, it is the sole provider of magazine
incentive payments claim services to its clients, the Company's clients do not
perform such services on their own behalf and that none of the Company's
competitors currently provide the range of services offered by the Company.
Furthermore, the Company believes that none of its direct competitors have
greater financial, technological, marketing and sales resources than the
Company. However, it is possible that certain services offered by the Company
could be performed directly by its retail customers or otherwise offered or
performed in the future by publishers, distributors or other organizations, such
as Nielsen, IRI and Audit Bureau of Circulation. Many of such organizations have
greater financial, technological, marketing and sales resources than the
Company. Additionally, competitors may develop new or different service programs
which are perceived by customers to be of similar or superior quality at the
same or lower prices than the Company's services.

Management further believes that the principal competitive factors in the
retail information industry include information access, technological support,
accuracy, system flexibility, financial stability, customer service and
reputation. The Company believes it competes effectively with respect to each of
the above factors.

PROPERTIES

The Company conducts its operations from 11 office facilities, located in
St. Louis, Missouri; New York, New York; Chicago Heights, Illinois; Schaumburg,
Illinois; Oklahoma City, Oklahoma; San Antonio, Texas;

23
<PAGE> 24

Cranberry Township, Pennsylvania; Canton, Ohio; Woodstock, Georgia; Fair Lawn,
New Jersey; and Mississauga, Ontario, Canada. These facilities contain an
aggregate of approximately 19,000 square feet of space. Each of the facilities
is occupied by the Company under leases containing terms and conditions believed
to be comparable to those prevailing in the market in which the facility is
located. The Company believes that each of such facilities may be relocated
without material expense or delay, and that suitable alternative office
facilities are available in each market on comparable terms, if required.

In addition, the Company's data processing center, located in High Point,
North Carolina, contains approximately 22,000 square feet and is occupied under
a written lease with 711 Gallimore Partnership, a North Carolina general
partnership expiring in 2012. Effective May 1, 1998, such lease provides for the
payment of monthly rent of approximately $20,000, subject to adjustment for
taxes, insurance and utilities. See "MANAGEMENT -- Certain Relationships and
Related Transactions."

MANAGEMENT INFORMATION SYSTEMS

The Company uses a customized information system to accumulate and manage
sales data in connection with its processing of claims and maintenance of the
PIN database under a license from a third party which has been retained by the
Company to service and upgrade the Company's information system. This
sophisticated information system is of a type used by several companies engaged
in the collection of sales incentive payments in the magazine industry. In June
1998, the Company introduced its proprietary SOURCEPRO software, which enables
retailers to visualize alternative checkout configurations in a three
dimensional graphic environment and analyze relative profit potential.
Management believes that currently none of the Company's competitors utilize
comparable technology to assist retailers in space design.

INTELLECTUAL PROPERTY RIGHTS

Although the Company uses several service marks in connection with its
business, it believes that its business is not dependent on the strength of its
service marks or any of its intellectual property rights.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings, other than routine
claims and lawsuits arising in the ordinary course of business. The Company does
not believe that such claims and lawsuits, individually or in the aggregate,
will have a material adverse effect on the Company's business.

EMPLOYEES

As of April 30, 1998, the Company employed 111 persons, of whom
approximately 85% were employed on a full-time basis and approximately 15% were
employed on a part-time basis. Of such persons, 27 are engaged in administrative
activities, two devote at least a portion of their efforts to research and
development activities and the remaining employees are engaged in sales,
customer support and data processing. The Company's employees are not subject to
a collective bargaining agreement. The Company considers its relations with its
employees to be good.

24
<PAGE> 25

MANAGEMENT

The following table sets forth certain information concerning the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. Leslie Flegel.......... 60 Director, Chairman and Chief Executive Officer
William H. Lee............ 47 Director, President and Chief Operating Officer
John P. Watkins........... 42 Chief Administrative Officer and President-Retail Services
Dwight L. DeGolia......... 53 Executive Vice President
W. Brian Rodgers.......... 32 Assistant Secretary and Chief Financial Officer
Jason S. Flegel........... 32 Sr. Vice President of RDA Operations
Stephen E. Borjes......... 48 President--Front-End Merchandising Group
Timothy A. Braswell....... 69 Director
Harry L. "Terry" Franc,
III..................... 62 Director
Aron Katzman.............. 60 Director
Randall S. Minix.......... 48 Director
</TABLE>

Each of the Executive Officers is a full-time employee of the Company.
Non-employee directors of the Company devote such time to the affairs of the
Company as is necessary and appropriate. Set forth below are descriptions of the
backgrounds of the Executive Officers and Directors of the Company:

S. Leslie Flegel has been a director, Chairman and Chief Executive Officer
of the Company since its inception in March 1995. For more than 14 years prior
thereto, Mr. Flegel was the principal owner and chief executive officer of
Display Information Systems Company ("DISC"), a predecessor of the Company.

William H. Lee has been a director, President and Chief Operating Officer
of the Company since its inception in March 1995. For approximately 14 years
prior thereto, Mr. Lee was the principal owner and chief executive officer of
Periodical Marketing and Management, Inc. ("PMM"), a predecessor of the Company.

John P. Watkins has served as Chief Administrative Officer and
President-Retail Services since February 1, 1996. For more than 16 years prior
thereto, Mr. Watkins served in several senior management positions with Food
Lion, Inc., a seven billion dollar retail grocery chain. From September 1992 to
July 1995, Mr. Watkins served as Senior Vice President and Chief Operating
Officer and a member of the board of directors of Food Lion, Inc.

Dwight L. DeGolia has served as Executive Vice President of the Company
since its commencement of operations in May 1995. For more than ten years prior
thereto, Mr. DeGolia served as Executive Vice President of Sales and Marketing
for DISC. From 1986 to 1993, Mr. DeGolia also served as a director of Advanced
Marketing Services, a leading supplier of books to wholesale clubs.

W. Brian Rodgers has served as Assistant Secretary of the Company and
Chief Financial Officer since October 1996. Prior to joining the Company, Mr.
Rodgers practiced for seven years as a Certified Public Accountant with BDO
Seidman, LLP.

Jason S. Flegel has served as Senior Vice President of RDA Operations
since June 1996. Prior thereto, and since the Company's inception in March 1995,
Mr. Flegel served as Vice President -- Western Region. For more than two years
prior thereto, Mr. Flegel was an owner and the Chief Financial Officer of DISC.
Jason S. Flegel is the son of S. Leslie Flegel.

Stephen E. Borjes has served as President of Front-End Merchandising Group
since September, 1997. For more than 20 years, Mr. Borjes held several positions
with Dixie News Co. ("Dixie News") and the News Group, which purchased Dixie
News in 1994. His latest position at News Group was Vice President of Operations
for the distribution centers in Charlotte and Winston-Salem, North Carolina, and
Johnston City, Tennessee.

25
<PAGE> 26

Timothy A. Braswell has been a director of the Company since it commenced
operations in May 1995. He established Braswell Investment Company, a consultant
and broker of wholesale magazine businesses in 1994 and is its owner. For more
than five years prior thereto, Mr. Braswell was the principal owner and chief
executive officer of City News Co. and Dixie News, each of which is a wholesale
periodical company.

Harry L. "Terry" Franc, III, has been a director of the Company since it
commenced operations in May 1995. Mr. Franc is one of the founders of Bridge
Information Systems, Inc. ("BIS"), a global provider of information services to
the securities industry and of BIS's subsidiary, Bridge Trading Company ("BTC"),
a registered broker-dealer and member of the New York Stock Exchange. For more
than 20 years, Mr. Franc served as a director and an Executive Vice President of
BIS and an Executive Vice President of BTC.

Aron Katzman has served as a director of the Company since it commenced
operations in May 1995. For more than five years prior to May 1994, when it was
sold, Mr. Katzman served as the Chairman and Chief Executive Officer of Roman
Company, a manufacturer and distributor of fashion custom jewelry. Mr. Katzman
is a member of the board of directors of Phonetel Technologies, a company listed
on the American Stock Exchange.

Randall S. Minix has served as a director of the Company since it
commenced operations in May 1995. For more than six years, Mr. Minix has been
the managing partner of Minix, Morgan & Company, L.L.P., an independent
accounting firm headquartered in Greensboro, North Carolina.

The Board consists of six members, each of whom serve in such capacity for
a three year term or until a successor has been elected and qualified, subject
to earlier resignation, removal or death. The number of directors comprising the
Board may be increased or decreased by resolution adopted by the affirmative
vote of a majority of the Board. The Company's Articles of Incorporation and
Bylaws provide for three classes of directorships serving staggered three year
terms such that one-third of the directors are elected at each annual meeting of
shareholders. The terms of Messrs. Flegel and Lee will continue until the 1998
annual meeting of shareholders, the terms of Messrs. Katzman and Minix will
continue until the 1999 annual meeting of shareholders and the terms of Messrs.
Braswell and Franc will continue until the 2000 annual meeting of shareholders.

The Board has established an Audit Committee, a Compensation Committee, a
Finance Committee and an Acquisition Committee. The Audit Committee is comprised
of two non-employee directors, presently Messrs. Minix and Katzman, and has the
responsibility of recommending the firm that will serve as the Company's
independent auditors, reviewing the scope and results of the audit and services
provided by the Company's independent accountants, and meeting with the
financial staff of the Company to review accounting procedures and policies. The
Compensation Committee is comprised of three non-employee directors, presently
Messrs. Katzman, Braswell and Franc, and has been given the responsibility of
reviewing the financial records of the Company to determine overall compensation
and benefits for executive officers of the Company and to establish and
administer the policies which govern employee salaries and benefit plans. The
Finance Committee is comprised of two directors, Messrs. Franc and Katzman. The
Finance Committee has been given the responsibility of monitoring the Company's
capital structure, reviewing available alternatives to satisfy the Company's
liquidity and capital requirements and recommending the firm or firms which will
provide investment banking and financial advisory services to the Company. The
Company's Acquisition Committee is comprised of three directors, presently
Messrs. Franc, Braswell and Katzman, and has been given the responsibility of
monitoring the Company's search for attractive acquisition opportunities,
consulting with members of management to review plans and strategies for the
achievement of the Company's external growth objectives and recommending the
firm or firms that will serve as advisors to the Company in connection with the
evaluation of potential business combinations.

26
<PAGE> 27

EXECUTIVE COMPENSATION

The following table summarizes information concerning cash and non-cash
compensation paid to or accrued for the benefit of the named executive officers
for all services rendered in all capacities to the Company and its predecessors.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER ANNUAL
NAME OF PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A)
-------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>

S. Leslie Flegel 1998 $255,000 $ 96,300 $25,643
Chairman and Chief Executive 1997 227,500 176,398 30,624
Officer 1996 200,000 26,543 30,995

William H. Lee 1998 $245,494 $ 70,382 $12,629
President and Chief Operating 1997 224,830 30,000 13,944
Officer 1996 192,646 -- 19,006

Dwight L. DeGolia 1998 $150,000 $ 29,200 $10,777
Executive Vice President 1997 140,000 4,773 11,223
1996 134,884 -- 16,739

John P. Watkins 1998 $150,000 $ 25,000 $ 9,986
Chief Administrative Officer and 1997 150,000 -- 11,891
President-Retail Services 1996 -- -- --

Robert B. Dixon(b) 1998 $150,000 $ 5,500 $12,797
Executive Vice President and 1997 150,000 -- 13,907
President-Periodical Information 1996 114,000 $ 50,000 5,458
Management
</TABLE>

- ---------------

(a) Reflects personal benefits derived by Messrs. Flegel, Lee, DeGolia, Watkins
and Dixon primarily in connection with personal use of Company automobiles,
country club membership dues and life insurance premiums. In fiscal 1998 the
estimated incremental cost to the Company of the use by Messrs. Flegel, Lee,
DeGolia, Watkins and Dixon of Company automobiles was $9,566, $8,523,
$6,312, $7,800 and $8,597, respectively. In fiscal 1997, such cost to the
Company was $10,339, $8,650, $6,090, $7,800 and $8,597, respectively. In
fiscal 1996, such cost was $11,444, $6,234, $6,360, $-0-, and $3,158,
respectively.

In fiscal 1998, the estimated incremental cost to the Company of the
membership dues paid on behalf of Messrs. Flegel, Lee, DeGolia, Watkins and
Dixon was $6,984, $1,050, $4,465, $1,425 and $4,200, respectively. In
fiscal 1997, such cost to the Company was $11,192, $2,239, $5,133, $3,330
and $5,310, respectively. In fiscal 1996, such cost was $11,503, $4,738,
$4,751, $-0- and $2,300, respectively.

In fiscal 1998, the estimated incremental cost to the Company of life
insurance premiums paid on behalf of Messrs. Flegel, Lee, DeGolia, Watkins
and Dixon was $9,093, $3,056, $-0-, $761 and $-0-, respectively. In fiscal
1997, such cost to the Company was $9,093, $3,056, $-0-, $761 and $-0-,
respectively. In fiscal 1996, such cost was $8,048, $8,033, $5,628, $-0-and
$-0-, respectively.

(b) Regrettably, Mr. Dixon died on February 26, 1998.

27
<PAGE> 28

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SH) DATE
---- -------------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
S. Leslie Flegel................... 89,256(1) 27% $1.66 5-14-02
William H. Lee..................... 49,091(2) 15% $2.66 6-24-02
Dwight L. DeGolia.................. 10,909(3) 3% $2.42 6-24-07
John P. Watkins.................... 13,636(3) 4% $2.42 6-24-07
74,380(4) 23% $5.60 2-01-01
Robert B. Dixon.................... 0 0 N/A N/A
</TABLE>

- ---------------

(1) Options were granted May 15, 1997 and are exercisable as follows: 29,752 on
or after May 15, 1998, 29,752 on or after May 15, 1999 and 29,752 on or
after May 15, 2000.

(2) Options were granted June 25, 1997 and are exercisable as follows: 16,364 on
or after June 25, 1998, 16,364 on or after June 25, 1999, and 16,363 on or
after June 25, 2000.

(3) Options were granted June 25, 1997 and are exercisable 20% a year,
cumulatively, for a period of five years.

(4) Options were granted June 25, 1997 and are exercisable as follows: 24,793,
immediately, 16,529 on or after February 1, 1998, 16,529 on or after
February 1, 1999, and 16,529 on or after February 1, 2000.

AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FYE OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- -------- --------------- ----------------------
<S> <C> <C> <C> <C>
S. Leslie Flegel...................... 0 0 0/89,256 0/309,272
William H. Lee........................ 0 0 0/49,091 0/121,009
Dwight L. DeGolia..................... 0 0 2,182/8,727 5,902/23,607
John P. Watkins....................... 0 0 27,520/60,496 7,377/29,509
Robert B. Dixon....................... 0 0 0/0 0/0
</TABLE>

DIRECTOR COMPENSATION

Under the Company's present policy, each director of the Company who is not
also an employee of the Company receives $1,000 payable in shares of Common
Stock, with the exception of Mr. Minix, who is paid in cash, for each meeting of
the Board attended. Directors are also entitled to be reimbursed for expenses
incurred by them in attending meetings of the Board and its committees.

EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS.

Under the terms of a written agreement with the Company, Dwight L. DeGolia
has agreed to refrain from disclosing information confidential to the Company or
engaging directly or indirectly, in any activity which is competitive with the
business of the Company during the term of his employment and for two years
thereafter.

In October 1997, the Company entered into separate employment agreements
with S. Leslie Flegel, William H. Lee and W. Brian Rodgers, each of which
expires January 31, 1999 (subject to renewal). Under the agreements, Mr. Flegel
will serve as the Chairman of the Board and Chief Executive Officer of the
Company in exchange for annual base compensation of $255,000, Mr. Lee will serve
as President and Chief

28
<PAGE> 29

Operating Officer of the Company in exchange for annual base compensation of
$240,573, and W. Brian Rodgers will serve as Chief Financial Officer of the
Company in exchange for annual base compensation of $100,000, subject to annual
adjustment by the Compensation Committee of the Board (the "Base Compensation").
In the event the employment of any such person with the Company is terminated
for reasons other than for cause, permanent disability or death or there occurs
a significant reduction in the position, duties or responsibilities thereof (a
"Termination") within two years following a "Change of Control" (as defined in
the agreement and which does not include this offering), the discharged person
will be entitled to an additional bonus of 300% of his then current annual Base
Compensation. Such person also will agree to refrain from disclosing information
confidential to the Company or engaging, directly or indirectly, in the
rendition of services competitive with those offered by the Company during the
term of his employment agreement and for two years thereafter, without the prior
written consent of the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

From time to time, the Company and its predecessors have engaged in various
transactions with its directors, executive officers and other affiliated
parties. The following paragraphs summarize certain information concerning such
transactions and relationships which have occurred during the past two fiscal
years or which are presently proposed.

Predecessor Transactions

S. Leslie Flegel, Chairman and Chief Executive Officer of the Company and
Dwight L. DeGolia, Executive Vice President of the Company, have from time to
time received cash advances from the Company and DISC, a subchapter S
predecessor of the Company. The largest aggregate amount of such indebtedness
outstanding at any time since February 1, 1997 was $270,675 and $22,093,
respectively. In October, 1997, Mr. Flegel repaid in full all indebtedness due
by him to the Company. As a result, at January 31, 1998, such outstanding
balances were $-0- and $22,093, respectively. All advances to Mr. DeGolia are
evidenced by promissory notes in favor of the Company. Such notes bear interest
at rates varying from 6.96% to 7.34% per annum and mature from 2001 to 2003.

On June 28, 1991, PMM entered into a written lease with 711 Gallimore
Partnership in which Mr. William H. Lee, President and Chief Operating Officer
of the Company, is a partner, whereby 711 Gallimore Partnership leases to the
Company certain office space in High Point, North Carolina. The lease, as
amended in January 1996, provides for annual rent of $168,072 and expires in
2012. In fiscal 1998 and 1997, the Company paid 711 Gallimore Partnership
$174,888 and $157,498, respectively, in rent.

Company Transactions

Data-Pros, Inc. ("Data-Pros"), a corporation in which Mr. Lee is a
shareholder, provided the Company with data processing services. In fiscal 1997,
the Company paid Data-Pros $274,893 for such services. On January 1, 1997, the
Company purchased the assets of Data-Pros for $45,000.

2532 Partnership, a North Carolina partnership in which Mr. Lee is a
partner, has occasionally provided the Company with the use of an airplane. In
fiscal 1998, the Company paid 2532 Partnership $11,692 in consideration for the
use of the airplane.

In July, 1997, the holders of the Company's 1996 Series 7% Convertible
Preferred Stock exchanged all 5,600 outstanding shares for 186,667 shares of
Common Stock at an effective exchange price of $3.00 per share and
nontransferable warrants, expiring in 2000, to purchase 310,709 shares of Common
Stock at an exercise price of $3.00 per share.

In September 1997, the Company issued to Messrs. Katzman, Franc and
Braswell, non-transferable warrants, expiring in 2000, to purchase an aggregate
of 89,289 shares of Common Stock at an exercise price of $3.00 per share. Such
warrants will vest at a rate of 25% on August 1, 1998, 25% on November 1, 1998,
25% on February 1, 1999 and 25% on May 1, 1999.

29
<PAGE> 30

The terms of the foregoing transactions were not negotiated on an
arms-length basis, but were ratified by a majority of the independent and
disinterested outside directors who had access, at the Company's expense, to the
Company's legal counsel. All future transactions between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the independent and disinterested outside directors who will have
access, at the Company's expense, to the Company's legal counsel, and must be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties under similar circumstances.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information as of June 1, 1998,
concerning the beneficial ownership of the Company's Common Stock by: (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding Common Stock, (ii) all directors, (iii) each executive
officer named in the Summary Compensation Table contained in this Prospectus,
and (iv) all directors and executive officers of the Company as a group. Each
person named has sole voting and investment power with respect to the shares
indicated, except as otherwise stated in the notes to the table:

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF SHARES BENEFICIAL OWNERSHIP
PRIOR TO OFFERING BEING OFFERED AFTER THE OFFERING
NAME AND ADDRESS --------------------- ---------------- ---------------------
OF BENEFICIAL OWNER AMOUNT PERCENT AMOUNT PERCENT
------------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
S. Leslie Flegel........................ 1,391,222(a) 17.3% 125,000 1,266,222(a) 13.3%
11644 Lilburn Park Road
St. Louis, Missouri 63146
William H. Lee.......................... 1,111,979(b) 13.8 130,000 981,979(b) 10.3
711 Gallimore Dairy Road
High Point, North Carolina 27265
Cameron Capital Ltd..................... 671,328(c) 8.1 100,000 571,328(c) 5.8
10 Cavendish Road
Hamilton, HM 19, Bermuda
Timothy A. Braswell..................... 483,176(d) 6.0 100,000 383,176(d) 4.0
711 Gallimore Dairy Road
High Point, North Carolina 27265
Aron Katzman............................ 148,826(d) 1.9 148,826(d) 1.6
10 Layton Terrace
St. Louis, Missouri 63124
Jason S. Flegel......................... 151,238(e) 1.9 10,000 141,238(e) 1.5
711 Gallimore Dairy Road
High Point, North Carolina 27265
Dwight L. DeGolia....................... 151,283(f) 1.9 35,000(g) 116,283(f) 1.2
11644 Lilburn Park Road
St. Louis, Missouri 63146
John P. Watkins......................... 46,776(h) * 46,776(h) *
711 Gallimore Dairy Road
High Point, North Carolina 27265
Harry L. Franc, III..................... 36,462(i) * 36,462(i) *
19 Briarcliff
St. Louis, Missouri 63124
Randall S. Minix........................ 8,485 * 8,485 *
5502 White Blossom Drive
Greensboro, North Carolina 27410
All directors and....................... 3,537,811(j) 43.4 400,000 3,137,811(j) 32.5
executive officers as a group (11
persons)
</TABLE>

- ---------------
*Less than 1%

(a) Includes exercisable options to acquire 29,752 shares of Common Stock at an
exercise price of $1.66 per share.

(b) Includes exercisable options to acquire 16,364 shares of Common Stock at an
exercise price of $2.66 per share.

30
<PAGE> 31

(d) Includes exercisable warrants to acquire 10,045 shares of Common Stock at an
exercise price of $2.42 per share.

(e) Includes exercisable options to acquire 3,636 shares of Common Stock at an
exercise price of $2.42 per share.

(f) Includes exercisable options to acquire 4,364 shares of Common Stock at an
exercise price of $2.42 per share.

(g) A portion of the proceeds from the sale of such shares will be used to repay
in full the indebtedness of Mr. DeGolia to the Company. Accordingly, the
Company will indirectly receive the proceeds from the sale of these shares.
Mr. DeGolia is the Executive Vice President of the Company. See
"MANAGEMENT."

(h) Includes exercisable options to acquire 41,322 shares of Common Stock at an
exercise price of $5.60 per share and 5,454 shares of Common Stock at an
exercise price of $2.42 per share.

(i) Includes exercisable warrants to acquire 2,232 shares of Common Stock at an
exercise price of $3.00 per share.

(j) Includes exercisable options not listed separately above to acquire 4,364
shares of Common Stock at an exercise price of $2.42 per share and 4,000
shares of Common Stock at an exercise price of $6.63 per share.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The Company's Articles of Incorporation (the "Articles") provide for
authorized capital of 18,528,925 shares, consisting of 16,528,925 shares of
Common Stock, $0.01 par value per share and 2,000,000 shares of preferred stock,
$0.01 par value per share ("Preferred Stock"). At June 1, 1998, 8,023,289 shares
of Common Stock and no shares of Preferred Stock were outstanding. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the Articles.

COMMON STOCK

The holders of Common Stock are entitled to cast one vote for each share of
record on all matters to be voted on by shareholders, including the election of
directors. The Company's Articles (and Bylaws) provide for a classified Board
with three classes serving staggered three year terms so that approximately
one-third of the directors will be elected at each annual meeting. This
provision could have the effect of delaying, deferring or preventing a change in
control of the Company. Subject to payment or provision for full cumulative
dividends in respect of any outstanding shares of Preferred Stock, the holders
of Common Stock are entitled to receive dividends when and if declared by the
Board out of legally available funds. In the event of liquidation, dissolution
or winding up of the affairs of the Company, the holders of the Common Stock are
entitled to share ratably in all remaining assets available for distribution to
them after the payment of liabilities and after provision has been made for each
class of stock, including the Preferred Stock, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
generally applicable to the Common Stock.

PREFERRED STOCK

The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. The Board has the authority to issue Preferred Stock in one or more
series and to fix the number of shares constituting any such series, the voting
powers, designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
shareholders of the Company. The issuance of Preferred Stock by the Board could
adversely affect the rights of holders of Common Stock. For example, issuance of
Preferred Stock could result in a series of securities outstanding that would
have preferences over the Common Stock with respect to dividends and in
liquidation and that could (upon conversion or otherwise) enjoy all of the
rights appurtenant to the Common Stock.

The authority possessed by the Board to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy or consent

31
<PAGE> 32

solicitation or otherwise by making such attempt more difficult to achieve or
more costly. The Board may issue Preferred Stock without shareholder approval
and with voting rights that could adversely affect the voting power of holders
of Common Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS

The Articles and Bylaws of the Company contain certain provisions regarding
the rights and privileges of shareholders, some of which may have the effect of
discouraging certain types of transactions that involve an actual or threatened
change of control of the Company, diminishing the opportunities for a
shareholder to participate in tender offers, including tender offers at a price
above the then current market value of the Common Stock or over a shareholder's
cost basis in the Common Stock, and inhibiting fluctuations in the market price
of the Common Stock that could result from takeover attempts. These provisions
of the Articles and Bylaws are summarized below.

SIZE OF BOARD, ELECTION OF DIRECTORS AND CLASSIFIED BOARD

The Articles provide that the number of directors shall be fixed from time
to time as provided in the Bylaws. The Bylaws provide for a minimum of three and
a maximum of nine persons to serve on the Board. The number of directors may be
increased or decreased by a resolution adopted by the affirmative vote of a
majority of the Board. The Articles further provide that the Board may amend the
Bylaws by action taken in accordance with such Bylaws, except to the extent that
any matters under the Articles or applicable law are specifically reserved to
the shareholders.

The Bylaws provide that the Board will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible, and one
of each such classes shall be elected each year to serve for a three-year term.

SHAREHOLDER NOMINATIONS AND PROPOSALS

The Company's Bylaws provide for advance notice requirements for
shareholder nominations and proposals at annual meetings of the Company.
Shareholders may nominate directors or submit other proposals only upon written
notice to the Company not less than 120 days nor more than 150 days prior to the
date of the notice to shareholders of the previous year's annual meeting. A
shareholder's notice also must contain certain additional information, as
specified in the Bylaws. The Board may reject any proposals that are not made in
accordance with the procedures set forth in the Bylaws or that are not proper
subjects of shareholder action in accordance with the provisions of applicable
law.

CALLING SHAREHOLDER MEETINGS; ACTION BY SHAREHOLDERS WITHOUT A MEETING

Matters to be acted upon by the shareholders at special meetings are
limited to those which are specified in the notice thereof. A special meeting of
shareholders may be called by the Board, the Chairman or the President of the
Company or at the request in writing of shareholders holding at least ten
percent (10%) of the outstanding shares entitled to vote at such meeting. As
required by Missouri law, the Bylaws provide that any action by written consent
of shareholders in lieu of a meeting must be signed by the holders of all
outstanding shares of Common Stock.

The foregoing provisions contained in the Articles and Bylaws are designed
in part to make it more difficult and time consuming to obtain majority control
of the Board or otherwise to bring a matter before shareholders without the
Board's consent, and therefore to reduce the vulnerability of the Company to an
unsolicited takeover proposal. These provisions are designed to enable the
Company to develop its business in a manner which will foster its long-term
growth without the threat of a takeover not deemed by the Board to be in the
best interests of the Company and its shareholders, and to reduce, to the extent
practicable, the
32
<PAGE> 33

potential disruption entailed by such a threat. However, these provisions may
have an adverse effect on the ability of shareholders to influence the
governance of the Company and the possibility of shareholders receiving a
premium above the market price for their securities from a potential acquirer
who is unfriendly to management.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provide that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful, except that, in the case of an action or suit by or in the right of
the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of the person's duty to the
corporation, unless and only to the extent that the court in which the action or
suit was brought determines upon application that such person is fairly and
reasonably entitled to indemnity for proper expenses. Section 351.355(3)
provides that, to the extent that a director, officer, employee or agent of the
corporation has been successful in the defense of any such action, suit or
proceeding or in defense of any claim, issue or matter therein, the person shall
be indemnified against expenses, including attorney's fees, actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. Section 351.355(7) provides that a corporation may provide
additional indemnification to any person indemnifiable under subsection (1) of
(2), provided such additional indemnification is authorized by the corporation's
articles of incorporation or an amendment thereto or by a shareholder-approved
bylaw or agreement, and provided further that no person shall thereby be
indemnified against conduct which was finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct or which involves an
accounting for profits pursuant to Section 16(b) of the Exchange Act. Paragraph
9 of the Articles of Incorporation of the Company permits the Company to enter
into agreements with its directors, officers, employees and agents to provide
such indemnification as deemed appropriate. Paragraph 9 also provides that the
Company may extend to its directors and executive officers such indemnification
and additional indemnification.

The Company has entered into indemnification agreements with certain of its
directors and officers. The form of indemnity agreement provides that each such
person will be indemnified to the full extent permitted by applicable law
against all expenses (including attorneys' fees), judgments, fines, penalties
and amounts paid in settlement of any threatened, pending or completed action,
suit or proceeding, on account of his services as a director and officer of the
Company or any other company or enterprise in which he is serving at the request
of the Company, or as a guarantor of any debt of the Company. To the extent the
indemnification provided under the agreement exceeds that permitted by
applicable law, such indemnification may be unenforceable or may be limited to
the extent it is found by a court of competent jurisdiction to be contrary to
public policy.

The Company has procured and intends to maintain a policy of insurance
under which the directors and officers of the Company will be insured, subject
to the limits of the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or omissions covered
under such policy in their respective capacities as directors or officers.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
33
<PAGE> 34

SHARES ELIGIBLE FOR FUTURE SALE

Based on shares outstanding as of June 1, 1998, the Company will have
outstanding 9,523,289 shares of Common Stock upon completion of this offering.
Of the shares, approximately 6,100,528 shares, including those offered for sale
in this offering, will be tradeable without restriction under the Securities
Act. The remaining 3,422,761 shares of Common Stock held by existing
shareholders are "restricted" within the meaning of Rule 144. Subject to
compliance with the provisions of Rule 144, all of such shares presently are
eligible for sale to the public, notwithstanding the fact that such shares have
not been registered under the Securities Act.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year but less than two
years, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
common stock (approximately 95,000 shares immediately after this offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.

In accordance with the provisions of an agreement which each director,
executive officer and holder of more than 5% of the Common Stock has executed
and delivered to the Representative, certain restrictions prohibiting the sale
of the 4,250,169 shares of Common Stock beneficially held by such persons have
been imposed. The restrictions imposed by these agreements remain in effect for
a period ending on October 7, 1998 and for a period of 12 months thereafter,
such persons are prohibited from selling more than twenty-five percent (25%) of
such shares in any calendar quarter, subject in some cases to the volume and
other conditions of Rule 144. The agreements to be executed by the existing
directors, officers, and shareholders of the Company will have no effect on the
date on which shares become eligible for sale pursuant to Rule 144.

UNDERWRITING

The Underwriters named below, for whom Donald & Co. Securities Inc. is
acting as representative (the "Representative"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Shareholders a total of 2,000,000 shares of Common
Stock. The number of shares of Common Stock that each Underwriter has agreed to
purchase is set forth opposite its name:

<TABLE>
<CAPTION>
UNDERWRITER
-----------
<S> <C>
Donald & Co. Securities Inc................................. 875,000
Monness, Crespi, Hardt & Co. Inc. .......................... 625,000
Win Capital Corp. .......................................... 325,000
Kashner Davidson Securities Corp. .......................... 100,000
European Community Capital Ltd. ............................ 25,000
Smith, Moore & Co. ......................................... 25,000
Hilliard Lyons Inc. ........................................ 25,000
---------
2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to approval of certain legal matters by counsel to the
Underwriters and various other conditions precedent, and that the Underwriters
are obligated to purchase all of the shares of Common Stock offered by this
Prospectus (other than the shares of Common Stock covered by the over-allotment
option described below), if any are purchased.

34
<PAGE> 35

The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include Underwriters) at that price less a concession not in
excess of $0.26 per share of Common Stock. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share of Common
Stock to certain other dealers. After the initial public offering, the offering
price and other selling terms may be changed by the Representative.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Company has also agreed to pay to the Representative an expense
allowance on a nonaccountable basis equal to $153,000 (or 1.275% of the gross
proceeds of this offering).

The Company and the Selling Shareholders have granted to the Representative
an option, exercisable during the 45-day period after the date of this
Prospectus, to purchase up to 50,000 shares of Common Stock from the Company and
up to an aggregate of 250,000 shares of Common Stock from the Selling
Shareholders at the offering price, less underwriting discounts and a
nonaccountable expense allowance of 0.5% for the sole purpose of covering
over-allotments, if any.

The Representative acted as underwriter in connection with the Company's
October 1997 public offering of 2,000,000 shares of Common Stock. As
compensation for such services, the Representative received (a) $640,000 in
underwriting discounts, (b) a non-accountable expense allowance of $160,000, (c)
a warrant to purchase up to 200,000 shares of Common Stock at an exercise price
of $4.80 per share, subject to adjustment, exercisable over a four-year period
commencing on October 7, 1998, (d) a contractual right to provide financing
consulting services to the Company until October 7, 1999 for a total fee of
$72,000, and (e) the right (as described below) to have a designee present at
meetings of the Board and each of its committees, and to receive the same
compensation as a result thereof as is payable to directors of the Company.

The Company has granted the Representative for a period ending on October
7, 2000 the right to have the Representative's designee present at meetings of
the Board and each of its committees subject to the right of the Company to
exclude such designee under certain circumstances. Such designee will be
entitled to the same notices and communications sent by the Company to its
directors and to attend directors' and committees' meetings, but will not be
entitled to vote thereat. Such designee will also be entitled to receive the
same compensation payable to directors as members of the Board and its
committees and all reasonable expenses in attending such meetings. The
Representative has not named such designee as of the date of this Prospectus.

In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, the right to purchase up to an
aggregate of 200,000 shares of Common Stock (the "Representative's Warrants").
The Representative's Warrants are exercisable initially at $8.40 per share of
Common Stock (the "Exercise Price") for a period of four years commencing one
year from the date hereof. The Representative's Warrants contain antidilution
provisions providing for adjustment of the Exercise Price upon the occurrence of
certain events, including (i) the issuance of Common Stock, or securities
exercisable or convertible into Common Stock, at a price less than the Exercise
Price and (ii) any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. In addition, the
Representative's Warrants grant to the holders thereof certain demand and
"piggyback" rights for periods of four and six years, respectively, commencing
one year from the date of this Prospectus with respect to the registration under
the Securities Act of the Common Stock issuable upon exercise of the
Representative's Warrants.

Upon closing of this offering, the Company and the Representative have
agreed to extend the engagement of the Representative as financial consultant to
the Company for an additional twenty month period. The Company has also paid
Herbert Hardt, an affiliate of an underwriter participating in this offering, a
consulting fee of $17,000, which may be deemed to be underwriting compensation.

35
<PAGE> 36

In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq Stock Market may
engage in passive market making transactions in the Common Stock on The Nasdaq
Stock Market in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934, as amended, during the five business days prior to the
pricing of the offering before the commencement of offers or sales of the Common
Stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on The Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Securities offered hereby and certain other legal
matters in connection with the sale of the shares of Securities offered hereby
will be passed upon for the Company by Gallop, Johnson & Neuman, L.C., St.
Louis, Missouri. Certain legal matters relating to this offering will be passed
upon for the Underwriters by Parker Duryee Rosoff & Haft, a professional
corporation.

EXPERTS

The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange of 1934 as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy or information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy or
information statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1500, New York,
New York 10048; and Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the public reference section of the Commission at 450
Fifth Street N.W., Washington, D.C. 20549 or retrieved electronically via the
internet at the Commission's web site (http://www.sec.gov). In addition,
reports, proxy statements and other information concerning the Company may be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street N.W.,
Washington, D.C. 20549 on which the Common Stock is quoted. The Company has
filed with the Commission a registration statement on Form SB-2 herein,
(together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission.
36
<PAGE> 37

THE SOURCE INFORMATION MANAGEMENT COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Report of the Independent Certified Public
Accountants............................................ F-2
Consolidated Balance Sheet as of January 31, 1998......... F-3
Consolidated Statements of Operations for the fiscal years
ended January 31, 1998 and 1997........................ F-5
Consolidated Statements of Stockholders' Equity........... F-6
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1998 and 1997........................ F-7
Summary of Accounting Policies............................ F-8
Notes to Financial Statements............................. F-11
</TABLE>

F-1
<PAGE> 38

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS.

THE REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
The Source Information Management Company
St. Louis, Missouri

We have audited the consolidated balance sheet of The Source Information
Management Company as of January 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended January 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Source
Information Management Company at January 31, 1998 and the results of its
operations and its cash flows for each of the two years in the period ended
January 31, 1998 in conformity with generally accepted accounting principles.

BDO Seidman, LLP
St. Louis, Missouri
March 27, 1998

F-2
<PAGE> 39

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------
<S> <C>
ASSETS (NOTE 2)
Current
Cash...................................................... $ 31,455
Trade receivables (net of allowance for doubtful accounts
of $460,898) (Note 9).................................. 18,874,764
Income taxes receivable................................... 492,688
Notes receivable -- officers (Note 1)..................... 7,351
Other current assets...................................... 187,876
-----------
Total Current Assets........................................ 19,594,134
-----------
Office equipment and furniture (Note 3)..................... 2,249,688
Less accumulated depreciation and amortization.............. 1,445,005
-----------
Net Office Equipment and Furniture.......................... 804,683
-----------
Other Assets
Notes receivable -- officers (Note 1)..................... 14,742
Goodwill, net of accumulated amortization of $250,579
(Note 7)............................................... 3,227,354
Other..................................................... 166,944
-----------
Total Other Assets.......................................... 3,409,040
-----------
$23,807,857
===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE> 40

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Checks issued against future deposits..................... $ 132,189
Accounts payable and accrued expenses..................... 680,055
Due to retailers (Note 10)................................ 993,846
Deferred income taxes (Note 6)............................ 769,000
Current maturities of long-term debt (Note 2)............. 30,997
-----------
Total Current Liabilities................................... 2,606,087
-----------
Long-term Debt, less current maturities (Note 2)............ 8,604,057
-----------
Deferred Income Taxes (Note 6).............................. 103,000
-----------
Total Liabilities........................................... 11,313,144
-----------
Commitments (Notes 3 and 4)
-----------
Preferred Stock, $.01 par -- shares authorized, 2,000,000;
outstanding, none (Note 8)................................ --
Stockholders' Equity
Common Stock, $.01 par -- shares authorized, 16,528,925;
outstanding 8,016,367 (Note 11)........................ 80,163
Additional paid-in-capital................................ 10,513,949
Retained earnings........................................... 1,900,601
-----------
Total Stockholders' Equity.................................. 12,494,713
-----------
$23,807,857
===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE> 41

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Service Revenues............................................ $11,795,496 $ 7,056,270
Merchandise Revenues........................................ 8,348 242,177
----------- -----------
11,803,844 7,298,447
----------- -----------
Cost of Service Revenues.................................... 5,827,933 4,862,207
Cost of Merchandise Sold.................................... 32,720 202,381
----------- -----------
5,860,653 5,064,588
----------- -----------
5,943,191 2,233,859
Selling, General and Administrative Expense (Notes 1, 3 and
4)........................................................ 2,350,622 2,904,372
----------- -----------
Operating Income (Loss)..................................... 3,592,569 (670,513)
----------- -----------
Other Income (Expense)
Interest income........................................... 21,164 30,628
Interest expense.......................................... (714,404) (311,737)
Other..................................................... (79,321) (28,883)
----------- -----------
Total Other Income (Expense)................................ (772,561) (309,992)
----------- -----------
Income (Loss) Before Income Taxes........................... 2,820,008 (980,505)
Income Tax (Expense) Benefit (Note 6)....................... (1,231,000) 377,188
----------- -----------
Net Income (Loss)........................................... $ 1,589,008 $ (603,317)
----------- -----------
Earnings (Loss) per Share -- Basic.......................... $ 0.23 $ (0.11)
----------- -----------
Weighted Average Number of Shares Outstanding -- Basic...... 6,561,761 5,557,223
----------- -----------
Earnings (Loss) per Share -- Diluted........................ $ 0.22 $ (0.11)
----------- -----------
Weighted Average Number of Shares Outstanding -- Diluted.... 6,693,666 5,557,223
----------- -----------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE> 42

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AS RESTATED FOR REVERSE STOCK SPLIT (NOTE 11)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1996............. 5,268,090 $52,681 $ 988,021 $ 976,924 $ 2,017,626
Issuance of Common Stock.............. 6,612 66 29,934 -- 30,000
Conversion of 7% Preferred Stock to
Common Stock........................ 349,750 3,498 1,396,071 -- 1,399,569
Issuance of Common Stock to purchase
Magazine Marketing, Inc. (Note 7)... 82,644 826 249,174 -- 250,000
Issuance of Common Stock in payment of
services............................ 12,506 125 51,625 -- 51,750
Dividend on Preferred Stock........... 7,863 79 42,382 (42,467) (6)
Net loss for the year................. -- -- -- (603,317) (603,317)
--------- ------- ----------- ---------- -----------
Balance, January 31, 1997............. 5,727,465 $57,275 $ 2,757,207 $ 331,140 $ 3,145,622
Issuance of Common Stock (Note 11).... 2,000,000 20,000 6,700,602 -- 6,720,602
Issuance of Common Stock in payment of
services............................ 1,811 18 7,982 -- 8,000
Issuance of Common Stock for exercise
of stock options.................... 2,182 21 5,259 -- 5,280
Dividend on Preferred Stock........... 6,381 64 19,480 (19,547) (3)
Exchange of 7% Preferred Stock to
Common Stock (Note 8)............... 186,667 1,867 520,639 -- 522,506
Redeemable Common Stock converted to
Common Stock (Note 7)............... 91,938 919 502,901 -- 503,820
Purchase fractional shares from
reverse stock split................. (77) (1) (321) -- (322)
Issuance of Common Stock Warrants..... -- -- 200 -- 200
Net income for the year............... -- -- -- 1,589,008 1,589,008
--------- ------- ----------- ---------- -----------
Balance, January 31, 1998............. 8,016,367 $80,163 $10,513,949 $1,900,601 $12,494,713
--------- ------- ----------- ---------- -----------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE> 43

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,589,008 $ (603,317)
Adjustments to reconcile net cash provided by operating
activities:
Depreciation and amortization............................. 432,632 246,599
Loss on disposition of equipment.......................... 1,338 299
Provision for losses on accounts receivable............... 97,311 224,387
Impairment of investment in limited partnership........... 20,000 20,000
Deferred income taxes..................................... 470,000 (259,064)
Services received in exchange for Common Stock............ 8,000 51,750
Changes in assets and liabilities:
Increase in accounts receivable........................ (5,537,689) (8,789,885)
Increase in other assets............................... (421,882) (230,004)
(Decrease) increase in checks issued against future
deposits............................................. (3,093,479) 3,225,668
Increase (decrease) in accounts payable and accrued
expenses............................................. 120,614 (513,110)
Increase in amounts due customers...................... 794,271 116,120
------------ -----------
CASH USED IN OPERATING ACTIVITIES........................... (5,519,876) (6,510,557)
------------ -----------
INVESTMENT ACTIVITIES
Acquisition of Mike Kessler and Associates, Inc., net of
cash acquired.......................................... (608,650) --
Acquisition of Magazine Marketing, Inc.................... -- (275,000)
Capital expenditures...................................... (344,847) (276,729)
Loans to officers......................................... (10,000) --
Collection on officers notes receivable................... 221,485 29,715
Collections from related party............................ -- 53,171
Proceeds from sale of fixed assets........................ 2,000 --
Increase in cash surrender value of life insurance........ (55,333) (32,740)
Proceeds from surrender of life insurance policies........ 83,959 --
------------ -----------
CASH USED IN INVESTING ACTIVITIES........................... (711,386) (501,583)
------------ -----------
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock.................... 6,720,602 30,000
Proceeds from issuance of Preferred Stock................. -- 1,922,075
Borrowings under credit facility.......................... 37,777,000 9,791,000
Principal payments on credit facility..................... (36,303,000) (2,756,121)
Borrowings under short-term debt agreements............... -- 2,836,366
Repayments under short-term debt agreements............... (2,221,961) (4,550,081)
Other financing activities................................ 5,155 (6)
------------ -----------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 5,977,796 7,273,233
------------ -----------
(Decrease) Increase in Cash................................. (253,466) 261,093
Cash, beginning of period................................... 284,921 23,828
------------ -----------
Cash, end of period......................................... $ 31,455 $ 284,921
------------ -----------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<PAGE> 44

THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION The consolidated financial statements of The Source
Information Management Company reflect the accounts
of companies formerly known as Display Information
Systems Corporation (DISC), Periodical Management &
Marketing, Inc. (PMM) and Dixon's Modern Marketing
Concepts, Inc. and Tri-State Stores, Inc. (MMC).
DISC and PMM merged on February 1, 1995 and the net
assets of MMC were merged on June 15, 1995.

BUSINESS The Source Information Management Company (the
Company) is a provider of merchandise management
information and related services primarily in
connection with the display and marketing of
magazines and other periodicals. The Company
assists retailers in monitoring, documenting,
claiming and collecting incentive payments,
primarily from publishers of periodicals, and
performs consulting and other services in exchange
for commissions. The Company also obtains revenue
from (a) consulting and other services rendered to
clients on other than a commission basis and (b)
the sale, as principal or broker, of merchandise to
the Company's retailer clients for resale by them.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of The Source Information Management
Company and its wholly-owned subsidiaries, all of
which are currently inactive. All material
intercompany accounts and transactions have been
eliminated in consolidation.

CONCENTRATIONS OF CREDIT
RISK Substantially all of the Company's revenues are
derived from the services provided in connection
with the collection of payments owed to the
Company's retailer clients from magazine publishers
under programs designed by the publishers to
provide incentives to increase single copy magazine
sales. The incentive programs, although part of the
publishers' marketing strategy for over 20 years,
are governed by short-term contracts. If magazine
publishers discontinue or significantly modify the
incentive programs in such a manner which makes the
Company's services incompatible with the modified
programs, the Company's results of operations and
financial condition may be materially and adversely
affected.

The Company's retailer clients, who are located
throughout the United States and eastern Canada,
are periodically evaluated for extension of
unsecured credit. At the balance sheet date, the
Company had no concentration of credit with any
individual retailer client.

In the Advance Pay Program (Note 9), the Company
assumes the risk otherwise borne by the retailer
that magazine publishers will refuse or be unable
to pay the amount of incentive payments claimed.
Based on historical experience, the Company
maintains a reserve for claims submitted but
subject to such a refusal or inability to pay.
However, if a prominent magazine publisher files a
petition in bankruptcy, seeks other protection from
its creditors or otherwise refuses to pay, this
reserve may be inadequate. The results of
operations and the financial condition of the
Company could be materially affected.

F-8
<PAGE> 45
THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)

REVENUE RECOGNITION Service revenues are recognized during the period
in which services are performed. Merchandising
revenues are recognized in the period in which the
merchandising services are provided.

Under both the standard arrangement and the Advance
Pay Program, commission revenue is recognized at
the time claims for incentive payments are
substantially completed for submission to the
publishers. The commission revenue recognized is
based on the amount claimed, less an estimated
reserve necessary to maintain an allowance for
doubtful accounts of approximately 2% of trade
accounts receivable. Under the standard
arrangement, invoices for claim processing services
are not issued until the Company receives
settlement of the claim. However, under the Advance
Pay Program, the customer is not invoiced for the
commission, which is the difference between the
claim and the advance amount.

EQUIPMENT AND FURNITURE Equipment and furniture are stated at cost.
Depreciation is computed using the straight-line
method for financial reporting and accelerated
methods for income tax purposes over the estimated
useful lives of 5 to 7 years.

INCOME TAXES Income taxes are calculated using the asset and
liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting
for Income Taxes."

GOODWILL Goodwill represents the excess of the cost of a
company acquired over the fair value of the net
assets acquired which is amortized over 15 years.

STOCK-BASED COMPENSATION The Company grants stock options for a fixed number
of shares to employees with an exercise price
greater than or equal to the fair value of the
shares at the date of grant. The Company accounts
for stock option grants in accordance with
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB
Opinion No. 25). That Opinion requires that
compensation cost related to fixed stock option
plans be recognized only to the extent that the
fair value of the shares at the grant date exceeds
the exercise price. Accordingly, the Company
recognizes no compensation expense for its stock
option grants.

In October 1995, the Financial Accounting Standards
Board, issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 allows
companies to continue to account for their stock
option plans in accordance with APB Opinion No. 25,
but encourages the adoption of a new accounting
method based on the estimated fair value of
employee stock options. Pro forma net income (loss)
and earnings (loss) per share, determined as if the
Company had applied the new method, are disclosed
within Note 4.

ACCOUNTING ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles 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
F-9
<PAGE> 46
THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)

financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.

LONG-LIVED ASSETS In March 1995, SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets Disposed Of" was issued. SFAS No. 121
requires that long-lived assets and certain
identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. During fiscal 1997, the Company
adopted this statement. The Company has determined
that no impairment loss need be recognized for
applicable assets of continuing operations.

EARNINGS PER SHARE In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings per
Share," which requires the presentation of "basic"
earnings per share, computed by dividing net income
available to common shareholders by the weighted
average number of common shares outstanding for the
period, and "diluted" earnings per share, which
reflects the potential dilution that could occur if
securities or other contracts to issue common stock
were exercised or converted into common stock or
resulted in the issuance of common stock that then
shared in the earnings of the entity. The Company
adopted SFAS No. 128 in the fourth quarter of
fiscal 1998 and has restated all prior period
earnings per share data presented. The adoption of
SFAS No. 128 did not have a material effect on the
Company's previously reported earnings per share
information.

RECLASSIFICATIONS Certain 1997 amounts have been reclassified to
conform to the 1998 presentation.

NEW ACCOUNTING STANDARDS SFAS No. 130, "Reporting Comprehensive Income," was
issued in June 1997. Comprehensive income is
defined as net income plus certain items that are
recorded directly to shareholders' equity, such as
unrealized gains and losses on available-for-sale
securities. Components of the Company's
comprehensive income will be included in a
financial statement that has the same prominence as
other financial statements starting in the first
quarter of fiscal 1999. SFAS No. 130's disclosure
requirements will have no impact on the Company's
financial condition or results of operations.

SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," is effective
for financial statements for periods beginning
after December 15, 1997, but interim reporting is
not required in 1998. An operating segment is
defined under SFAS No. 131 as a component of an
enterprise that engages in business activities that
generate revenue and expense for which operating
results are reviewed by the chief operating
decision maker in the determination of resource
allocation and performance. The Company is
currently evaluating the impact of SFAS No. 131 on
future financial statement disclosures.

F-10
<PAGE> 47

THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. RELATED PARTY TRANSACTIONS

The Company purchased data processing services from an employment service
company owned by certain officers of the Company. There were approximately
$275,000 of such purchases made during 1997. The Company purchased this
employment service company for $45,000 on January 1, 1997.

One of the Company's stockholders also owns a majority of the stock of FMG,
Inc., primarily an investing company. At January 31, 1996, the Company had a
receivable from FMG of $53,171 at prime plus .5%. The receivable was collected
in full on November 5, 1996.

The Company currently leases certain office space and from time to time
leases an airplane from partnerships controlled by stockholders of the Company.
Amounts paid for the office space were approximately $223,000 and $207,000 for
1998 and 1997, respectively. Amounts paid for the airplane were approximately
$12,000 and $0 for 1998 and 1997, respectively.

Certain officers of the Company, have from time to time, received cash
advances from the Company. The officers executed promissory notes in favor of
the Company in the aggregate amounts of $295,293. Collections on these notes
totaled $273,200 through January 31, 1998, leaving a balance outstanding of
$22,093. The remaining notes bear interest at rates varying from 6.96% to 7.34%
per annum.

2. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consists of:

<TABLE>
<CAPTION>
JANUARY 31,
1998
-----------
<S> <C>
Revolving Credit Facility................................... $8,598,000
Unsecured note payable to stockholder (former owner of
Magazine Marketing, Inc.), non-interest bearing, payable
in eight quarterly installments of $10,000, discounted
based on the Company's effective borrowing rate........... 9,774
Term note payable in monthly installments of $629 through
November 1999, collateralized by an automobile............ 12,800
Obligations under capital lease (Note 3).................... 14,480
----------
Total Long-term Debt........................................ 8,635,054
Less current maturities..................................... 30,997
----------
Long-term Debt.............................................. $8,604,057
----------
</TABLE>

Annual maturities of long-term debt are as follows: 1999 -- $30,997; 2000
- -- $8,604,057.

The Company has an agreement providing for revolving loans up to
$15,000,000. The bank has the right to terminate the agreement upon not less
than thirteen months prior written notice. Borrowings bear interest at a rate
related to the monthly LIBOR index rate plus a percentage ranging from 2.5% to
3.5%, depending upon the ratio of funded debt to earnings before interest,
taxes, depreciation and amortization (effectively 8.4727% at January 31, 1998).
Borrowings are secured by a security interest in substantially all the Company's
assets including receivables, inventory, equipment, goods and fixtures,
software, contract rights, notes, and general intangibles.

The revolving loan agreement requires the Company to maintain certain
ratios and a specified level of net worth, restricts payment of dividends, and
limits additional indebtedness. The Company was in compliance with such ratios
at January 31, 1998.

F-11
<PAGE> 48
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. COMMITMENTS

Leases

The Company leases office space, an apartment, computer equipment, and
vehicles under leases that expire over the next five years. The Company also
leases an administrative facility from a related party under an operating lease
that expires in 2012. In most cases, management expects that in the normal
course of business, leases will be renewed or replaced with other leases. Rent
expense was approximately $462,000 and $427,000 for the years ended January 31,
1998 and 1997, respectively. Amounts paid to related parties included in total
rent expense were approximately $223,000 and $207,000 for 1998 and 1997,
respectively.

Office equipment and furniture includes $71,066 at January 31, 1998 for
equipment leases which have been capitalized. Accumulated amortization was
$63,626 at January 31, 1998. Lease amortization is included in depreciation and
amortization expense.

Future minimum payments, by year and in the aggregate, under capital leases
and noncancelable operating leases with initial or remaining terms of one year
or more consisted of the following at January 31, 1998:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JANUARY 31, LEASES LEASES
- ----------------------- ------- ----------
<S> <C> <C>
1999........................................................ $15,523 $ 410,569
2000........................................................ -- 250,584
2001........................................................ -- 173,148
2002........................................................ -- 155,215
2003........................................................ -- 150,300
Thereafter.................................................. -- 1,327,650
------- ----------
Total minimum lease payments................................ 15,523 $2,467,466
----------
Amount representing interest................................ 1,043
-------
Present Value of Net Minimum Lease Payments................. $14,480
-------
</TABLE>

Litigation

The Company has pending certain legal actions and claims incurred in the
normal course of business and is actively pursuing the defense thereof. In the
opinion of management, these actions and claims are either without merit or are
covered by insurance and will not have a material adverse effect on the
Company's financial position.

Employment agreements

The Company has entered into employment agreements with certain officers
and key employees. These agreements expire in January 1999 and require annual
salary levels and termination benefits, should a termination occur.

Consulting agreement

On May 31, 1997, the Company entered into a three year consulting agreement
with a company owned by the former shareholder of Mike Kessler and Associates,
Inc. The agreement requires the Company to make payments aggregating $75,000,
$65,000 and $50,000 annually for the first, second and third years of the
agreement.

F-12
<PAGE> 49
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. EMPLOYEE BENEFIT PLANS

Profit Sharing and 401(k) Plan

The Company has a combined profit sharing and 401(k) Plan. Annual
contributions to the profit sharing portion of the Plan are determined by the
Board of Directors and may not exceed the amount that may be deducted for
federal income tax purposes. There were no profit sharing contributions charged
against operations for the years ended January 31, 1998 and 1997.

Under the 401(k) portion of the Plan, all eligible employees may elect to
contribute 2% to 20% of their compensation up to the maximum allowed under the
Internal Revenue Code. The Company matches one half of an employee's
contribution, not to exceed 5% of the employee's salary. The amounts matched by
the Company during the years ended January 31, 1998 and 1997 pursuant to this
Plan were approximately $63,000 and $50,000, respectively.

Deferred Compensation Plan

During fiscal year 1997, the Company established an unfunded deferred
compensation plan for certain officers, who elect to defer a percentage of their
current compensation. The Company does not make contributions to the plan and is
responsible only for the administrative costs associated with the plan. Benefits
are payable to the participating officers upon their death or termination of
employment. From the deferred funds, the Company has purchased certain life
insurance policies. However, the proceeds and surrender value of these policies
are not restricted to pay deferred compensation benefits when they are due.

Stock Option Plan

In August 1995, the Company established its 1995 Incentive Stock Option
Plan for key employees and reserved 520,661 shares of Common Stock for such
plan. Under the plan, the Stock Option Committee may grant stock options to key
employees at not less than one hundred percent (100%) of the fair market value
of the Company's Common Stock at the date of grant. The durations and
exercisability of the grants vary according to the individual options granted.

<TABLE>
<CAPTION>
RANGE OF
NUMBER OF EXERCISE WEIGHTED AVERAGE
OPTIONS PRICES EXERCISE PRICE
--------- --------- ----------------
<S> <C> <C> <C>
Options outstanding at January 31, 1996............. -0- -- --
Options granted..................................... 227,271 4.84-5.60 5.28
Options expired..................................... 61,983 4.84 4.84
------- --------- ----
Options outstanding at January 31, 1997............. 165,288 5.30-5.60 5.45
Options granted..................................... 327,273 1.66-5.60 2.97
Options expired..................................... 92,554 2.42-5.60 5.26
Options exercised................................... 2,182 2.42 2.42
------- --------- ----
Options outstanding at January 31, 1998............. 397,825 1.66-5.60 3.47
------- --------- ----
</TABLE>

F-13
<PAGE> 50
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about the stock options
outstanding at January 31, 1998:

<TABLE>
<CAPTION>
REMAINING
NUMBER CONTRACTUAL OPTIONS
EXERCISE PRICES OUTSTANDING LIFE (MONTHS) EXERCISABLE
- --------------- ----------- ------------- -----------
<S> <C> <C> <C>
1.66 89,256 52 -0-
2.42 75,454 113 15,091
2.42 27,000 113 9,000
2.66 49,091 53 -0-
5.30 82,644 112 82,644
5.60 74,380 36 24,793
------- -------
397,825 131,528
</TABLE>

The options above were issued at exercise prices which approximate fair
market value at the date of grant. At January 31, 1998, 122,836 shares are
available for grant under the plan.

As discussed in the Summary of Accounting Policies, the Company applies APB
Opinion No. 25 and related interpretations in accounting for this plan.
Accordingly, no compensation cost has been recognized for its incentive stock
option plan. Had compensation cost for the Company's stock-based compensation
plan been determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS No. 123, the Company's consolidated
net income (loss) and consolidated income (loss) per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1998 1997
----------- ---------
<S> <C> <C> <C>
Net income (loss)....................................... As reported $1,589,008 (603,317)
Pro forma 1,575,534 (637,373)
Basic earnings (loss) per share......................... As reported .23 (0.11)
Pro forma .22 (0.11)
Diluted earnings (loss) per share....................... As reported .22 (0.11)
Pro forma .22 (0.11)
</TABLE>

The pro forma amounts reflected above are not representative of the effects
on reported net income in future years because in general, the options granted
typically do not vest for several years and additional awards are made each
year. The fair value of each option grant is estimated on the grant date using
the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1998 1997
----------- ------
<S> <C> <C>
Dividend yield.............................................. 0% 0%
Range of expected lives (years)............................. 3.6-10 1
Range of expected volatility................................ 0.40-0.60 0.30
Risk-free interest rate..................................... 5.90% 4.88%
</TABLE>

Stock Award Plan

In September 1996, the Company adopted its Stock Award Plan for all
employees and reserved 41,322 shares of Common Stock for such plan. Under the
plan, the Stock Award Committee, appointed by the Board of Directors of the
Company, shall determine the employees to whom awards shall be granted.

F-14
<PAGE> 51
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On September 18, 1996, 8,306 shares of Common Stock were awarded to certain
employees under the plan.

5. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental information on interest and income taxes paid is as follows:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Interest.................................................... $ 700,000 $285,000
Income Taxes................................................ $1,081,000 $264,000
</TABLE>

Capital lease obligations of $15,687 were incurred in 1997 when the Company
entered into leases for new office equipment.

On August 30, 1996, 7,863 shares of Common Stock were issued as a dividend
to the preferred shareholders as of that date. On February 28, 1997, 6,381
shares of Common Stock were issued as a dividend to the preferred shareholders
as of that date.

During 1997, in connection with the acquisitions of Magazine Marketing,
Inc. and Readers Choice, Inc., the Company issued 86,644 shares and 91,938
shares of Common Stock (Note 7).

As part of the acquisition of Mike Kessler and Associates, Inc. the Company
entered into a short-term debt agreement for $2,150,000. The obligation was paid
in full at its due date in January 1998.

6. INCOME TAXES

Provision for federal and state income taxes (benefit) in the consolidated
statements of operations consist of the following components:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
Current
Federal................................................... $ 606,000 $(102,768)
State..................................................... 155,000 (15,356)
---------- ---------
Total Current............................................... 761,000 (118,124)
========== =========
Deferred
Federal................................................... 376,000 (225,386)
State..................................................... 94,000 (33,678)
---------- ---------
Total Deferred.............................................. 470,000 (259,064)
---------- ---------
Total Income Tax Expense (Benefit).......................... $1,231,000 $(377,188)
========== =========
</TABLE>

F-15
<PAGE> 52
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The sources of
the temporary differences and their effect on deferred taxes are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
1998
-----------
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts........................... $ 165,000
Deferred compensation..................................... 33,000
Other..................................................... 16,000
---------
Total Deferred Tax Assets................................... 214,000
=========
Deferred Tax Liabilities
Book/Tax difference in accounts receivable................ 708,000
Income not previously taxed under cash basis of accounting
for income tax purposes................................ 316,000
Depreciation.............................................. 30,000
Other..................................................... 32,000
---------
Total Deferred Tax Liabilities.............................. 1,086,000
---------
Net Deferred Tax Liability.................................. 872,000
=========
Classified as
Current................................................... 769,000
Non-current............................................... 103,000
---------
Net Deferred Tax Liability.................................. $ 872,000
=========
</TABLE>

The following summary reconciles income taxes at the maximum federal
statutory rate with the effective rates for 1998 and 1997:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
Income tax expense (benefit) at statutory rate............ $ 960,000 $(333,372)
State income tax expense (benefit), net of federal income
tax benefit............................................. 200,000 (80,421)
Non-deductible meals and entertainment.................... 30,000 35,320
Non-deductible officers' life insurance................... 7,000 (3,250)
Non-deductible goodwill amortization...................... 61,000 2,306
Utilization of NOL carryforwards.......................... (19,000) --
Other, net................................................ (8,000) 2,229
---------- ---------
Income Tax Expense (Benefit).............................. $1,231,000 $(377,188)
========== =========
</TABLE>

F-16
<PAGE> 53
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. BUSINESS COMBINATIONS

Acquisition of Magazine Marketing, Inc.

On June 28, 1996, the Company acquired all of the stock of Magazine
Marketing, Inc. in exchange for 82,644 shares of Common Stock of the Company and
$275,000 in cash. In addition, the Company shall pay $10,000 at the end of each
quarter for a two year period following the closing date (or a total of
$80,000).

The transaction has been accounted for as a purchase and, accordingly, the
assets and liabilities have been recorded at fair market value. Results of
operations have been included as of the effective date of the transaction. The
purchase price of the transaction exceeded the fair value of the assets acquired
in the amount of $704,748 and is being amortized over 15 years.

Acquisition of Readers Choice, Inc.

On June 30, 1996, the Company acquired all of the issued and outstanding
shares of Readers Choice, Inc., a wholly owned subsidiary of United Magazine
Company, in exchange for 91,938 shares of Redeemable Common Stock of the
Company. This transaction has been accounted for as a purchase and accordingly,
the assets and liabilities have been recorded at fair market value. Results of
operations have been included as of the effective date of the transaction. The
purchase price of the transaction exceeded the fair value of the assets acquired
in the amount of $280,507 and is being amortized over 15 years.

Acquisition of Mike Kessler and Associates, Inc.

On May 30, 1997, the Company acquired all of the stock of Mike Kessler and
Associates, Inc. (MKA) for $2,500,000 of which $350,000 was paid upon closing
and the balance was paid on January 5, 1998 with interest at 6.25%. The seller
operated MKA as a business engaged in the collection of retail display
allowances for retail store chains. The Company has continued the operation of
such business and has continued servicing MKA's customer base.

This transaction has been accounted for as a purchase, and accordingly, the
assets and liabilities have been recorded at fair market value. Results of
operations have been included as of the effective date of the transaction. The
purchase price exceeded the fair value of the assets acquired in the amount of
$2,382,900 and is being amortized over 15 years.

Unaudited pro forma results of operations for 1998 and 1997 for the Company
and MKA is listed below:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Total Revenues (As reported)............................ $11,804,000 $7,298,000
(Pro forma)............................ 12,304,000 8,796,000
Net Income (Loss) (As reported)............................. 1,589,000 (603,000)
(Pro forma)............................ 1,637,000 (438,000)
Earnings (Loss) Per Share
Basic (As reported)...................................... 0.23 (0.11)
Diluted (As reported)..................................... 0.22 (0.11)
Basic (Pro forma)........................................ 0.23 (0.08)
Diluted (Pro forma)....................................... 0.23 (0.08)
</TABLE>

F-17
<PAGE> 54
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. PREFERRED STOCK

The Company has authorized 2,000,000 shares of $.01 par Preferred Stock. On
March 13, 1996, 65,000 shares were designated as 1996 Series 7% Convertible
Preferred Stock. Rights and restrictions on the remaining shares will be
established if, and when, any shares are issued.

Each share of the 1996 Series 7% Convertible Preferred Stock entitles its
holder to receive an annual dividend, when and as declared by the Board of
Directors, of $7 per share payable in shares of the Company's Common Stock; to
convert it into shares of Common Stock; to receive $100 per share in the event
of dissolution, liquidation, or winding up of the Company, whether voluntary or
involuntary; and subject to certain conditions in the Certificate of
Designations, Preferences and Relative Rights of 1996 Series 7% Convertible
Preferred Stock, may be redeemed at the option of the Company at a price of $100
per share within 30 days following the effective date of a merger or
consolidation in which the Company is not the surviving entity.

Each share of the 1996 Series 7% Convertible Preferred Stock shall be
convertible, at the option of the holder thereof, into shares of the Common
Stock of the Company, at the conversion price equal to 80% of the current market
price of the Common Stock, provided, however, the conversion price shall not be
less than $4.24 nor more than $6.66 per share of Common Stock. For purposes of
such conversion, each share of the 1996 Series 7% Convertible Preferred Stock
shall be accepted by the Company for surrender at its Liquidation Amount of $100
per share.

During March 1996, the Company issued 20,000 shares of 1996 Series 7%
Convertible Preferred Stock for $100 per share. Commissions and expenses
totaling $137,925 were incurred in connection with the stock issuances of which
$77,925 was paid in cash and $60,000 was paid by issuance of another 600 shares
of Preferred Stock.

On June 3, 1996, an investor converted 5,000 shares of the Company's 1996
Series 7% Convertible Preferred Stock into Common Stock of the Company. The
conversion price was $4.30 per share, which resulted in the issuance of 116,293
shares of Common Stock. This conversion also resulted in the issuance to certain
of the Company's financial advisors of warrants to purchase an additional 2,326
shares of the Common Stock of the Company. These warrants to purchase Common
Stock are exercisable for a two year period at an exercise price equal to $5.15
per share.

On July 29, 1996, two investors converted 2,250 and 500 shares of the
Company's 1996 Series 7% Convertible Preferred Stock into Common Stock of the
Company. The conversion price was $4.42 per share, which resulted in the
issuance of 50,945 and 11,320 shares, respectively, of Common Stock.

On August 30, 1996, the Company issued a Common Stock dividend to investors
who held the Company's 1996 Series 7% Convertible Preferred Stock. At this date
there were 12,850 shares of such stock outstanding. The 7% dividend resulted in
a Common Stock dividend of 7,863 shares based on an issuance price of $5.40 per
share.

On September 11, 1996, an investor converted 5,000 shares of the Company's
1996 Series 7% Convertible Preferred Stock into Common Stock of the Company. The
conversion price was $4.24 per share, which resulted in the issuance of 118,064
shares of Common Stock. This conversion also resulted in the issuance to certain
of the Company's financial advisors of warrants to purchase an additional 2,361
shares of the Common Stock of the Company. These warrants to purchase Common
Stock are exercisable for a two year period at an exercise price equal to $5.08
per share.

On September 22, 1996, an investor converted 2,250 shares of the Company's
1996 Series 7% Convertible Preferred Stock into Common Stock of the Company. The
conversion price was $4.24 per share, which resulted in the issuance of 53,128
shares of Common Stock.
F-18
<PAGE> 55
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On February 28, 1997, the Company issued a Common Stock dividend to
investors who held the Company's 1996 Series 7% Convertible Preferred Stock. At
this date there were 5,600 shares of such stock outstanding. The 7% dividend
resulted in a Common Stock dividend of 6,381 shares based on an issuance price
of $3.06 per share.

In July 1997, the Company exchanged all 5,600 outstanding shares of the
Company's 1996 Series 7% Convertible Preferred Stock for an aggregate of 186,667
shares of Common Stock and non-transferable warrants, expiring in 2000, to
purchase 310,709 shares of Common Stock at an exercise price of $3.00 per share.
Such exchange resulted in a constructive dividend, based on the independently
appraised value of the non-transferable warrants, of $109,937 which was reported
in the fiscal quarter ended July 31, 1997.

9. ADVANCE PAY PROGRAM

The Company has established an Advance Pay Program. Under this program, the
Company advances an agreed upon percentage of the incentive payments otherwise
due the retailer from magazine publishers upon quarterly submission of claims
for such payments. The claims otherwise due the retailer become due the Company.
Included in trade receivables at January 31, 1998 is $14,587,531 due the Company
under the Advance Pay Program (net of $3,859,154 due the program participants).
Service revenues from the program were approximately $4,576,000 and $1,150,000
during 1998 and 1997, respectively.

10. DUE TO RETAILERS

The Company has arrangements with certain of its customers whereby the
Company is authorized to collect and deposit in its own accounts, checks payable
to its customers for incentive payments. The Company retains the commission
related to such payments and pays the customer the difference. The Company owes
retailers $993,846 at January 31, 1998 under such arrangements.

11. COMMON STOCK

In September 1997, the Company issued to Aron Katzman, Harry L. Franc, III
and Timothy A. Braswell, each a director of the Company, non-transferable
warrants, expiring in 2000, to purchase an aggregate of 89,289 shares of Common
Stock at an exercise price of $3.00 per share. These warrants will vest at a
rate of 25% on August 1, 1998, 25% on November 1, 1998, 25% on February 1, 1999
and 25% on May 1, 1999. The related cost, as determined by independent
appraisal, of approximately $54,000 will be recognized ratably over those
periods.

In October 1997, the Company sold in a public offering, 2,000,000 shares of
the Company's Common Stock. Concurrent with the offering, the Company effected
the 1 for 1.21 reverse stock split previously approved by the Company's
shareholders. The weighted average number of common shares presented in the
financial statements have been retroactively restated to give effect to such
reverse stock split.

12. FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair values
of each class of financial instruments for which it is practicable to estimate
that value:

Trade Receivables

The carrying amounts approximate fair value because of the short maturity
of those instruments.

F-19
<PAGE> 56
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Notes Receivable -- Officers

The fair value is estimated by discounting the future cash flows using the
current interest rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.

Accounts Payable and Accrued Expenses, and Amounts Due to Retailers

Carrying amounts are reasonable estimates of fair value due to the
relatively short period between origination and expected repayment of these
instruments.

Long-term Debt and Revolving Credit Facility (Excluding Obligations Under
Capital Leases)

The carrying amount of the long-term debt approximates the fair value
because the financial instrument was originally recorded at its discounted
value.

It is presumed that the carrying amount of the revolving credit facility is
a reasonable estimate of fair value because the financial instrument bears a
variable interest rate.

The estimated fair values of the Company's financial instruments are as
follows:

<TABLE>
<CAPTION>
CARRYING FAIR
JANUARY 31, 1998 VALUE VALUE
- ---------------- ----------- -----------
<S> <C> <C>
Financial Assets
Trade receivables......................................... $18,874,764 $18,874,764
Notes receivable -- officers.............................. $ 22,093 $ 20,100
Financial Liabilities
Accounts payable and accrued expenses..................... $ 680,055 $ 680,055
Due to retailers.......................................... $ 993,846 $ 993,846
Long-term debt (excluding obligations under capital
leases)................................................ $ 8,589,577 $ 8,589,577
</TABLE>

13. EARNINGS PER SHARE

In calculating earnings per share, Net Income for the year ended January
31, 1998 was reduced by a constructive dividend of $109,937, which resulted from
the exchange of all 5,600 outstanding shares of Preferred Stock for 186,667
shares of Common Stock and non-transferable warrants.

A reconciliation of the denominators of the basic and diluted earnings per
share computations are as follows:

<TABLE>
<CAPTION>
JANUARY 31, 1998 1998 1997
- ---------------- --------- ---------
<S> <C> <C>
Weighted average number of common shares outstanding........ 6,561,761 5,557,223
Effect of dilutive securities -- stock options and
warrants.................................................. 131,905 --
--------- ---------
Weighted average number of common shares outstanding -- as
adjusted.................................................. 6,693,666 5,557,223
--------- ---------
</TABLE>

14. SUBSEQUENT EVENT

Subsequent to year end, the Board of Directors approved a plan in which the
Company would sell additional shares of its Common Stock. The Company will be
required to file a registration statement for the sale of these securities. It
is anticipated that the aggregate selling price of all of the securities will
approximate $10,500,000. The proposed issue date of these securities is expected
to be in June 1998.

F-20
<PAGE> 57
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Net Sales............................... $2,527,879 $2,940,137 $2,943,766 $3,392,062
Gross Profit............................ 1,233,933 1,349,506 1,421,565 1,938,187
Net Income.............................. 256,127 333,426 377,256 622,199
Earnings per common share -- Basic...... 0.04 0.04 0.06 0.08
Weighted average number of common shares
outstanding -- Basic.................. 5,823,777 5,827,872 6,535,980 8,015,371
Earnings per common shares -- Diluted... 0.04 0.04 0.06 0.08
Weighted average number of common shares
outstanding -- Diluted................ 5,823,777 5,890,443 6,724,638 8,290,369
1997
Net Sales............................... $1,453,968 $1,304,530 $2,100,190 $2,439,759
Gross Profit............................ 249,130 147,022 795,390 1,042,317
Net Income (Loss)....................... (470,229) (435,311) 62,410 239,813
Earnings (loss) per common share --
Basic................................. (0.09) (0.08) 0.01 0.04
Weighted average number of common shares
outstanding -- Basic.................. 5,272,645 5,409,994 5,723,099 5,817,030
Earnings (loss) per common share --
Diluted............................... (0.09) (0.08) 0.01 0.04
Weighted average number of common shares
outstanding -- Diluted................ 5,272,645 5,409,994 5,809,050 5,946,659
</TABLE>

F-21
<PAGE> 58

======================================================

NO UNDERWRITER, DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Use of Proceeds........................ 12
Price Range of Common Stock............ 13
Dividend Policy........................ 13
Capitalization......................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 16
Business............................... 20
Management............................. 25
Principal and Selling Shareholders..... 30
Description of Capital Stock........... 31
Certain Provisions of the Articles of
Incorporation and Bylaws............. 32
Shares Eligible for Future Sale........ 34
Underwriting........................... 34
Legal Matters.......................... 36
Experts................................ 36
Available Information.................. 36
Index to Financial Statements.......... F-1
</TABLE>

======================================================
======================================================

The Source Information Mgmt Logo
2,000,000 SHARES

COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALD & CO.
SECURITIES INC.
JUNE 15, 1998

======================================================