SOURCE INFORMATION MANAGEMENT CO, S-2, 1999-04-23

SOURCE INFORMATION MANAGEMENT CO
S-2, 1999-04-23
DIRECT MAIL ADVERTISING SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------------
THE SOURCE INFORMATION MANAGEMENT COMPANY
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
MISSOURI 43-1710906
(State or Other Jurisdiction of Incorporation or (IRS Employer Identification No.)
Organization)
</TABLE>

11644 LILBURN PARK ROAD, ST. LOUIS, MISSOURI 63146 (314) 995-9040
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------------------
W. BRIAN RODGERS
SECRETARY AND CHIEF FINANCIAL OFFICER
THE SOURCE INFORMATION MANAGEMENT COMPANY
11644 LILBURN PARK ROAD, ST. LOUIS, MISSOURI 63146 (314) 995-9040
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------------
WITH COPIES TO:

JOHN L. GILLIS, JR., ESQ MICHAEL R. LITTENBERG, ESQ.
ARMSTRONG TEASDALE LLP SCHULTE ROTH & ZABEL LLP
ONE METROPOLITAN SQUARE, SUITE 2600 900 THIRD AVENUE
ST. LOUIS, MISSOURI 63102-2740 NEW YORK, NEW YORK 10022
(314) 621-5070 (212) 756-2000
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE* OFFERING PRICE* REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share................................ 4,600,000 shares(1) $12.25 $56,350,000 $15,665.30
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(c).

(1) Includes 600,000 shares subject to the underwriters' over-allotment option.
------------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

SUBJECT TO COMPLETION, DATED APRIL 23, 1999

THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

4,000,000 SHARES

[THE SOURCE INFORMATION MANAGEMENT COMPANY LOGO]

COMMON STOCK

$ PER SHARE

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

The Source Information Management Company is offering 3,000,000 shares of common
stock and the selling stockholders identified in this prospectus are offering
1,000,000 shares. The Source will not receive any proceeds from the sale of
shares by the selling stockholders. This is a firm commitment underwriting.

The common stock is listed on the Nasdaq National Market under the symbol
"SORC." On April , 1999, the last reported sale price of the common stock on
the Nasdaq National Market was $ per share.

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.

<TABLE>
<CAPTION>
PER SHARE TOTAL
------------ ------------
<S> <C> <C>
Price to the public........................... $ $
Underwriting discount.........................
Proceeds to The Source........................
Proceeds to the selling stockholders..........
</TABLE>

The selling stockholders have granted an over-allotment option to the
underwriters. Under this option, the underwriters may elect to purchase a
maximum of 600,000 additional shares from certain of the selling stockholders
within 30 days following the date of this prospectus to cover over-allotments.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CIBC WORLD MARKETS DONALD & CO. SECURITIES INC.

The date of this prospectus is , 1999
<PAGE> 3

[INSIDE FRONT COVER]

[DESCRIPTION OF ARTWORK TO BE FILED BY PRE-EFFECTIVE AMENDMENT]

2
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 12
Common Stock Market Price Data.............................. 12
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Selected Consolidated Financial Information................. 16
Unaudited Consolidated Pro Forma Financial Information...... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 27
Management.................................................. 35
Principal and Selling Stockholders.......................... 41
Certain Related Transactions................................ 42
Description of Capital Stock................................ 43
Underwriting................................................ 45
Legal Matters............................................... 46
Experts..................................................... 47
Where You Can Find More Information......................... 48
Index to Financial Statements............................... F-1
</TABLE>

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

As used in this prospectus, the terms "we," "us," "our" and "The Source" mean
The Source Information Management Company and its subsidiaries (unless the
context indicates a different meaning) and the term "common stock" means our
common stock, $0.01 par value per share. References to "U.S. Marketing" mean
U.S. Marketing Services, Inc. and its affiliates, Brand Manufacturing
Corporation, TCE Corporation and The Vail Companies, which we acquired in
January 1999. References to "Yeager" mean Yeager Industries, Inc., which we
acquired in January 1999. References to "MYCO" mean MYCO, Inc. and RY, Inc.,
which we acquired in February 1999. References to "Chestnut" mean Chestnut
Display Systems, Inc. and its affiliate, Chestnut Display Systems (North), Inc.,
which we acquired in February 1999. References to "ProMark" mean 132127 Canada,
Inc., which we acquired in March 1999. References to "Aaron Wire" mean Aaron
Wire and Metal Products, Ltd., which we signed a letter of intent in March 1999
to acquire.

Our principal executive offices are located at 11644 Lilburn Park Road, St.
Louis, Missouri 63146. Our telephone number is (314) 995-9040.

In October 1997, we effected a 1-for-1.21 reverse stock split. All common share
and per share numbers in this prospectus have been restated to reflect the
split.

Our fiscal year begins on February 1st and ends on January 31st. For example,
fiscal 1999 began on February 1, 1998 and ended on January 31, 1999.

Information stated on a pro forma basis included in this prospectus includes the
results of operations of U.S. Marketing as if the acquisition had been
consummated February 1, 1997.

The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about , 1999 against payment in immediately available funds.

3
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus.
It is not complete and may not contain all of the information you should
consider before investing in the shares. You should read the entire prospectus
carefully.

THE COMPANY

We are a leading provider of information and management services for retail
magazine sales to U.S. and Canadian retailers and magazine publishers. We are
also a leading manufacturer of display racks used by retailers at checkout
counters.

Through our information services, we provide sales figures and product placement
and other related information in various formats, including print, CD-ROM and
over the Internet. This information helps users to formulate marketing,
distribution and advertising plans and to react more quickly to changing market
conditions. Our information services cover approximately 7,000 magazine titles
and are provided to over 1,000 retail chains with approximately 100,000 stores
and 500,000 checkout counters. We believe we maintain the most comprehensive and
up to date information database available for retail magazine sales and magazine
placement at checkout counters. We have expanded upon our experience with retail
magazine sales and also provide similar information and services to
confectioners and vendors of general merchandise sold at checkout counters.

We believe that we are well positioned to use our existing relationships with
retailers and vendors to cross-sell our information and management services and
display rack manufacturing capability.

Industry Overview. A substantial portion of the products sold in retail stores
are bought on impulse. It is therefore important to vendors that their products
be on prominent display in those areas of a store where they will be seen by the
largest number of shoppers. There are usually two such areas in a store. One is
a dedicated area called a mainline display; the other is the checkout area which
is sometimes referred to as the "front-end." Products suited to front-end
display include magazines, confections and certain general merchandise such as
razor blades, film and batteries.

Vendors of front-end products compete for favorable spaces on display racks
known as "pockets." Some vendors make incentive payments to retailers for
favorable pocket locations. These payments may include up-front fees to have
display racks configured to provide for a vendor's desired pocket placement,
recurring pocket rental fees based on the size and location of a product's
pocket or rebate payments based on a product's sales volume.

Timely delivery of information about retailer activity at the front-end,
including timing of reconfigurations, changes in display position or the
discontinuance of a vendor's products, is important to front-end vendors. Timely
delivery of information about price changes, special promotions, new product
introductions and other vendor plans is important to retailers. We believe that
there is an increasing demand on the part of front-end vendors for more frequent
and detailed information on sales and other front-end activity.

4
<PAGE> 6

Services. We currently provide the following services:

- In our CLAIM SUBMISSION PROGRAM, we assist U.S. and Canadian retailers to
accurately monitor, document, claim and collect incentive payments and
pocket rental fees from magazine publishers. As part of this service, we
prepare claim forms and submit them for payment, charging the retailer a
negotiated percentage of the amount collected.

- As an extension of our Claim Submission Program, we have established our
ADVANCE PAY PROGRAM. Under this program, we pay to participating retailers a
negotiated fixed percentage of the total quarterly incentive and pocket
rental payments otherwise due the retailer. Generally, these payments are
made before we are paid by the publishers.

- Through our Periodical Information Network (PIN), we market our database of
magazine-related industry information that we gathered through our Claim
Submission Program to magazine publishers. This information assists them in
formulating their publishing and distribution strategies. We believe that
PIN is the most extensive database available for single copy retail magazine
sales information.

- We have developed our Interactive Communications Network (ICN) website in
response to the business communications opportunities presented by the
Internet. ICN enables magazine publishers to access information regarding
pricing, new titles, discontinued titles and display rack configuration
changes on a chain-by-chain basis. Publishers also can use ICN to promote
special incentives and advertise new publications and upcoming covers.
Retailers can use ICN to order new magazine titles and take advantage of
promotions by publishers. They also can download constantly changing
information regarding prices, new titles and the resulting changes to
Uniform Product Codes. We intend to adapt ICN for confections and general
merchandise.

We receive annual fees from each publisher that subscribes to ICN. We also
receive fees from publishers for advertising, promotions and special
programs on ICN.

- Through FRONT-END MANAGEMENT, we help retailers to increase sales and
incentive payment revenues by reconfiguring and designing front-end display
racks, supervising fixture installation, selecting products, negotiating,
billing and collecting incentive payments from vendors.

- Through FRONT-END AND POINT-OF-PURCHASE DISPLAY RACK MANUFACTURING, we
design, manufacture and deliver custom front-end and point-of-purchase
displays for both retail store chains and product manufacturers. We believe
that manufacturing display racks strengthens our ability to provide
front-end management services, and increases our access to information about
magazines and other products from retail checkout areas, which enhances our
ability to provide PIN and ICN.

OUR STRATEGY

Our objective is to strengthen our position as the leading provider of sales
figures and product placement and other related information for magazines sold
in retail stores. We also seek to become the leading provider of similar
information for confections and general merchandise sold at checkout counters,
as well as of other front-end services to retailers and vendors that help to
increase sales from the retail checkout area. Our strategies for achieving our
objectives include the following:

- Developing the capability to provide magazine sale information more
frequently and on a store-by-store basis;

- Increasing the amount of information we collect with respect to magazines
and other front-end products, including confections, razor blades, film and
batteries;

- Expanding Internet distribution and data;

- Expanding our Advance Pay Program;

- Expanding and cross-selling our display rack manufacturing business; and

- Pursuing strategic acquisitions.

5
<PAGE> 7

THE OFFERING

Common stock offered by The Source................ 3,000,000 shares

Common stock offered by the selling
stockholders...................................... 1,000,000 shares(1)

Common stock to be outstanding after the
offering.......................................... 16,663,735 shares(2)

Use of proceeds................................... Repayment of indebtedness,
the purchase of a facility
that we currently lease,
funding of our Advance Pay
Program and general
corporate purposes,
including possible
acquisitions.

Nasdaq National Market symbol..................... SORC
- ---------------------------

(1) Assumes the underwriters' over-allotment option is not exercised.

(2) Excludes 1,760,722 shares reserved for issuance under our existing stock
option plans, outstanding warrants to purchase 953,730 shares and 635,547
shares which may be issued as additional consideration for our recent
acquisitions, as determined on April 21, 1999.

6
<PAGE> 8

SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION

We derived the summary consolidated historical statement of operations, balance
sheet and other information presented below for each of our 1995, 1996, 1997 and
1998 fiscal years from our audited consolidated financial statements. We derived
the summary consolidated historical statement of operations, balance sheet and
other information presented below for the nine-month periods ended October 31,
1997 and 1998, from our unaudited financial statements. The statement of
operations and other information for the fiscal year ended January 31, 1995
includes the results of operations of Display Information Systems Company and
Periodical Management and Marketing, Inc., which were merged into The Source on
February 1, 1995. The merger was accounted for as a pooling of interests.

We derived the summary pro forma statement of operations and other information
presented below from "Unaudited Consolidated Pro Forma Financial Information,"
which appears elsewhere in this prospectus. The summary pro forma statement of
operations and other information treats the U.S. Marketing acquisition as if it
were consummated on February 1, 1997.

The information presented below should be read in conjunction with "Selected
Consolidated Financial Information," "Unaudited Consolidated Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and notes of
The Source and U.S. Marketing appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, PRO FORMA OCTOBER 31,
------------------------------------- FISCAL YEAR ENDED -------------------
1995 1996 1997 1998 JANUARY 31, 1998 1997 1998
------- ------- ------- ------- ----------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Service revenues........................... $ 5,635 $ 7,195 $ 7,056 $11,796 $11,796 $ 8,404 $11,136
Merchandise revenues....................... 4,414 926 242 8 8 8 --
Manufacturing revenues..................... -- -- -- -- 19,601 -- --
------- ------- ------- ------- ------- ------- -------
Total revenues........................... $10,049 $ 8,121 $ 7,298 $11,804 $31,405 $ 8,412 $11,136
======= ======= ======= ======= ======= ======= =======
Gross profit............................. 2,930 3,712 2,234 5,943 14,222 4,005 6,339
Selling, general and administrative
expense.................................. 2,183 2,800 2,904 2,351 6,282 1,598 1,833
Income (loss) from operations............ 748 912 (671) 3,593 7,940 2,407 4,506
Other expense, net......................... (92) (314) (310) (773) (698) (645) (252)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.......... 656 598 (981) 2,820 7,242 1,752 4,254
Net income (loss)........................ $ 476 $ 192 $ (603) $ 1,589 $ 3,821 $ 967 $ 2,746
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share
Basic.................................... $ 0.11 $ 0.04 $ (0.11) $ 0.23 $ 0.37 $ 0.14 $ 0.28
Diluted.................................. 0.11 0.04 (0.11) 0.22 0.37 0.14 0.27
Weighted average outstanding shares
Basic.................................... 4,413 5,028 5,557 6,562 9,962 6,064 8,783
Diluted.................................. 4,413 5,028 5,557 6,694 10,094 6,147 9,248
OTHER INFORMATION:
Depreciation and amortization.............. $ 140 $ 141 $ 247 $ 433 $ 1,676 $ 307 $ 425
Capital expenditures....................... 212 197 277 345 379 205 485
</TABLE>

<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------------
AT JANUARY 31, AT OCTOBER 31,
-------------------------------------------- -------------------- PRO FORMA
1995 1996 1997 1998 1997 1998 AT OCTOBER 31, 1998
------ ------ ------- ------- ------- ------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital............. $ 580 $1,306 $ 2,323 $16,988 $12,181 $21,632 $24,680
Total assets................ 3,483 5,346 15,570 23,808 20,296 35,459 65,843
Total debt.................. 216 92 7,216 8,635 6,371 5,049 5,049
Redeemable stock............ -- -- 1,026 -- -- -- --
Stockholders' equity........ 1,388 2,018 3,146 12,495 11,975 23,223 49,505
</TABLE>

7
<PAGE> 9

RISK FACTORS

You should carefully consider the following factors before deciding to invest in
the shares. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us, or that we
consider immaterial or that are similar to those faced by other companies in one
or more of the same lines of business, may also impair our business operations.
The following risks could materially harm our business, financial condition or
future results. If that occurs, the trading price of our common stock could
decline, and you could lose all or part of your investment.

This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described below and elsewhere in this prospectus. Please
also refer to "Forward-Looking Statements" on page 12.

WE DEPEND ON THE MARKETING AND DISTRIBUTION STRATEGIES OF PUBLISHERS

We derive a significant portion of our revenues from our magazine claims
submission program and our Advance Pay Program. Magazine publishers are not
under long-term contractual obligations to provide incentive programs. In
addition, some magazine publishers have distributed selected titles at
discounted prices instead of providing incentive payments. Although we do not
believe that any significant magazine publishers are doing so now, they may do
so in the future. In addition, magazine publishers may otherwise discontinue or
significantly modify their incentive programs. If any of the foregoing were to
occur, it could materially harm our business, financial condition and future
results.

WE RELY ON ACCESS TO RETAIL STORE INFORMATION

Our PIN and ICN programs depend on our access to retail store information,
particularly from the checkout area. If our access to information were reduced,
the usefulness of PIN, ICN and our future information programs could be
diminished. Among other reasons, our access to information could be reduced if
publishers discontinue or modify their incentive payment programs. If our access
to information were reduced, it could materially harm our business, financial
condition and future results.

WE FACE RISKS ASSOCIATED WITH OUR ADVANCE PAY PROGRAM

Recent increases in our revenue and profitability have been due in part to our
Advance Pay Program. Under the Advance Pay Program, we usually assume the risk
otherwise borne by the retailer client that vendors will refuse or be unable to
pay incentive payments. Based on our experience with magazine incentive payment
claims, we maintain a reserve of 2% of all claims submitted to cover these
occurrences. These reserves may be inadequate. Furthermore, we finance our
Advance Pay Program in part through borrowings under our credit facility. The
availability of funds under our credit facility is, among other things,
conditioned on the maintenance of certain financial ratios. There can be no
assurance that we will be able to satisfy these conditions or that we otherwise
will be able to borrow sufficient funds under our credit facility. If our
reserve is inadequate or we are unable to finance our Advance Pay Program, our
business, financial condition and future results could be materially harmed.

OUR GROWTH STRATEGY PRESENTS RISKS

An important part of our growth strategy is to substantially increase our
revenues from information based services, particularly ICN, and from front-end
management services. Although these categories of services use both the
expertise that we have gained from providing other services and our
relationships with retailers and vendors, we may not be able to successfully
continue to implement these parts of our growth strategy. Factors which could
limit our ability to increase our revenues from these services include, among
others, insufficient demand from retailers and vendors and competition. If we
fail to implement these or other portions of our growth strategy, it could
materially harm our business and future results.

8
<PAGE> 10

WE MAY EXPERIENCE INCREASED COMPETITION

We face significant competition for many of our services. For example, we have a
substantial number of direct competitors for our claims submission program, all
of which are closely-held private companies. We also compete with five other
manufacturers for our front-end display rack manufacturing business. There also
are a substantial number of competitors for our point-of-purchase rack business,
many of which are national in scope. Any of these competitors could also compete
for our front-end display rack business.

In addition, some of our information and management services may be performed
directly by our retailer customers or by vendors, distributors or other
information service providers. Other organizations, including ACNielsen,
Information Resources and Audit Bureau of Circulations, also collect sales data
from retail stores. While none of these organizations currently compete with us,
any one of them could do so. If any of them were to compete with us, given their
experience in collecting information and their industry reputation, they could
be a formidable competitor.

Our competitors also may introduce services that are perceived by our clients to
be more attractive than those we provide. In addition, many of our current and
possible competitors have substantially greater financial resources than we do.

Competitive pressures may result in a decrease in the number of clients we serve
and a decrease in our revenues. Either of these could materially harm our
business, financial condition and future results.

WE FACE RISKS RELATED TO ACQUISITIONS

Making additional strategic acquisitions is a part of our strategy. Our ability
to make acquisitions will depend upon our identifying attractive acquisition
candidates and, if necessary, obtaining financing on satisfactory terms.
Acquisitions, including those that we have already made, can present a number of
challenges. These include the following:

- potential distraction to management;

- integrating the acquired business's financial, computer, payroll and other
systems into our own;

- implementing additional controls and information systems appropriate to a
growing company;

- unanticipated liabilities or contingencies from the acquired company; and

- reduced earnings due to increased goodwill amortization, increased interest
costs and costs related to integration.

Furthermore, we may pay for acquisitions using our common stock, which would
dilute our stockholders' ownership interests.

If we are unsuccessful in meeting the challenges arising out of our
acquisitions, our business, financial condition and future results could be
materially harmed.

WE MAY FACE RISKS IN CONNECTION WITH OUR NEWLY-ACQUIRED MANUFACTURING OPERATIONS

We have recently acquired four display rack manufacturers. We have no prior
experience in operating manufacturing facilities and therefore must rely on the
experience and management abilities of their management teams and recently hired
employees to oversee these operations. If we are not able to successfully
integrate these facilities into our operations or operate these facilities
profitably, it could result in material harm to our business, financial
condition and future results.

WE HAVE A CONCENTRATED CLIENT BASE

None of our clients account for more than 10% of our revenues on a pro forma
consolidated basis. However, in our display rack manufacturing business, we do
have significant client concentration. Substantially all of our services are
performed under short-term contracts, thus permitting our clients to obtain
services from other providers without further obligation to us. If we experience
a significant reduction in business from our clients it may result in material
harm to our business, financial condition and future results.

9
<PAGE> 11

WE DEPEND ON KEY PERSONNEL

We depend upon the services of our senior management team, the loss of certain
members of which could adversely affect our business and the implementation of
our growth strategy. This in turn could materially harm our financial condition
and future results. Although we have employment agreements with certain of our
senior officers, the services of these individuals or other members of our
operating or senior management may not continue to be available us.

WE FACE RISKS ASSOCIATED WITH THE INTERNET

Our ICN service involves the transmission of information over the Internet. Our
ability to provide this service therefore depends in part on the reliability of
Internet service providers, which from time to time have operational problems
and experience service outages. In addition, ICN may be vulnerable to
unauthorized access, computer viruses and other disruptive problems, including
security breaches by computer hackers, despite our implementation of security
measures. Furthermore, the widespread commercial use of the Internet is a
relatively new development and critical issues regarding the stability of the
Internet's infrastructure remain unresolved. The rapid rise in the number of
Internet users continue to place increasing strains on the Internet's
communication and transmission infrastructures. Over time, this could lead to
significant reductions in transmission speeds and reliability of the Internet,
which could reduce Internet usage by businesses. Any of the foregoing could
impair customer satisfaction with ICN, which could lead to a loss of customers
for this service.

WE HAVE LIMITED PROTECTION OF OUR PROPRIETARY TECHNOLOGY

We rely on a combination of copyright, trade secret and trademark laws to
protect our proprietary rights. We are also in the process of seeking patent
protection for aspects of our ICN, PIN and SourcePro innovations. Existing
copyright laws afford only limited protection. In addition, we may not be
successful in obtaining the patent protection we seek. If we do achieve patent
protection, the patents may not be broad enough to provide meaningful protection
to our services. Also, it may be possible for third parties to copy our services
or to reverse engineer or otherwise obtain and use information that we regard as
proprietary. If third parties are able to use information that we regard as
proprietary, our business, financial condition and future results could suffer
material harm.

WE FACE RISKS CONCERNING YEAR 2000 ISSUES

We are dependent on our software programs and operating systems for internal
operations and for providing a large portion of our services especially those
that are information-based. Because we depend on information from vendors and
retailers in order to provide our information-based services such as PIN and
ICN, we also are dependent upon the information technology systems of these
parties, as well as those of distributors. Lastly, we are dependent upon
infrastructure providers (such as electricity and telecommunications providers)
being Year 2000 compliant, since, among other things, we cannot transfer and
receive information unless their systems are functional. We believe that the
greatest risk due to internal or external sources not being Year 2000 compliant
would be our inability to meet deadlines, perhaps for a substantial period of
time. However, the actual risk could be greater. In addition, our information
collection capabilities could be impaired, which could adversely affect the
quality, reliability and timeliness of the information collected, as well as
demand for our information-based services.

We are in the process of testing all of our systems to determine whether or not
they are Year 2000 compliant. Certain of our manufacturing operations are
non-compliant. Although we have made inquiries regarding Year 2000 compliance
of selected vendors and retailers with whom we have extensive relationships, we
are unable to reliably determine whether most vendors, retailers or
infrastructure providers are or will be Year 2000 compliant on a timely basis.
We currently have no contingency plan in place for Year 2000 issues.

External or internal Year 2000 compliance issues, may materially harm our
business, financial condition and future results. In addition, although we do
not expect our Year 2000 compliance costs to be material, they may be. For
further information concerning Year 2000 compliance, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
10
<PAGE> 12

WE HAVE LIMITATIONS ON A CHANGE OF CONTROL

Our Articles of Incorporation and By-Laws contain provisions that could reduce
the likelihood of a change of control or acquisition of The Source. This could
limit your ability to sell your shares at a premium or otherwise affect the
price of our common stock. These provisions:

- provide for a classified Board of Directors;

- permit the Board to issue up to 2 million shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions of
that preferred stock;

- permit the Board to issue up to 40 million shares of common stock;

- permit the Board to increase its own size and fill the resulting vacancies;

- limit the removal of directors by the stockholders to removal for cause;

- limit the persons who may call special meetings of stockholders; and

- establish advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

SALES OF OUR SHARES ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT OUR STOCK
PRICE

The market price of our common stock could drop due to sales of a large number
of shares of our common stock or the perception that such sales could occur.
These factors could also make it more difficult to raise funds through future
offerings of common stock.

After this offering, 16,663,735 shares of our common stock will be outstanding.
Of these shares, the 4,000,000 shares sold in this offering are expected to be
freely tradeable without restrictions under the Securities Act, and 8,779,107
shares will otherwise be eligible for sale in the public market. An additional
3,884,628 shares are "restricted" within the meaning of Rule 144 under the
Securities Act of 1933 and may not be sold in the absence of registration under
the Securities Act or an exemption therefrom. Of these restricted shares,
3,300,000 have registration rights under certain circumstances. By exercising
registration rights, holders of these shares would be able to sell them in the
public market. Also, 2,714,452 shares of our common stock are issuable upon the
exercise of options and warrants. Although a substantial number of our options
and warrants currently are subject to vesting requirements, upon issuance,
1,745,722 of these shares are expected to be eligible for sale in the public
market and holders of 450,000 of these shares will have registration rights. The
remainder will be restricted securities under Rule 144.

Certain of our significant stockholders have entered into lock-up agreements
pursuant to which they have agreed not to offer or sell any shares of common
stock for a period of 180 days from the date of this prospectus without the
prior written consent of CIBC Oppenheimer Corp., on behalf of the underwriters.
CIBC Oppenheimer Corp. may, at any time and without notice, waive the terms of
these lock-up agreements.

THERE MAY BE VOLATILITY IN OUR STOCK PRICE

The market price of our common stock has fluctuated significantly. The market
price of our common stock could be subject to significant fluctuations in the
future based on factors such as announcements of new services, additions or
departures of key personnel, quarterly fluctuations in our financial results,
changes in analysts' estimates of our financial performance, general conditions
in our industry and conditions in the financial markets. In addition, the stock
market in general has experienced extreme price and volume fluctuations, and the
market price of our common stock could be subject to these fluctuations for
reasons unrelated to our operating performance and condition.

11
<PAGE> 13

FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, the following:

- The use of proceeds of this offering;

- Those pertaining to the implementation of our growth strategy;

- Our projected capital expenditures; and

- The impact of Year 2000 on our information and other systems and those of
our vendors, customers and other third parties.

These statements may be found under "Prospectus Summary," "Risk Factors,"
"Dividend Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Forward-looking statements typically
are identified by use of terms such as "may," "will," "expect," "anticipate,"
"estimate" and similar words, although some forward-looking statements are
expressed differently. You should be aware that our actual results could differ
materially from those contained in forward-looking statements due to a number of
factors, including:

- Our dependence on the marketing and distribution strategies of publishers
and other vendors;

- Our ability to access checkout area information;

- Risks associated with our Advance Pay Program, including problems collecting
incentive payments from publishers;

- Demand for our display racks;

- Our ability to successfully implement our growth strategy;

- Competition;

- Our ability to effectively manage our expansion; and

- General economic and business conditions nationally, in our markets and in
our industry.

You should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements.

COMMON STOCK MARKET PRICE DATA

From June 22, 1995 until February 12, 1996, our common stock was quoted on the
Nasdaq OTC Bulletin Board. From February 12, 1996 until June 12, 1998, our
common stock was quoted on the Nasdaq SmallCap under the symbol "SORC." Since
June 12, 1998, our common stock has been quoted on the Nasdaq National Market
under the symbol "SORC." The following table sets forth, for the periods
indicated, the high and low closing sale prices of our common stock, as reported
by the Nasdaq OTC Bulletin Board, the Nasdaq SmallCap and the Nasdaq National
Market, as applicable.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL 1998
First Quarter............................................. $3.48 $2.58
Second Quarter............................................ 3.70 1.20
Third Quarter............................................. 4.75 3.17
Fourth Quarter............................................ 5.38 3.56
</TABLE>

12
<PAGE> 14

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL 1999
First Quarter............................................. $6.75 $5.13
Second Quarter............................................ 8.00 5.75
Third Quarter............................................. 6.88 5.00
Fourth Quarter............................................ 12.38 5.75
FISCAL 2000
First Quarter (through April 21, 1999).................... $14.00 $9.75
</TABLE>

On April 21, 1999, the last reported sale price of our common stock on the
Nasdaq National Market was $10.75 per share. As of April 21, 1999, there were
approximately 95 holders of record of our common stock.

13
<PAGE> 15

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the shares of common stock we
are offering will be approximately $33,811,250. "Net proceeds" is what we expect
to receive after paying the underwriting discount and other expenses of the
offering. For the purpose of estimating net proceeds, we are assuming that the
public offering price will be $12.25 per share. We will not receive any proceeds
from the sale of shares by the selling stockholders.

We intend to use the net proceeds from the sale of the shares to:

- Repay outstanding balances of approximately $25.0 million under our term
loan and revolving credit facility from Wachovia Bank, N.A.;

- Purchase our leased facility in High Point, North Carolina for $1.8 million;
however, if the purchase is consummated prior to completion of this
offering, we will borrow funds for the purchase from Wachovia Bank, N.A.,
and a portion of the offering proceeds will be used to repay the borrowed
funds;

- Fund general corporate purposes, including to fund our Advance Pay Program.

We also expect to use a portion of the proceeds of this offering to fund future
acquisitions. Although we have had and expect to continue to have discussions
with potential acquisition candidates, we do not have any present agreements or
understandings with respect to any acquisitions other than Aaron Wire, which we
have agreed to acquire for Cdn$2.4 million.

The foregoing represents our present intentions for the use of the proceeds of
this offering based on our currently contemplated operations, business plan and
currently prevailing economic and industry conditions. Changes in the use of
proceeds of this offering may be made in response to, among other things, (1)
requirements of and opportunities related to the Advance Pay Program, (2)
changes in our financial condition, business plans or growth strategy and (3)
changes in general industry conditions.

On April 20, 1999, the interest rates on our outstanding loans from Wachovia
Bank, N.A. were 7.4388% with respect to $15.0 million outstanding under our term
loan and 7.688% with respect to $10.0 million outstanding under our revolving
credit facility. The maturity date on our term loan is May 1, 2002. Our
revolving credit facility has no stated maturity date, but may be terminated on
13 months' advance notice by the lender. The outstanding balance under the term
loan was used to finance our recent acquisitions. Borrowings under the revolving
credit facility were used for general corporate purposes and to fund our Advance
Pay Program.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. The Board
presently, and for the foreseeable future, intends to retain all its earnings,
if any, for the development of our 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, our future earnings,
operations, funding requirements, restrictions under our credit facility, our
general financial condition and any other factors that the Board considers
important.

14
<PAGE> 16

CAPITALIZATION

The following table shows:

- The capitalization of The Source on October 31, 1998;

- The pro forma capitalization of The Source assuming U.S. Marketing had been
acquired on October 31, 1998; and

- The pro forma as adjusted capitalization of The Source, assuming the
completion of the offering at an assumed public offering price of $ per
share and the use of the net proceeds as described under "Use of Proceeds."

<TABLE>
<CAPTION>
AT OCTOBER 31, 1998
------------------------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
------------ ----------- -------------
UNAUDITED
------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt.............. $ 7 $ 7 $
======= ======= =======
Long-term debt, less current portion........... $ 5,042 $ 5,042
======= ======= =======
Stockholders' equity:
Common stock; $0.01 par value; 16,528,925(1)
shares authorized, 9,610,718 shares issued
and 9,602,718 shares outstanding
(12,610,718 shares issued and 12,602,718
shares outstanding as adjusted for the
offering)................................. 96 130
------- ------- -------
Additional paid-in capital................... 18,791 45,039
------- ------- -------
Retained earnings............................ 4,377 4,377
------- ------- -------
Treasury stock............................... (41) (41)
------- ------- -------
Total stockholders' equity................ 23,223 49,505
------- ------- -------
Total capitalization...................... $28,265 $54,547 $
======= ======= =======
</TABLE>

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

(1) In April 1999, our Articles of Incorporation were amended to increase the
number of authorized shares to 40,000,000.

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL INFORMATION

This section presents selected historical financial information of The Source.
You should read carefully the financial statements included in this prospectus,
including the notes to the financial statements. The selected information in
this section is not intended to replace the financial statements. The
information below also should be read in conjunction with "Unaudited
Consolidated Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.

We derived the selected consolidated statement of operations information
presented below for each of our 1995, 1996, 1997 and 1998 fiscal years and the
balance sheet data at January 31, 1995, 1996, 1997 and 1998 from our audited
consolidated financial statements. We derived the selected consolidated
statement of operations information and certain other information presented
below for the nine-month periods ended October 31, 1997 and 1998, and the
balance sheet data at October 31, 1997 and 1998 from our unaudited financial
statements.

We believe that the unaudited financial statements from which we derived the
unaudited statement of operations and balance sheet information presented below
were prepared on a basis consistent with our audited consolidated financial
statements and include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of our financial position for the
unaudited statement of operations periods and the unaudited balance sheet dates
indicated below. Results for the nine-month period ended October 31, 1998 are
not necessarily indicative of the results that may be expected for the complete
1999 fiscal year.

<TABLE>
<CAPTION>
UNAUDITED
-----------------
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
-------------------------------------- -----------------
1995 1996 1997 1998 1997 1998
------- ------ ------ ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Service revenues........................................ $ 5,635 $7,195 $7,056 $11,796 $8,404 $11,136
Merchandise revenues.................................... 4,414 926 242 8 8 --
Manufacturing revenues.................................. -- -- -- -- -- --
------- ------ ------ ------- ------ -------
Total revenues........................................ $10,049 $8,121 $7,298 $11,804 $8,412 $11,136
======= ====== ====== ======= ====== =======
Cost of revenues........................................ 7,119 4,409 5,064 5,861 4,407 4,797
------- ------ ------ ------- ------ -------
Gross profit........................................ 2,930 3,712 2,234 5,943 4,005 6,339
Selling, general and administrative expense............. 2,183 2,800 2,904 2,351 1,598 1,833
------- ------ ------ ------- ------ -------
Income (loss) from operations......................... 747 912 (670) 3,592 2,407 4,506
Interest expense........................................ (69) (120) (312) (714) (608) (265)
Interest income......................................... 10 25 31 21 15 22
Other income (expense).................................. (32) (219) (29) (79) (62) (9)
------- ------ ------ ------- ------ -------
Income (loss) before income taxes....................... 656 598 (980) 2,820 1,752 4,254
Income tax (provision) benefit.......................... (180) (406) 377 (1,231) (785) (1,778)
------- ------ ------ ------- ------ -------
Net income (loss)..................................... $ 476 $ 192 $ (603) $ 1,589 $ 967 $ 2,476
======= ====== ====== ======= ====== =======
Earnings (loss) per share
Basic................................................. $ 0.11 $ 0.04 $(0.11) $ 0.23 $ 0.14 $ 0.28
Diluted............................................... 0.11 0.04 (0.11) 0.22 0.14 0.27
Weighted average outstanding shares
Basic................................................. 4,413 5,028 5,557 6,562 6,064 8,783
Diluted............................................... 4,413 5,028 5,557 6,694 6,147 9,248
OTHER INFORMATION:
Depreciation and amortization........................... $ 140 $ 141 $ 247 $ 433 $ 307 $ 425
Capital expenditures.................................... 212 197 277 345 205 485
</TABLE>

<TABLE>
<CAPTION>
UNAUDITED
--------------------
AT JANUARY 31, AT OCTOBER 31,
-------------------------------------------- --------------------
1995 1996 1997 1998 1997 1998
------ ------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital................................... $ 580 $1,306 $ 2,323 $16,988 $12,181 $21,632
Total assets...................................... 3,483 5,346 15,570 23,808 20,296 35,459
Total debt........................................ 216 92 7,216 8,635 6,371 5,049
Redeemable stock.................................. -- -- 1,026 -- -- --
Stockholders' equity.............................. 1,388 2,018 3,146 12,495 11,975 23,223
</TABLE>

16
<PAGE> 18

UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated statement of operations information
presented below for fiscal 1998 gives pro forma effect to the U.S. Marketing
acquisition as if it was consummated on February 1, 1997. The Pro Forma
Statement of Operations Information for the year ended January 31, 1998 include
our audited results of operations for the year ended January 31, 1998 and U.S.
Marketing's audited results of operations for the year ended December 31, 1997.
The pro forma financial information below is based on assumptions that we
believe are reasonable. This information is presented for comparative and
informational purposes only and does not purport to represent what our results
of operations would actually have been had the U.S. Marketing acquisition
occurred on February 1, 1997 or to project our results of operations or
financial condition for any future period at any future date.

The pro forma financial information presented below should be read in
conjunction with the consolidated financial statements of The Source and U.S.
Marketing and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.

Since February 1, 1997, we also have acquired Yeager, MYCO, Chestnut and
ProMark. In addition, we signed a letter of intent to acquire Aaron Wire. Under
the rules of the Securities and Exchange Commission, none of these transactions
are required to separately be given pro forma treatment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further information concerning these transactions.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998
--------------------------------------------------------
ACQUISITION UNAUDITED
THE SOURCE U.S. MARKETING ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Service revenues........................... $11,796 $ -- -- $11,796
Merchandise revenues....................... 8 -- -- 8
Manufacturing revenues..................... -- 19,601 -- 19,601
------- ------- ------- -------
Total revenues........................... 11,804 19,601 -- 31,405
Cost of revenues........................... 5,861 11,322 -- 17,183
------- ------- ------- -------
Gross profit............................. 5,943 8,279 -- 14,222
Selling, general and administrative
expense.................................. 2,351 5,678 (1,747)(1) 6,282
------- ------- ------- -------
Operating income (loss).................... 3,592 2,601 1,747 7,940
Other income (expense)
Interest income.......................... 21 28 -- 49
Interest expense......................... (714) (23) -- (737)
Other.................................... (79) 69 -- (10)
Total other income (expense)............... (772) 74 -- (698)
Income tax expense......................... 1,231 116 2,074(2) 3,421
------- ------- ------- -------
Net income................................. 1,589 2,559 (327) 3,821
Dividend on preferred stock................ (110) (110)
------- -------
Net income available to common
stockholders............................. $ 1,479 $ 3,711
======= =======
Earnings per share:(3)
Basic.................................... $ 0.23 $ 0.37
Diluted.................................. 0.22 0.37
Weighted average shares outstanding:(3)
Basic.................................... 6,562 9,962
Diluted.................................. 6,694 10,094
</TABLE>

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

(1) To reflect: (a) the portion of compensation expense for executive officers
on the basis of current and anticipated arrangements as if they were
effective February 1, 1997 and (b) amortization of goodwill arising from the
acquisition of U.S. Marketing for the period prior to the acquisition
(estimated life 20 years).

(2) To adjust tax expense to reflect the income tax effects at our effective tax
rate (after consideration of the nondeductibility of the amortization of the
cost in excess of net assets acquired) of the pro forma adjustments to
income before income taxes.

(3) Basic and diluted earnings per share amounts for all periods have been
adjusted to reflect the 1 for 1.21 reverse stock split effected in October
1997.

17
<PAGE> 19

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

You should read this discussion together with the financial statements and other
financial information included elsewhere in this prospectus.

OVERVIEW

We are a leading provider of information and management services for retail
magazine sales. We provide these services to U.S. and Canadian retailers and
magazine publishers. We are also a leading manufacturer of display racks used by
retailers at checkout counters.

Through our information services, we provide sales figures and product placement
and other related information pertaining to magazines in various formats,
including print, CD-ROM and over the Internet. This information helps users to
formulate marketing, distribution and advertising plans and react more quickly
to changing market conditions. Our information services cover approximately
7,000 magazine titles and are provided to over 1,000 retail chains with over
100,000 stores and approximately 500,000 checkout counters. We believe that we
maintain the most comprehensive information database for retail magazine sales
and magazine placement at checkout counters. Our extensive retailer and vendor
relationships allow us to keep this information up to date. We have expanded
upon our experience with retail magazine sales to provide similar information
and services to confectioners and general merchandise vendors for products sold
at checkout counters.

Through our management services, we help retailers to increase sales and
incentive payment revenues by reconfiguring and designing front-end display
racks, supervising fixture installation, selecting products and negotiating,
billing and collecting incentive payments from vendors. Historically, as part of
our services, we arranged for the manufacture of display racks for many of our
customers. Since January 1999, we acquired four display rack manufacturers.
Manufacturing display racks in our own facilities allows us to be a full-
service provider of management services for the checkout area, or "front-end,"
of a customer's store. We also can integrate the design and manufacturing
processes with our clients' merchandising strategies and better manage the
timing of display rack delivery and integrate the design and manufacturing
process with our clients' merchandising strategy. We believe this enhances the
value of our front-end management services for our clients. We also manufacture
free-standing "point-of-purchase" display racks for other locations in retail
stores that are designed to increase product visibility and sales.

A majority of our revenues have historically been derived from service fees
earned in connection with the collection of incentive payments owed to our
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. We either submit claims for incentive payments on behalf of
the retailer and receive a fee based on the amounts collected or, under our
Advance Pay Program, purchase the claims from the retailer at a discount and
submit the claims on our own behalf. We assume the credit risk associated with
incentive claims we purchase under our Advance Pay Program, which represents an
increasing percentage of total claims collected. To date, we believe that our
reserve as an allowance for doubtful accounts in the amount of approximately 2%
of accounts receivable is adequate to satisfy any losses we may incur 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 we provide in connection
with the claim process are not issued until we receive settlement of the claim.
Under the Advance Pay Program, the revenue we recognize represents the
difference between the amount advanced to the retailer customer and the amount
claimed against the publisher.

18
<PAGE> 20

In fiscal 1998, revenues from our claims submission programs aggregated
approximately 64% of our total revenues. On a pro forma basis, such fees
represented approximately 24% of our total revenues.

RECENT AND PENDING ACQUISITIONS

Since January 7, 1999, we acquired the following companies. Each of the
acquisitions was accounted for as a purchase. A portion of the cash component of
the acquisition prices was funded by our revolving credit facility.

- U.S. MARKETING SERVICES, INC. U.S. Marketing is the parent of Brand
Manufacturing Corporation, a manufacturer of front-end display racks with
manufacturing facilities in Brooklyn, New York and a warehouse and
distribution facility in New Jersey. Through its affiliates, Brand also
provides trucking and freight services and removes and disposes of display
racks no longer required by our customers. We acquired U.S. Marketing in
January 1999 for 3.4 million shares of our common stock, valued at the time
of the acquisition at $26.3 million.

- YEAGER INDUSTRIES, INC. Yeager manufactures front-end display racks from
facilities in Philadelphia, Pennsylvania. We purchased the assets of Yeager
and assumed its operating liabilities in January 1999 for $2.3 million in
cash and 164,289 shares of our common stock, valued at the time of the
acquisition at $1.2 million. The purchase price may be increased by up to
$500,000, depending upon Yeager's performance during fiscal 2000 and 2001.

- MYCO, INC. MYCO is a Rockford, Illinois manufacturer of front-end display
racks. We purchased the assets and assumed the operating liabilities of MYCO
in February 1999 for $12.0 million in cash and 134,615 shares of our common
stock, valued at the time of the acquisition at $875,000. We also assumed
MYCO's industrial revenue bond indebtedness of $4.0 million and repaid MYCO
indebtedness of $1.5 million. The purchase price may be increased by up to an
additional 250,000 shares of our common stock depending on MYCO's performance
in the twelve months following the acquisition.

- CHESTNUT DISPLAY SYSTEMS, INC. Chestnut manufactures front-end display
racks from facilities in Greenville, South Carolina and Jacksonville,
Florida. We purchased the assets and assumed the operating liabilities of
Chestnut Display Systems, Inc. and its affiliate, Chestnut Display Systems
(North), Inc. in February 1999 for $3.6 million in cash and 285,714 shares of
our common stock, valued at the time of the acquisition at $1.8 million. The
purchase price for Chestnut may be increased to a value (including the
amounts already paid) not to exceed $9.5 million if Chestnut meets certain
performance goals during fiscal 2000 and 2001. Any increase in the purchase
price will be paid 50% in cash and 50% in shares of our common stock. The
shares will be valued using a formula contained in the acquisition agreement,
subject to a minimum value of $5.00 per share and a maximum value of $7.00
per share.

- PROMARK. We purchased the assets and assumed the operating liabilities of
132127 Canada Inc., known as ProMark, in March 1999. ProMark is a Canadian
corporation headquartered in Toronto which provides rebate and information
services to retail customers throughout Canada. ProMark strengthens our
ability to obtain information about retail sales from checkout areas in
Canada. We paid a cash purchase price of Cdn$1.5 million for ProMark.

- AARON WIRE AND METAL PRODUCTS, LTD. Aaron Wire manufactures front-end
display racks from its facilities in Vancouver, British Columbia. In March
1999, we signed a letter of intent to purchase the stock of Aaron Wire for
approximately Cdn$2.4 million.

19
<PAGE> 21

RESULTS OF OPERATIONS

NINE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO THE NINE MONTHS ENDED OCTOBER 31,
1997

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------
1997 1998
----- -----
<S> <C> <C>
Service Revenues............................................ 100.0% 100.0%
Cost of Service Revenues.................................... 52.4 43.1
----- -----
Gross Profit................................................ 47.6 56.9
Selling, General & Administrative Expense................... 19.0 16.4
----- -----
Operating Income............................................ 28.6 40.5
Interest Expense, Net....................................... (7.1) (2.2)
Other Income (Expense), Net................................. (0.7) (0.1)
----- -----
Income Before Income Taxes.................................. 20.8 38.2
----- -----
Net Income.................................................. 11.5% 22.2%
===== =====
</TABLE>

Service Revenues. Increased retailer participation in the Advance Pay Program,
the acquisitions of Mike Kessler and Associates, Inc. ("MKA") and Periodical
Concepts ("PC2") and the growth in subscriptions to PIN contributed to an
increase in Service Revenues during the nine-month period ended October 31, 1998
of approximately $2.7 million, or 32%, over the comparable period in fiscal
1998. Of the total, claims, PIN and Advance Pay Program revenues increased
approximately $1.9 million, or 25%, over the comparable period in fiscal 1998.
Revenue from front-end management services increased from $982,000 for the nine
month period ended October 31, 1997 to $1.8 million for the nine-month period
ended October 31, 1998, or 159%. This growth resulted from an increase in the
number of reconfiguration programs undertaken by us on behalf of our retailer
clients. 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 our 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 our operating results in any given quarter.

Cost of Service Revenues and Selling, General and Administrative Expense ("Total
Costs"). Despite a 32% increase in Service Revenues for the nine-month period
ended October 31, 1998, Total Costs increased only $658,000, or 11%, over the
first nine months of the prior fiscal year. The acquisition of PC2 led to
increased costs in amortization, wages and other expenses of approximately
$88,000. The acquisition of MKA led to increased costs, including wages,
amortization and rent of approximately $105,000. Wages, other than MKA's and
PC2's employees, increased approximately $99,000 over the same period in fiscal
1998, due primarily to increases in employee compensation. Consulting expenses
increased approximately $129,000 for the first nine months of fiscal 1999 over
the comparable period of the prior fiscal year due to valuation services
utilized and for fees paid to financial and business consultants. Approximately
$38,000 more in bonus expense was accrued during the first nine months of fiscal
1999 than fiscal 1998. Equipment leases, telephone expenses, depreciation and
rent increased $18,000, $22,000, $24,000 and $28,000, respectively, for the
first nine months of fiscal 1999 over the first nine months of the prior fiscal
year. Travel and entertainment expenses also increased for the nine-month period
ended October 31, 1998 by $28,000 and $34,000, respectively, compared to the
same period in fiscal 1998. Additionally, costs for personal property taxes for
the nine-month period ended October 31, 1998 increased approximately $20,000
compared to the same period in fiscal 1998 due to filing 1996, 1997 and 1998
North Carolina returns during the 1999 fiscal year. Moving expenses were
approximately $20,000 during the nine-month period ended October 31, 1998 due to
the relocation of several employees compared to no moving expense in the prior
fiscal year. Expenses related to seminars and meetings increased approximately
$26,000 for the

20
<PAGE> 22

first nine months of fiscal 1999 compared to the same period in fiscal 1998.
However, bad debt expense decreased approximately $82,000 for the first nine
months of fiscal 1999 compared to the nine-month period ended October 31, 1997
to partially offset these increases.

Interest Expense. Interest Expense decreased for the nine-month period ended
October 31, 1998 by $343,000, compared to the nine-month period ended October
31, 1997. $4.2 million of the net proceeds from our public offering of common
stock in June 1998 was used to temporarily reduce the balance under our credit
facility. Additionally, during the first nine months of fiscal 1999, a greater
portion of the Advance Pay Program was funded by collections under the Advance
Pay Program, rather than by borrowings.

Income Tax Expense. The effective income tax rate for the nine months ended
October 31, 1998 was 41.8%. This rate varied from the statutory rate due to
expenses not deductible for income tax purposes. Such non-deductible expenses
include meals and entertainment, goodwill amortization and officers' life
insurance premiums. The effective income tax rate for the nine months ended
October 31, 1998 was lower than the rate of 44.8% for the comparable period
during the prior fiscal year because non-deductible expenses as a percentage of
income before taxes decreased.

FISCAL 1998 COMPARED TO FISCAL 1997

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

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

Service Revenues. Increased retailer participation in the Advance Pay Program,
the acquisition of MKA and the growth in subscriptions to PIN contributed to an
increase in service revenues of approximately $4.7 million, or 67%, over fiscal
1997. Of the total, claims, PIN and Advance Pay Program revenues increased
approximately $3.9 million in fiscal 1998, or 61% over the prior fiscal year.
Revenue from front-end management services increased from $636,000 in fiscal
1997 to $1.5 million fiscal 1998, or 132%, resulting from an increase in the
number of reconfiguration programs undertaken by us on behalf of our retailer
clients, including Kmart. In June 1998, we introduced our 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 our extensive
relationships with retailers, we have had opportunities from time to time to
purchase merchandise, such as gift and greeting

21
<PAGE> 23

cards, caps and other leisure time products for resale to our retailer clients.
However, at the end of fiscal 1997, management decided to de-emphasize this
portion of our business in order to dedicate more resources to our core
services. As a result, the revenues derived from merchandising sales declined
from $242,000 in fiscal 1997 to $8,000 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 were $8.2
million, an increase of only $412,000, or 5%, in fiscal 1998 compared to $7.8
million in fiscal 1997. Increased costs incurred in connection with the
acquisitions of Magazine Marketing, Inc., Readers Choice, Inc. and MKA,
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 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 in fiscal 1998 was $714,000, an increase of
$402,000 compared to fiscal 1997, 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 MKA.

Income Tax Expense (Benefit). The effective income tax rate for fiscal 1998 was
43.7%, compared to 38.5% in fiscal 1997. 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 for fiscal 1998, 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 on July
1, 2002 to purchase 310,709 shares of common stock at an exercise price of $3.00
per share.

FISCAL 1997 COMPARED TO FISCAL 1996

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
------------------
1996 1997
------ ------
<S> <C> <C>
Service Revenues............................................ 88.6% 96.7%
Merchandise Revenues........................................ 11.4 3.3
----- -----
Total Revenues.............................................. 100.0 100.0
Cost of Service Revenues.................................... 47.5 66.6
Cost of Merchandise Sold.................................... 6.8 2.8
----- -----
Gross Profit................................................ 45.7 30.6
Selling, General & Administrative Expense................... 34.5 39.8
----- -----
Operating Income (Loss)..................................... 11.2 (9.2)
Interest Expense, Net....................................... (1.2) (3.9)
Other Income (Expense), Net................................. (2.7) (0.4)
----- -----
Income (Loss) Before Income Taxes........................... 7.4 (13.4)
----- -----
Net Income (Loss)........................................... 2.4% (8.3)%
===== =====
</TABLE>

Service Revenues. Increased retailer participation in the Advance Pay Program,
the acquisitions of Magazine Marketing, Inc. and Readers Choice, Inc. and the
implementation of PIN during the third quarter of fiscal year 1997 contributed
to an increase in revenue from claims submission services of approximately
$468,000. However, space design revenue decreased from $1,243,000 in 1996 to
$636,000 in 1997 causing an overall decrease in Service Revenues of $139,000.
Currently, we are negotiating flat fee

22
<PAGE> 24

arrangements; however, historically, space design revenues have been recognized
as front end display manufacturers ship the displays to the retailers, the
timing of which is not within our control. Based on management's understanding
of the anticipated shipment dates for proposed and planned programs expected to
occur during the next year, space design revenue should exceed both 1996 and
1997 levels.

Merchandise Revenues. As a result of our relationships with the leading
retailers in the United States, we have 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, management has
decided to de-emphasize this portion of its business in order to dedicate more
resources to its core services. Thus, Merchandise Revenues decreased $684,000
from $926,000 in 1996 to $242,000 in 1997.

Cost of Merchandise Sold. The Cost of Merchandise Sold decreased primarily as a
result of de-emphasizing this portion of the business as noted above. Comparing
the gross profit percentage associated with Merchandise Revenues to the prior
year is not considered meaningful by management since a wide variety of items
with varying profit margins have been purchased and resold.

Cost of Commission Revenues and Selling, General and Administrative Expense
("Total Costs"). Total Costs increased approximately $1.1 million. Wages
accounted for $840,000 of the increase. New hires, including personnel formerly
employed by Magazine Marketing, Inc., comprised approximately $579,000 of this
increase, while the balance of the increase was the result of wage increases and
bonuses. Insurance costs increased approximately $152,000 resulting from the
addition of directors and officers insurance, additional life insurance policies
and an increase in the package policy due to our expansion into other states and
Canada. Rent, telephone and utilities have increased $100,000 as a direct result
of expanding the square footage rented in North Carolina and adding regional
offices in Canada, Arizona and California (which was subsequently closed as a
result of de-emphasizing the merchandising portion of the business). Computer
hardware and software acquisitions combined with equipment and furniture
acquisitions related to the additional regional offices contributed to a $48,000
increase in depreciation expense. Lastly, bad debt expense increased
approximately $40,000. Such increases were mitigated by decreases in contract
labor and data entry costs. During 1997, permanent hires reduced the need to
utilize temporary employees as frequently as in 1996, and an increase in the
number of wholesalers supplying sales data on tape contributed to a decrease in
data entry costs.

Interest Expense. Interest Expense increased $191,000 due to increased
borrowings necessary to fund the Advance Pay Program.

Income Tax (Benefit) Expense. The effective income tax rate decreased to 38.5%
for 1997 from a pro forma effective rate of 47.5% for 1996. This decrease was a
result of a decrease in expenses not deductible for income tax purposes as a
percentage of income (loss) before income taxes. Such non-deductible expenses
include meals and entertainment, officers' life insurance premiums, and goodwill
amortization.

Earnings Per Share. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128). The new standard simplifies the standards for computing earnings
per share and requires presentation of two new amounts, basic and diluted
earnings per share. We were required to retroactively adopt this standard when
we reported our operating results for the fiscal quarter and year ending January
31, 1998. When we adopted SFAS No. 128, we reported the following restated
amounts:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
-----------------
1996 1997
----- ------
<S> <C> <C>
Basic....................................................... $0.04 $(0.11)
Diluted..................................................... 0.04 (0.11)
</TABLE>

23
<PAGE> 25

YEAR 2000

All of our services rely on computer technology. Since early 1997, we have been
analyzing all of our information and data systems for possible Year 2000 ("Y2K")
problems.

- - Our Claim Submission Program software was developed with a third party. The
third party proprietary software used for claim submission has been reviewed and
modified to address Y2K problems. Initial Y2K compliance testing was completed
in February 1999. All problems detected during these tests have been corrected.
Follow-up testing is expected to be completed by the end of October 1999.

- - Our Advance Pay Program consists of transporting data on rebate claims into an
"off-the-shelf" Microsoft Excel 97 software program. Microsoft Excel reformats
the data to determine the amount advance payments to our retailer customers.
Microsoft Excel 97 has been declared Y2K compliant by the vendor (which is
consistent with our internal testing results thus far).

- - Our PIN Program was developed by our internal programming staff. This system
was developed with Microsoft visual Foxpro version 6.0, which has been declared
Y2K compliant by the vendor. We have not detected and do not expect to encounter
any major Y2K problems with this program. Complete testing on this program is
expected to be finalized by the end of October 1999.

- - Our ICN website was also developed by our internal programming staff using Web
Connects Software from WestWind Corporation. This software has been declared Y2K
compliant by the vendor. Background databases are programmed in Microsoft Visual
Foxpro version 6.0, which has also been declared Y2K compliant by the vendor.
This system utilizes a 4-digit date field and therefore we do not anticipate any
Y2K problems with ICN. Complete testing on this program is expected to be
finalized by the end of October 1999.

- - Our Front-End Management services software was developed by a third party
software developer. The program was developed with MacroMedia Director software,
which has been declared Y2K compliant by the vendor. We have received assurances
from the developer that our Front-End Management Services software package is
currently Y2K compliant.

- - Our Display Rack Manufacturing subsidiaries were each acquired within the past
four months. We are still in the process of collecting data on Y2K compliance
issues which may affect these subsidiaries. We intend to complete our Y2K
assessment of our manufacturing subsidiaries by the end of July 1999 and to
immediately commence any required remediation work. Our preliminary findings
indicate that at least some of our manufacturing operations are not currently
Y2K compliant. We will continue to assess the Y2K compliance status of our
manufacturing operations and will attempt to achieve full compliance by the end
of 1999.

We completed our Y2K survey of our computer hardware equipment in early 1999 and
we have completed upgrading (with software provided by vendors at no cost)
certain equipment that was identified as being noncompliant. We currently do not
anticipate any significant Y2K problem with our information technology (IT)
hardware.

We believe that our greatest risk due to our internal systems and third party
providers not being Y2K compliant would be the inability to perform the
above-described services in a timely manner to meet our customers deadlines. We
depend on data from third parties (e.g., wholesalers, publishers and retailers)
in order to process information from and for our customers. If these third
parties have problems supplying data to us, then our ability to meet deadlines
and to collect and deliver information and provide other services to our
customers in a timely manner may be impaired. In addition, if our internal
systems are not Y2K compliant, information received from third parties cannot be
processed in a timely manner. This could also impair timely delivery of
information and services to our customers, which could have a negative impact on
our relationships with our customers and a material and adverse effect on our
financial condition and results of operations.

24
<PAGE> 26

We currently are communicating with our outside trading partners in order to
assess their Y2K readiness. While there can be no assurance that such outside
parties will be Y2K compliant, we believe we have reasonable assurances from a
majority of our critical trading partners that they expect to be Y2K compliant
before the end of 1999. We have also communicated with suppliers of non-IT
operations and services (such as electricity and telecommunications providers).
Based on information already gathered from outside sources, we do not presently
have reason to believe that there will be significant problems with these third
parties that would impair our normal operations. As with most businesses, we are
dependent upon consistent and timely payments by our customers. A customer's
failure to be Y2K compliant which affects, for instance, its accounts payable
program could have a direct, negative impact on our cash flow and operations.

Currently, we have no Y2K contingency plan. A contingency plan will be developed
upon completion of all system testing and is expected to be finalized by the end
of the third quarter of fiscal 2000.

Overall, the expenses we have incurred due to Y2K testing and remediation have
been relatively minor. Our Y2K expenditures have included only minimal travel
expenses for our internal IT personnel who have worked with our outside software
sources. Currently, we do not anticipate incurring any significant additional
expenses in connection with our remaining Y2K compliance efforts. However, there
can be no assurance that our additional expenses, in particular in connection
with our manufacturing operations, will not be significant.

We believe we have taken a reasonable approach in assessing and correcting
potential internal Y2K problems, and in anticipating and accounting for
significant external Y2K problems. However, there can be no assurance that we or
the third parties upon whom we depend will successfully avoid all Y2K problems.

LIQUIDITY AND CAPITAL RESOURCES

Our primary cash requirements are for funding the Advance Pay Program and
selling, general and administrative expenses (particularly salaries, travel and
entertainment) incurred in connection with the maintenance of existing accounts
and the solicitation of new clients. Historically, we have financed our business
activities through borrowings under available lines of credit, cash flow from
operations and through the issuance of equity securities.

During the quarters ended October 31, 1997 and October 31, 1998, we advanced
over $9.8 million and $15.6 million, respectively, under our Advance Pay Program
representing a 60% growth rate. The primary source of funding for advances is
our credit facility. which is discussed below. Collections under the Advance Pay
Program are used to pay down the balance under the credit facility. Thus, the
credit facility is primarily used as a tool to manage the timing of payments and
collections under the Advance Pay Program.

Net cash used by operating activities during the nine months ended October 31,
1997 was $3.7 million, while net cash used by operating activities during the
nine months ended October 31, 1998 was $1.7 million. Investing activities used
$3.0 million during the nine-month period ended October 31, 1998, primarily to
purchase Periodical Concepts. Financing activities provided $4.6 million during
the nine-month period ended October 31, 1998. The proceeds from the issuance of
common stock of approximately $8.0 million were partially offset by net
repayments on the credit facility of $3.6 million.

The average collection period for the nine months ended October 31, 1997 was 134
days compared to 133 days for the nine months ended October 31, 1998.

We are primarily engaged in the business of providing services to our retailer
clients; therefore, our capital expenditure requirements are minimal. At October
31, 1998, we had no outstanding material commitments for capital expenditures.

We have a credit agreement with Wachovia Bank, N.A. that enables us to borrow up
to $15.0 million under a revolving credit facility and $15.0 million under a
term loan. The term loan matures in May 2002. At April 20, 1999, $15.0 million
was outstanding under the term loan and approximately $10.0 million was
25
<PAGE> 27

outstanding under the revolving credit facility. The revolving credit facility
has no termination date, although, Wachovia Bank, N.A. has the right to
terminate the revolving credit facility upon not less than 13 months prior
written notice.

Borrowings under the revolving credit facility bear interest at a rate equal to
the monthly LIBOR index rate plus a percentage ranging from 2.0% to 3.5%
depending upon our ratio of funded debt to earnings before interest, taxes,
depreciation and amortization. The term loan bears interest, at our election, at
either (a) the London Interbank Offered Rates for periods of 30, 60, 90 or 180
days, at our option, plus a percentage ranging from 2.0% to 3.5%, depending upon
our ratio of funded debt to earnings before interest, taxes, depreciation and
amortization or (b) the higher of the prime rate or the federal funds rate plus
.5%. The credit facility is secured by a security interest in substantially all
of our assets. Under the credit agreement, we are required to maintain certain
financial ratios. At October 31, 1998, we were in compliance with all financial
ratios imposed by the credit agreement.

At October 31, 1998, our total long-term debt obligations were approximately
$5.0 million. Of such amount, $7,000 matures in the next 12 months. We
anticipate that the funds necessary to satisfy these obligations will be derived
from cash flows from operations.

Upon acquiring MYCO, we assumed $4.0 million of industrial development bonds.
The proceeds of the bonds were loaned to MYCO pursuant to a loan agreement
between MYCO and the City of Rockford, Illinois. Wachovia Bank, N.A. issued a
letter of credit to support the bonds. We also have assumed MYCO's obligations
under the letter of credit.

NEW ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, "Accounting for derivatives and
hedging activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. We do not expect the adoption of this statement
to have a significant impact on our results of operations, financial position or
cash flows.

SOP 98-5, "Reporting on the Costs of Start-Up Activities," requires that the
costs of start-up activities, including organization costs, be expensed as
incurred. This Statement is effective for financial statements issued for fiscal
years beginning after December 15, 1998. We believe that the adoption of SOP
98-5 will have no material effect on our financial statements.

26
<PAGE> 28

BUSINESS

OVERVIEW

Through our information services, we provide sales figures and product placement
and other related information in various user-friendly formats, including print,
CD-ROM and over the Internet. This information helps users to formulate
marketing, distribution and advertising plans and to react more quickly to
changing market conditions. Our information services cover approximately 7,000
magazine titles and are provided to over 1,000 retail chains with approximately
100,000 stores and 500,000 checkout counters. We believe we maintain the most
comprehensive information database available for retail magazine sales and
magazine placement at checkout counters. Our extensive retailer and vendor
relationships allow us to keep this information up to date. We have expanded
upon our experience with retail magazine sales and also provide similar
information and services to confectioners and vendors of general merchandise
sold at checkout counters.

Through our management services, we help retailers to increase sales and
incentive payment revenues by reconfiguring and designing front-end display
racks, supervising fixture installation, selecting products and negotiating,
billing and collecting incentive payments from vendors. Historically, as part of
our services, we arranged for the manufacture of display racks for many of our
customers. Since January 1999, we acquired four display rack manufacturers.
Manufacturing display racks in our own facilities allows us to be a full-
service provider of management services for the checkout area, or "front-end,"
of a customer's store. We also can integrate the design and manufacturing
processes with our clients' merchandising strategies and better manage the
timing of display rack delivery. We believe this enhances the value of our
front-end management services for our clients. We also manufacture free-standing
"point-of-purchase" display racks for other locations in retail stores that are
designed to increase product visibility and sales.

We believe that we are well positioned to use our existing relationships with
retailers and vendors to cross-sell our information and management services and
display rack manufacturing capability.

INDUSTRY OVERVIEW

A substantial portion of the products sold in retail stores are bought on
impulse. It is therefore important to vendors that their products be on
prominent display in those areas of a store where they will be seen by the
largest number of shoppers. There are usually two such areas in a store. One is
a dedicated area called a mainline display; the other is the checkout area which
is sometimes referred to as the "front-end." The front-end is visited by
virtually every shopper in a store. Shoppers typically must wait to complete the
checkout process and are more likely to see products on display in the
front-end, which increases the likelihood that these products will be bought on
impulse. Products suited to front-end display include magazines, confections and
certain general merchandise such as razor blades, film and batteries.

Vendors of front-end products compete for favorable spaces on display racks
known as "pockets." Some vendors make incentive payments to retailers for
favorable pocket locations. For example, magazine publishers and confectioners
often pay retailers an up-front fee to have front-end display racks configured
to provide for their desired pocket placements. Magazine publishers and general
merchandise vendors also pay periodic pocket rental fees based on the location
and size, measured in linear inches, of their products' pockets. Alternatively,
some magazine publishers offer retailers cash rebates based on the sales volumes
of their magazines to encourage retailers to carry and assign favorable pocket
space to their titles. Most retailers have historically outsourced the
information gathering and administration of claims collection to third parties
such as The Source. This relieves them of the substantial administrative burden
associated with that process, including monitoring thousands of titles, each
with a distinct incentive arrangement.

27
<PAGE> 29

Retailers typically reconfigure their checkout areas every three years, at which
time they install new display racks and negotiate new agreements with magazine
publishers and confectioners. Agreements with vendors of other front-end
products are typically negotiated annually.

In the magazine industry, incentives also are provided for including magazines
on mainline displays. These incentives take the form of a rebate for each copy
sold by the retailer and are intended to encourage retailers to promptly display
titles on mainline displays. In addition to increasing revenues, additional
sales enable magazine publishers to charge higher advertising rates.

Timely delivery of information about retailer activity at the front-end,
including timing of reconfigurations, changes in display position or the
discontinuance of a vendor's products, is important to vendors of front-end
products. This allows them to take advantage of opportunities at the front-end
before final decisions are made by the retailer and to react expeditiously to
changed circumstances. Timely delivery of information about price changes,
special promotions, new product introductions and other vendor plans is
important to retailers because it allows them to react quickly to capitalize on
opportunities presented by a vendor's plans and to take advantage of changes in
the market rate for the fees and incentive payments available from magazine
publishers and other front-end product vendors.

Historically, information available to vendors about retail checkout area
activity and information available to retailers about price changes, special
promotions and other matters has been fragmented and stale. This is the result
of a number of factors, including the following:

- Many front-end products, including magazines, are sold through distributors,
resulting in very little direct contact between vendors and retailers;

- Retailers generally have not had systems in place to efficiently collect
front-end sales and other information;

- The number of retailers who sell magazines and other front-end products is
large and they are widely dispersed geographically; and

- Until the availability of cost-effective and user-friendly data processing
applications, there was no convenient means to disseminate this information.

We believe that there is an increasing demand on the part of front-end product
vendors for more frequent and detailed information on sales and other front-end
activity. For example, timely information about sales of each magazine title by
store would be of particular importance to magazine publishers, because it would
assist them to increase revenues from advertisers who want to target their
advertising to a particular market.

Our traditional source of retail magazine sales information has been magazine
distributors. They provide us with quarterly information about retail sales of
magazines on a chain-by-chain basis. Accordingly, information we provide to
magazine publishers about magazine sales by retailers is also on a quarterly,
chain-by-chain basis, rather than on a more frequent, store-by-store basis. We
intend to develop the capability to gather and provide magazine sales
information on a weekly, store-by-store basis.

Through our front-end management services we also have access to a significant
amount of information about retail checkout area activity. Our recent
acquisitions of four display rack manufacturers further increase our information
base.

The continual re-merchandising and re-modeling of retail stores drives the
demand for new display racks. Retailers request new displays to promote new
products, to upgrade the appearance of an existing store and to render the
appearance of newly opened stores consistent with the rest of the retail chain.
The continual introduction of new products and rapidly evolving packaging of
existing products also drives the need for new displays.

28
<PAGE> 30

BUSINESS STRATEGY

Our objective is to strengthen our position as the leading provider of sales
figures and product placement and other related information for magazines sold
in retail stores, whether from mainline or front-end displays. We also seek to
become the leading provider of similar information for confections and general
merchandise sold at checkout counters, as well as of other front-end services to
retailers and vendors that help to increase sales from the retail checkout area.
Our strategies for achieving our objectives include the following:

Provide timely and reliable information

- We intend to increase our information gathering capabilities through
internal growth, acquisitions, joint ventures or strategic alliances or by
acquiring the information from third parties.

- We intend to develop the capability to provide magazine sales information
more frequently and on a store-by-store basis. We currently provide U.S.
magazine sales information on a quarterly chain-by-chain basis. In Canada,
through our recent acquisition of ProMark, we already are able to provide
this information on a weekly store-by-store basis.

- We intend to increase the amount of information we collect with respect to
magazines and other front-end products, including confections, razor blades,
film and batteries.

- We intend to develop an analytical support capability to assist retailers
and publishers to use more effectively the information that we provide.

Expand Internet distribution and data

- We intend to continue to use our information collection capabilities and our
industry relationships to strengthen content and add new subscribers and
advertisers to ICN. In particular, we intend to increase the amount of
general merchandise information on ICN and to aggressively market this
service to confectioners and general merchandise vendors.

Expand Advance Pay Program

- We intend to expand marketing of our Advance Pay Program in order to
increase the number of clients of this service. We believe increasing
retailer awareness of the economic and administrative advantages of the
Advance Pay Program will result in the continued growth of this program.

Expand our display rack manufacturing business

- We intend to cross-sell our display rack manufacturing capabilities with our
other services.

- We intend to expand our display rack product line to include racks
manufactured using plastic and wood components. By diversifying our display
rack product line beyond metal fixtures, we believe that we can meet all of
our clients' display rack needs for both front-end and point-of-purchase
racks. We believe that this will enable us to sell additional racks to
existing clients and to attract new clients.

- We intend to aggressively market point-of-purchase display racks. We believe
that this provides us with significant growth opportunities in this large
and growing market.

- We expect to realize cost savings resulting from process improvements,
greater purchasing power, reduction of delivery costs and elimination of
duplicative costs among our four recently acquired manufacturers of
front-end display racks.

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<PAGE> 31

Pursue strategic acquisitions

- We intend to continue to pursue strategic acquisitions of additional
businesses which further our business objectives. Since the beginning of
fiscal 1998, we have made six strategic acquisitions. Four of these
acquisitions were of front-end display rack manufacturers and two, including
one in Canada, were of providers of rebate collection services.

SERVICES

Our claims submission services for magazine retailers were established by one of
our predecessors over 20 years ago. Our experience in providing these services
is the foundation for our other services. Our current services are described
below.

Claim Submission Program

Through our information gathering capabilities, we assist U.S. and Canadian
retailers to accurately monitor, document, claim and collect magazine publisher
incentive and pocket rental payments. Incentive payments consist of cash rebates
offered to retailers by magazine publishers equal to a percentage of magazine
sales. Pocket rental payments are made by magazine publishers for providing a
specific pocket size and location on a display rack. Our claim submission
program relieves our retailer customers of the substantial administrative burden
of documenting their claims and we believe increases the amount of claims they
collect.

The claim submission process begins at the end of each calendar quarter. Local
distributors detail the titles and number of copies sold by our retailer clients
during that quarter. Display rack manufacturers and our retailer clients provide
us with information about magazine pocket placements. Based on this information,
we prepare claim forms and submit the documented claims to the appropriate
national distributor. After verification of the claim, the national distributor,
on behalf of the publisher, remits to us payment for the retailer. We then
record the payment and forward it to the retailer. We charge the retailer a
negotiated percentage of the amount collected.

Retailer customers who use our claim submission program include Fleming, Kroger,
Southland 7-Eleven, Target and Walgreens. Claim submission services accounted
for approximately 16.7% of our fiscal 1998 revenues on a pro forma basis.

Advance Pay Program

As an extension of our claim submission program, we have established our Advance
Pay Program for magazine sales. Under this program, we pay to participating
retailers a negotiated fixed percentage of the total quarterly incentive
payments and pocket rental fees otherwise due the retailer. We generally make
these payments within 90 days after the end of the quarter. We then collect the
payments for our own account. This service provides the retailer with improved
cash flow and relief from the burdensome administrative task of processing a
large number of small checks from publishers.

Our payments to the retailer precede our collections from the publisher. In
order to make these payments to retailers, we use funds generated from
operations and funds borrowed under our revolving credit facility. Service fees
earned under the Advance Pay Program generally exceed those charged under our
claim submission program. However, we generally assume the risk of
uncollectibility of the incentive and pocket rental payments.

Customers of our Advance Pay Program include A&P, Ahold USA, Food Lion, Kmart
and W.H. Smith. The Advance Pay Program accounted for approximately 14.6% of our
fiscal 1998 revenues on a pro forma basis.

30
<PAGE> 32

We market to magazine publishers our database of magazine-related industry
information that we gather through our claims submission program. This
information assists them in formulating their publishing and distribution
strategies. PIN subscribers have access to a historical database of sales
information for publications, as well as quarterly updates. PIN can generate
reports of total sales, sales by class of trade and sales by retailer. Each
report also provides other sales related information, including returns of
unsold magazines and total sales ranking. We believe that PIN is the most
extensive database available for single-copy retail magazine sales information.

Subscribers to PIN pay a one-time enrollment fee and quarterly update fees.
Subscriptions have an initial term of one year and are automatically renewed for
successive one-year terms unless earlier terminated. At March 31, 1999, we had
17 PIN subscribers, including Globe Marketing Services, Hearst Distribution
Group Magazines, Primedia, Time Distribution Services and Warner Publisher
Services. PIN accounted for 1.5% of our fiscal 1998 revenues on a pro forma
basis.

ICN

In response to the business communications opportunities presented by the
Internet, we have developed our ICN website. The ICN website enables subscribing
magazine publishers to access information regarding pricing, new titles,
discontinued titles and display rack configuration changes on a chain-by-chain
basis. This information is important to publishers because discontinuation and
placement of their titles on the display rack can have a significant impact on
sales. We believe that, prior to ICN, publishers could not react as quickly to
these changes. Publishers also can use ICN to promote special incentives and
advertise and display special editions, new publications and upcoming covers,
all of which can increase their sales.

Retailers can use ICN to order new magazine titles and take advantage of
promotions by publishers. They also can download frequently changing price
information, including Uniform Product Codes which change often because of price
changes and new title introductions.

As part of our increased emphasis on confections and general merchandise sold at
checkout counters, we intend to adapt ICN for confections and general
merchandise.

The ICN website is configured so that publishers cannot access the information
of other publishers and retailers cannot access information of other retailers.
ICN also is encrypted. Both of these features allow retailers and publishers to
exchange information and conduct transactions on the Internet without competing
publishers or retailers or other persons being able to access their proprietary
information. PIN can also be accessed through ICN.

We receive annual fees from each publisher that subscribes to ICN. We also
receive fees from publishers for advertising, promotions and special programs on
ICN. Since its launch in January 1999, we have signed up over 90 retailer
subscribers, including Ames Department Stores, Eckerd, Kmart, Southland
7-Eleven, W.H. Smith and Wegman's Food Markets and 15 publishers, including
American Media, Hearst Distribution Group Magazines, Time Distribution Services,
Times Mirror and Time Warner. Because of its recent introduction, we received no
revenues from ICN in fiscal 1998.

Front-End Management

We help retailers to increase sales and incentive payment revenues by
reconfiguring and designing front-end display racks, supervising fixture
installation, selecting products and negotiating, billing and collecting
incentive payments from vendors. We also help our retailer clients to develop
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 these magazines.

To further enhance our front-end management service capabilities, we recently
developed our SourcePro software. SourcePro is a three dimensional fixture
design system that analyzes the retailer's store layout, customer traffic
patterns and available front-end merchandising alternatives to develop an
appropriate
31
<PAGE> 33

checkout display configuration. We believe that there are no other design
systems similar to SourcePro currently in use.

We introduced front-end management in July 1997 with a contract to manage the
front-end of approximately 2,200 Kmart stores. The number of stores for which we
provide front-end management services has grown substantially, and involves
arrangements with many prominent retailers, including Eckerd, Fleming, Kmart,
Southland 7-Eleven, SuperValu and Wegman's Food Markets.

Front-end management services accounted for approximately 4.7% of our fiscal
1998 revenues on a pro forma basis. We believe our recent acquisitions of four
manufacturers of front-end display racks will enable us to expand our front-end
management business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent and Pending Acquisitions."

Front-End and Point-of-Purchase Display Rack Manufacturing

We design, manufacture and deliver custom front-end and point-of-purchase
displays for both retail store chains and product manufacturers, including A&P,
American Stores, Food Lion, Kmart and Winn Dixie. For many of our retail store
accounts, we also invoice vendors for rack costs and coordinate the collection
of payments on these invoices. We believe that display rack manufacturing
strengthens our ability to provide front-end management services, and in many
cases it is provided as part of our front-end management services. We also
believe that manufacturing display racks increases our access to information
about sales of magazines and other products from retail checkout areas, which
enhances our ability to provide PIN and ICN.

Our manufacturing process typically begins when a retail store chain contacts us
to design a display for its stores. We create a computer model of the display
based on the retailer's specifications, from which a prototype is created and
presented to the retailer for its examination. We then work together with the
retailer to finalize the design of the display and negotiate a price per
display. All of our front-end display racks are manufactured to customer
specifications.

We design, manufacture and coat each pocket, shelf and other component of a
display unit separately and then assemble these components to create the
finished display. We believe that our component-oriented manufacturing process
enables us to produce our displays more quickly and efficiently and with a
higher standard of quality than if we used a unit-oriented process.

Materials used in manufacturing our racks include wire, metal tubing and
paneling. At our five manufacturing locations, we cut, shape, bend and weld
wire, tubing and metal paneling and paint and assemble the finished product. We
use a just-in-time inventory practice. This reduces our requirements to carry
inventories of raw materials, which in turn improves our cash flow.

Display rack manufacturing accounted for approximately 62.5% of our fiscal 1998
revenues on a pro forma basis.

MARKETING AND SALES

We market our services and display racks through our own direct sales force. Our
sales group consists of four divisional vice presidents and 13 regional
managers. We have integrated our marketing efforts for our traditional
information and management services with our display rack manufacturing. We
market our services primarily through direct contact with clients and
prospective clients. We also market our services at industry trade shows and
through trade publications.

Each of our managers 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 territory. Our regional managers maintain frequent contact
with our clients in order to provide them with a high level of service and react
quickly to their needs.

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<PAGE> 34

COMPETITION

Competition among providers of many of our services, particularly the processing
of incentive payment claims, is intense. We have a substantial number of direct
competitors for our claims submission program, all of which are closely-held
private companies. We believe there is no significant competition for PIN and
ICN. Information contained in PIN and ICN could be obtained from other sources,
although we believe this would be at greater expense to the user and that it
would take substantially more time to collect.

We compete with five other manufacturers in the front-end display rack
manufacturing business. One of those competitors has substantially greater
financial resources than we do. There also are a substantial number of
competitors in the point-of-purchase display rack business, many of which are
national in scope and have a substantially larger market share, greater name
recognition in this industry segment and substantially greater financial
resources than we do. However, the total market for point-of-purchase display
racks is much larger than the market for front-end display racks and therefore
can support a larger number of manufacturers.

We believe that the principal competitive factors in the retail information
industry include access to information, technological support, accuracy, system
flexibility, financial stability, customer service and reputation. In addition
to financial stability, customer service and reputation, we believe that product
quality, timeliness of delivery and, to a lesser extent, price are competitive
factors in the display rack manufacturing business. We believe we compete
effectively with respect to each of the above factors.

PROPERTIES

We conduct our business from over twenty manufacturing, data processing, office
and warehouse facilities. All of our owned facilities are subject to mortgages
in favor of our lender.

<TABLE>
<CAPTION>
LOCATION DESCRIPTION SIZE SQ. FT. OWNED/LEASED
- -------- ----------- ------------ ------------
<S> <C> <C> <C>
Jacksonville, FL.......................... Manufacturing/Office 55,000 Leased
Rockford, IL.............................. Manufacturing/Office 310,536 Owned
St. Louis, MO............................. Office 8,050 Leased
High Point, NC............................ Data Processing/Office 22,000 Leased
Fair Lawn, NJ............................. Office 2,771 Leased
Brooklyn, NY.............................. Manufacturing/Office 92,000 Leased
New York, NY.............................. Office 1,900 Leased
Philadelphia, PA.......................... Manufacturing/Office 110,000 Owned
Greenville, SC............................ Manufacturing/Office 30,000 Leased
</TABLE>

In addition, we have warehouse facilities in Florida, New Jersey and South
Carolina and small offices in Pennsylvania, Ohio, Oklahoma, Texas and Ontario.
We believe our facilities are adequate for our current level of operations.

INFORMATION SYSTEMS; INTELLECTUAL PROPERTY

Software used in connection with our claims submission program and in connection
with PIN and ICN, as well as our SourcePro software, was developed specifically
for our use by a combination of in-house software engineers and outside
consultants. We believe that certain elements of all three of these software
systems are proprietary to The Source. Other portions of these systems are
licensed from the third party that helped to design the system. We also receive
systems service and upgrades under the license.

We have filed provisional applications with the U.S. Patent Office for patent
protection for our ICN program and intend to seek patent protection for our
SourcePro and PIN innovations. Certain aspects of our ICN, SourcePro and PIN
innovations also have copyright protection.

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<PAGE> 35

LEGAL PROCEEDINGS

We are from time to time parties to various legal proceedings arising out of our
businesses. We believe that there are no proceedings pending or threatened
against us which, if determined adversely, would have a material adverse effect
on our business or financial condition.

EMPLOYEES

As of March 31, 1999, we employed 782 persons, of whom approximately 770 were
employed on a full-time basis and approximately 12 of whom were employed on a
part-time basis. Of these persons, 88 were engaged in administrative activities
and 96 were engaged in sales, customer support and data processing. The
remaining employees were engaged in manufacturing activities.

Of the employees at our Brooklyn, New York facility, 175 are represented by
Local 810 of the Steel, Metal, Alloys and Hardware Fabricators of the
International Brotherhood of Teamsters under a collective bargaining agreement
expiring on September 30, 1999. Of the employees at our Philadelphia,
Pennsylvania facility, 90 are represented by Local 837 of the Teamsters Union
under a collective bargaining agreement expiring on December 31, 2000. We
consider our employee relations to be satisfactory.

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<PAGE> 36

MANAGEMENT

The following table sets forth certain information concerning our directors and
executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
S. Leslie Flegel......................... 61 Chairman and Chief Executive Officer
Richard A. Jacobsen...................... 43 Director, Vice Chairman and Chief Operating Officer
William H. Lee........................... 48 Director, Chairman of Executive Committee and Chief
Administrative Officer
James R. Gillis.......................... 46 President
Dwight L. DeGolia........................ 54 Executive Vice President, Special Projects
W. Brian Rodgers......................... 33 Secretary and Chief Financial Officer
Jason S. Flegel.......................... 33 Executive Vice President, Information Services
Robert O. Aders.......................... 71 Director
Timothy A. Braswell...................... 70 Director
Harry L. "Terry" Franc, III.............. 63 Director
Aron Katzman............................. 61 Director
Randall S. Minix......................... 49 Director
</TABLE>

The Board consists of eight members, each of whom serves in that 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. Our Articles of Incorporation and By-Laws
provide for three classes of directorships serving staggered three year terms
such that one class of the directors are elected at each annual meeting of
stockholders. The terms of Messrs. Katzman and Minix will continue until the
1999 annual meeting of stockholders, the terms of Messrs. Braswell, Franc and
Jacobsen will continue until the 2000 annual meeting of stockholders and the
terms of Messrs. Aders, Flegel and Lee will continue until the 2001 annual
meeting of stockholders.

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

S. Leslie Flegel has been the Chairman of the Board of Directors and Chief
Executive Officer of The Source 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, a predecessor of The Source. S.
Leslie Flegel is the father of Jason S. Flegel, The Source's Executive Vice
President, Information Services.

Richard A. Jacobsen was elected a Director in March 1999 and became Vice
Chairman and Chief Operating Officer in April 1999. Prior thereto, he was
President of Time Distribution Services from 1995 until April 1999; he served
Time Distribution Services in various executive capacities since 1981. He is a
member of the Board of Directors of the International Periodical Distributors
Association, Chairman of the Magazine Publishers Association Retail Advisory
Council and a member of the American Magazine Conference Planning Committee.

William H. Lee has been a director of The Source since its inception in March
1995 and has been Chief Administrative Officer since March 1999. Prior thereto,
Mr. Lee was President and Chief Operating Officer since The Source's inception.
For approximately 14 years prior thereto, Mr. Lee was the principal owner and
Chief Executive Officer of Periodical Marketing and Management, Inc., a
predecessor of The Source.

James R. Gillis has served as President of The Source since December 1998. Prior
thereto, he served as the President of Brand Manufacturing Corporation from
September 1995. Prior to joining Brand,

35
<PAGE> 37

Mr. Gillis was a partner in the Aders-Wilcox-Gillis Group, which advised
supplier companies on industry retailers worldwide. Mr. Gillis is a member of
the Board of Directors of Broadband Sports, Inc.

Dwight L. DeGolia has served as Executive Vice President of The Source since its
inception in May 1995. For more than ten years prior thereto, Mr. DeGolia served
as Executive Vice President of Sales and Marketing for Display Information
Systems Company. 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 Secretary and Chief Financial Officer since
October 1996. Prior to joining The Source, Mr. Rodgers practiced for seven years
as a Certified Public Accountant with BDO Seidman, LLP.

Jason S. Flegel has served as Executive Vice President, Information Services
since March 1999. Prior thereto, he served as Senior Vice President of RDA
Operations since June 1996, and since The Source inception in March 1995, he
served as Vice President -- Western Region. For more than two years prior
thereto, Mr. Flegel was an owner and the Chief Financial Officer of Display
Information Systems Company. Jason S. Flegel is the son of S. Leslie Flegel.

Robert O. Aders was elected a director in March 1999. He is Chairman and Chief
Executive Officer of the Advisory Board, Inc. (an international consulting
organization) and a member of the Board of Directors of Food Marketing
Institute, where he served from its founding in 1976 until his retirement in
1993. He is also counsel to Collier, Shannon, Rill & Scott (a Washington, D.C.
law firm). Mr. Aders was the Acting Secretary of Labor in the Ford
administration, is a former advisor to the White House Office of Emergency
Preparedness and has served on the U.S. Wage and Price Commission and as a Vice
Chairman of the National Business Council for Consumer Affairs. From 1970 to
1974, Mr. Aders was Chairman of the Board of the Kroger Company, where he served
in various executive positions beginning in 1957. He is currently a trustee of
the National Urban League. He also is a director of Association International
Distribution Alimentares (Belgium), the Association of Latin American
Supermarkets, a Fellow of the Institute of Grocery Distribution (U.K.) and a
member of the International Self Service Organization (Germany). In addition, he
is a director of Checkpoint Systems, Inc., a company listed on the New York
Stock Exchange, Coinstar, a company listed on Nasdaq and Telepanel, a company
listed on Nasdaq.

Timothy A. Braswell has been a director of The Source 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. Prior to
that time, 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 Source 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. Mr. Franc
has been Executive Vice President of BTC for more than 20 years and for more
than 20 years prior to 1995, served as a director and an Executive Vice
President of BIS. Mr. Franc is a member of the National Organization of
Investment Professionals and a director of P.J. Holdings, LLC.

Aron Katzman has served as a director of The Source since it commenced
operations in May 1995. Until its sale in May 1994, 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 and Southern Internet, Inc.

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

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<PAGE> 38

COMMITTEES OF THE BOARD OF DIRECTORS

The Board has established an Audit Committee, a Compensation Committee, a
Finance Committee and an Acquisition Committee. The duties and members of each
of these committees, are indicated below.

- - 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 our independent auditors, reviewing the scope and results
of the audit and services provided by our independent accountants and meeting
with our financial staff 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 our financial records to determine overall
compensation and benefits for executive officers 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
our capital structure, reviewing available alternatives to satisfy our
liquidity and capital requirements and recommending the firm or firms which
will provide investment banking and financial advisory services to us.

- - The Acquisition Committee is comprised of three directors, presently Messrs.
Franc, Braswell and Katzman, and has been given the responsibility of
monitoring our search for attractive acquisition opportunities, consulting
with members of management to review plans and strategies for the achievement
of our external growth objectives and recommending the firm or firms that will
serve as advisors to us in connection with the evaluation of potential
business combinations.

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<PAGE> 39

EXECUTIVE COMPENSATION

The following table summarizes information concerning cash and non-cash
compensation paid to or accrued for the benefit of the chief executive officer
and the four other executive officers of The Source who, based on salary and
bonus compensation, were the most highly compensated officers of The Source for
the year ended January 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
FISCAL UNDERLYING OTHER ANNUAL ALL OTHER
NAME OF PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($) COMPENSATION(1)($)
- -------------------------- ------ ---------- --------- ------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
S. Leslie Flegel 1999 $260,857 $23,795 360,000 $16,188 $5,450
Chief Executive Officer 1998 255,000 96,300 89,256 16,550 9,093
1997 227,500 176,398 -- 21,531 9,093
William H. Lee 1999 $246,430 $23,795 -- $12,109 $3,056
Chief Administrative 1998 245,494 70,382 49,091 9,573 3,056
Officer 1997 224,830 30,000 -- 10,888 3,056
Dwight L. DeGolia 1999 $175,000 $ -- 40,000 $11,699 $3,553
Executive Vice President, 1998 150,000 29,200 10,909 10,777 --
Special Projects 1997 140,000 4,773 -- 11,223 --
Stephen E. Borjes(2) 1999 $140,000 $ -- 40,000 $ 6,790 --
President -- Display Group 1998 26,667 8,333 -- 2,000 --
1997 -- -- -- -- --
Jason S. Flegel 1999 $112,500 $ -- 10,000 $ 7,005 $ 381
Executive Vice President, 1998 100,000 9,600 9,091 6,205 381
Information Services 1997 90,000 -- -- 5,266 381
</TABLE>

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

(1) In fiscal 1999, the estimated incremental cost to The Source of life
insurance premiums paid on behalf of Messrs. S. Leslie Flegel, Lee DeGolia,
Borjes and Jason Flegel was $5,450, $3,056, $3,553, $0 and $381. In fiscal
1998, the estimated incremental cost to The Source of life insurance
premiums paid on behalf of Messrs. S. Leslie Flegel, Lee, DeGolia, Borjes
and Jason Flegel was $9,093, $3,056, $0, $0 and $381, respectively. In
fiscal 1997, such cost to The Source was $9,093, $3,056, $0, $0 and $381,
respectively.

(2) Since February 1999, Mr. Borjes has been Vice President, Database Operations
of The Source.

38
<PAGE> 40

OPTIONS GRANTS IN FISCAL 1999

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM
UNDERLYING TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- --------------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
S. Leslie Flegel....................... 360,000(1) 35 5.13 02/01/08 1,162,800 2,944,800
William H. Lee......................... -- -- -- -- -- --
Dwight L. DeGolia...................... 10,000(2) 1 5.13 02/01/08 32,300 81,800
Dwight L. DeGolia...................... 30,000(3) 3 5.00 10/07/08 94,200 239,100
Stephen E. Borjes...................... 20,000(3) 2 5.00 10/07/08 62,800 159,400
Stephen E. Borjes...................... 20,000(4) 2 6.63 04/30/98 83,400 211,400
Jason S. Flegel........................ 10,000(5) 1 5.00 10/07/08 31,400 79,700
</TABLE>

- ---------------------------
(1) Options were granted February 2, 1998 and vest in four equal annual
installments.

(2) Options were granted February 2, 1998 and are exercisable immediately.

(3) Options were granted October 8, 1998 and vest in three equal annual
installments.

(4) Options were granted May 1, 1998 and vest in five equal annual installments.

(5) Options were granted October 8, 1998 and vest in five equal annual
installments.

AGGREGATE OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION AT OPTIONS AT FISCAL
SHARES FISCAL YEAR END YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- -------- --------------- --------------------
<S> <C> <C> <C> <C>
S. Leslie Flegel................. 0 0 -- /360,000 -- /1,798,200
William H. Lee................... 0 0 -- / -- -- / --
Dwight L. DeGolia................ 0 0 20,000/ 20,000 101,200/ 102,500
Stephen E. Borjes................ 0 0 10,666/ 29,334 48,143/ 124,257
Jason S. Flegel.................. 0 0 2,000/ 8,000 10,250/ 41,000
</TABLE>

DIRECTOR COMPENSATION

Under our present policy, each director who is not also an employee receives
$15,000 annually payable quarterly in either cash or shares of common stock
valued at 90% of market on the date of grant. Directors also annually receive
options to purchase 3,000 shares of common stock at an exercise price equal to
market price on the date of grant. 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

In October 1997, we entered into separate employment agreements with S. Leslie
Flegel, William H. Lee and W. Brian Rodgers, each of which expires January 31,
2000 and are subject to annual renewal thereafter. Under the employment
agreements, Mr. Flegel will serve as the Chairman of the Board and Chief
Executive Officer of The Source in exchange for annual base compensation of
$255,000, Mr. Lee will serve as Chairman of the Executive Committee and Chief
Administrative Officer of The Source in exchange for annual base compensation of
$240,573, and W. Brian Rodgers will serve as Chief Financial Officer of The
Source and receive annual base compensation of $100,000, subject to annual
adjustment by

39
<PAGE> 41

the Compensation Committee of the Board (the "Base Compensation"). In the event
the employment of any such person with The Source 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 employment 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 Source or engaging, directly or
indirectly, in the rendering of services competitive with those offered by The
Source during the term of his employment and for two years thereafter, without
the prior written consent of The Source.

In December 1998, we entered into an employment agreement with James R. Gillis,
which expires January 31, 2001 (subject to renewal). The employment agreement
provides that Mr. Gillis will serve as President of The Source and receive
annual base compensation of $250,000, subject to annual adjustment by the Board.
In addition, Mr. Gillis is entitled to receive an annual bonus of $50,000 for
each of fiscal 2000, 2001 and 2002 if certain performance goals are met. The
annual bonus amounts may increase if the performance of our front-end display
rack manufacturers exceeds certain thresholds. However, under his employment
agreement, Mr. Gillis is not entitled to an annual bonus of more than $250,000.
In the event the employment of Mr. Gillis is terminated for reasons other than
cause, permanent disability or death, Mr. Gillis will be entitled to receive the
remainder of his base salary and benefits for the balance of the term of the
agreement and a pro rata portion of his annual bonus for the year of
termination. Mr. Gillis agreed to refrain from disclosing information
confidential to The Source during the term of the employment agreement and
agreed not to engage, directly or indirectly, in the rendering of services
competitive with those offered by The Source during the term of his employment
and for two years thereafter.

In March 1999, we entered into an employment agreement with Richard A. Jacobsen
which expires January 31, 2004 (subject to renewal). Under his agreement, Mr.
Jacobsen will serve as Vice Chairman and Chief Operating Officer of The Source
and receive annual base compensation of $235,000 for fiscal 2000, $255,000 for
fiscal 2001 and $275,000 for fiscal 2002. For fiscal 2003 and 2004, Mr.
Jacobsen's salary will be determined by the Board, but it may not be less than
$275,000. Mr. Jacobsen will also be entitled to receive an annual bonus equal to
a percentage of our net income before taxes ranging from 0.69% to 2.7% if
certain performance goals are met. Mr. Jacobsen will not be entitled to a bonus
if our pre-tax net income is not at least 82% of our budgeted pre-tax net
income. In connection with his employment by The Source, we made two loans to
Mr. Jacobsen in the amounts of $600,000 ("Loan 1") and $375,000 ("Loan 2"). Loan
1, including interest, will be forgiven over a 5-year term and Loan 2, including
interest, will be forgiven over a 7-year term provided, in each case, that Mr.
Jacobsen remains an employee of the Company. Under this employment agreement,
Mr. Jacobsen also is entitled to receive payments compensating him for his
annual tax liabilities in connection with forgiveness of the loans. In the event
(1) the employment of Mr. Jacobsen is terminated for reasons other than for
cause, permanent disability or death, (2) there occurs an assignment of duties
or responsibilities inconsistent with Mr. Jacobsen's appointed positions or (3)
there is a "Change of Control" (as defined in his employment agreement) (each of
the foregoing being a "Termination"), Mr. Jacobsen will be entitled to receive
his accrued but unpaid base salary, his base salary for the remainder of the
term of the employment agreement, forgiveness of Loan 1 and Loan 2, immediate
vesting of options granted to Mr. Jacobsen under the employment agreement and
payment of a bonus in an amount equal to the greater of the annual bonus due in
the year of termination or the annual bonus for the prior year. Under the
agreement, Mr. Jacobsen agreed to refrain from disclosing information
confidential to The Source or engaging, directly or indirectly, in the rendering
of services competitive with those offered by The Source during the term of his
employment and for two years thereafter, without the prior written consent of
The Source.

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

40
<PAGE> 42

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth as of April 16, 1999, certain information
concerning the ownership of common stock (1) by each person who is known to us
to own beneficially 5.0% or more of our common stock, (2) by each current
director and executive officer named in the compensation tables and
"Management," (3) by all directors and officers as a group and (4) by the
selling stockholders. As of April 21, 1999, there were 13,663,735 shares of
common stock outstanding.

<TABLE>
<CAPTION>
OWNERSHIP
SHARES TO AFTER THE
OWNERSHIP PRIOR TO THE OFFERING(1) BE SOLD(2) OFFERING
----------------------------------- ---------- -------------------------
NUMBER OF NUMBER OF
SHARES PERCENTAGE SHARES(2) PERCENTAGE(2)
----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
5% Stockholders
Jonathan J. Ledecky........ 3,140,000(3) 23.0% (2) 3,140,000 18.8%
800 Connecticut Avenue,
N.W., Suite 1111
Washington, D.C. 20006
A.G. Edwards & Sons,
Inc...................... 832,225(4) 6.1 832,225 5.0
One North Jefferson
St. Louis, Mo 63103
Directors and Executive
Officers
S. Leslie Flegel........... 1,373,774(3)(5) 9.9 300,000 1,073,774 6.4
William H. Lee............. 907,623(5) 6.6 500,000 407,623 2.4
Richard A. Jacobsen........ * *
Robert O. Aders............ 8,000(5) * 8,000 *
Harry L. Franc, III........ 50,157(5)(6) * 50,157 *
Aron Katzman............... 212,961(5)(6) 1.6 212,961 1.3
Randall S. Minix........... 13,866(5) * 13,866 *
Timothy A. Braswell........ 339,644(5)(6) 2.5 (2) 339,644 2.0
Dwight L. DeGolia.......... 121,468(5) * 35,000 86,468 *
Jason S. Flegel............ 139,405(5) 1.0 20,000 119,405 *
James R. Gillis............ 130,000 * 72,500 57,500 *
All directors and executive
officers as a group (12
persons)................. 3,307,928(3)(7) 23.6 927,500 2,380,428 14.0
Other Selling Stockholder
Monte Weiner............... 171,333(5) 1.3 72,500 98,833 *
</TABLE>

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

* Less than 1%

(1) Under the rules of the Commission, some of the shares of our common stock
which a person has the right to acquire within 60 days after April 16, 1999
in connection with the exercise of stock options and warrants are deemed to
be outstanding for the purpose of computing beneficial ownership and the
percentage of ownership of that person.

(2) Assumes the underwriters' over-allotment option is not exercised. Selling
stockholders have given the underwriters options to purchase shares to cover
over-allotments as follows: Mr. Ledecky -- 500,000 shares and Mr.
Braswell -- 100,000 shares.

(3) S. Leslie Flegel and Jonathan J. Ledecky entered into a Voting Agreement on
January 7, 1999, under which Mr. Ledecky granted a proxy to Mr. Flegel to
vote his shares of common stock with regard to certain corporate matters.
The number of shares shown for Mr. Flegel in the table does not include Mr.
Ledecky's shares.

(4) This amount, as reflected on Schedule 13G filed on February 11, 1999,
consists of sole voting power with respect to 455,475 shares, sole
dispositive power with respect to 832,225 shares and no shared voting or
dispositive power with respect to any shares.

(5) Includes exercisable options to acquire shares of common stock in the
following amounts per beneficial owner: S. Leslie Flegel -- 180,754 shares;
William H. Lee -- 16,364 shares; Timothy A. Braswell -- 3,000 shares; Aron
Katzman -- 3,000 shares;

41
<PAGE> 43

Jason S. Flegel -- 5,636 shares; Dwight L. DeGolia -- 14,364 shares; Harry L.
Franc, III -- 3,000 shares; Robert O. Aders -- 3,000 shares; Randall S.
Minix -- 3,000 shares; and Monte Weiner -- 33,333 shares.

(6) Includes exercisable warrants to acquire shares of common stock in the
following amounts per beneficial owner: Timothy A. Braswell -- 40,180
shares; Aron Katzman -- 40,180 shares; Harry L. Franc, III -- 8,929 shares.

(7) Includes options and warrants to acquire 11,030 shares of common stock,
excluded in the names indicated in the footnotes above.

CERTAIN RELATED TRANSACTIONS

From time to time, we and our predecessors have engaged in various transactions
with our directors, executive officers and other affiliated parties. The
following paragraphs summarize certain information concerning these transactions
and relationships to the extent that they occurred during the past three fiscal
years or which are presently proposed.

PREDECESSOR TRANSACTIONS

S. Leslie Flegel and Dwight L. DeGolia have from time to time received cash
advances from The Source and one of its predecessors. The largest aggregate
amount of advances outstanding at any time since February 1, 1997 was $270,675
and $22,093, respectively. All outstanding advances have been repaid in full.

On June 28, 1991, a predecessor of ours entered into a lease with 711 Gallimore
Partnership in which William H. Lee, is a partner. Under the term of the lease,
711 Gallimore Partnership leases us office space in High Point, North Carolina.
The lease currently provides for annual rent of $290,449 and expires in 2012. In
fiscal 1998 and 1997, we paid 711 Gallimore Partnership $174,888 and $157,498,
respectively, in rent.

We have reached an agreement to purchase the property that we lease from 711
Gallimore Partnership for $1.8 million in cash. Our Board appointed Timothy
Braswell, an independent director, to negotiate this transaction on our behalf
and, based on Mr. Braswell's recommendation, the Board believes the terms of the
proposed purchase are fair to The Source.

COMPANY TRANSACTIONS

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

In July 1997, an affiliated party, along with the other holder of our 1996
Series 7% Convertible Preferred Stock, exchanged all 5,600 outstanding shares
for (1) 186,667 shares of common stock at an exchange price of $3.00 per share
and (2) nontransferable warrants, expiring on July 1, 2002, to purchase 310,709
shares of common stock at an exercise price of $3.00 per share.

In September 1997, we issued to Messrs. Katzman, Franc and Braswell
non-transferable warrants, expiring on September 2, 2000, to purchase an
aggregate of 89,289 shares of our common stock at an exercise price of $3.00 per
share.

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

The terms of the foregoing transactions were not negotiated on an arm's-length
basis, but were ratified by a majority of the independent and disinterested
outside directors who had access, at our expense, to our legal counsel. All
future transactions between The Source and its officers, directors, principal
stockholders and affiliates will be approved by a majority of the independent
and disinterested outside directors who will have access, at our expense, to our
legal counsel.

42
<PAGE> 44

DESCRIPTION OF CAPITAL STOCK

Our Articles of Incorporation (the "Articles") provide for authorized capital of
42 million shares, consisting of 40 million shares of common stock, $0.01 par
value per share, and 2 million shares of preferred stock, $0.01 par value per
share ("preferred stock"). At April 16, 1999, 13,663,735 shares of common stock
and no shares of preferred stock were outstanding. The following summary
description of our capital stock 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 on all
matters to be voted on by stockholders, including the election of directors.
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 Source, 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 Board has the authority to issue preferred stock in one or more series and
to fix the number of shares of each series of preferred stock. The Board also
has the authority to set the voting powers, designations, preferences and
relative, participating, optional or other special rights of each series of
preferred stock, including the dividend rights, dividend rate, terms of
redemption, redemption price or prices, conversion and voting rights and
liquidation preferences. Preferred stock can be issued and its terms set by the
Board without any further vote or action by our stockholders.

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 BY-LAWS

Some of the provisions of our Articles and By-Laws contain provisions that may
have the effect of discouraging some types of transactions that involve an
actual or threatened change of control of The Source, which in turn could limit
your ability to sell your shares at a premium. Some of these provisions are
summarized below. See also "Risk Factors -- We have limitations on change of
control."

Size of Board, Election of Directors and Classified Board

Our Articles and By-Laws, when read together, provide for a minimum of three and
a maximum of nine persons to serve on the Board. However, the number of
directors may be increased or decreased by a resolution adopted by the
affirmative vote of a majority of the Board.

The By-Laws provide that the Board will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible. One
class of directors will be elected each year at our annual meeting to serve for
a three-year term. Our most recent annual meeting of stockholders was held on
October 6, 1998.

43
<PAGE> 45

Stockholder Nominations and Proposals

Our By-Laws provide for advance notice requirements for stockholder nominations
and proposals at annual meetings of our stockholders. Stockholders may nominate
directors or submit other proposals only upon written notice to The Source not
less than 120 days nor more than 150 days prior to the anniversary of the date
of the notice to stockholders of the previous year's annual meeting. A
stockholder's notice also must contain certain additional information, as
specified in the By-Laws. The Board may reject proposals that are not made in
accordance with the procedures contained in the By-Laws or that are not properly
the subject of stockholder action.

Calling Special Stockholder Meetings; Stockholder Action Without a Meeting

Matters to be acted upon by the stockholders at special meetings are limited to
those specified in the notice of the meeting. A special meeting of stockholders
may be called by the Board, the Chairman or the President of The Source or at
the request in writing of stockholders holding at least ten percent (10%) of the
outstanding shares entitled to vote at the special meeting. As required by
Missouri law, the By-Laws provide that any action by written consent of
stockholders in lieu of a meeting must be signed by the holders of all
outstanding shares of common stock. Because we have publicly traded common
stock, we are therefore, as a practical matter, unable to act by the written
consent of our stockholders.

44
<PAGE> 46

UNDERWRITING

The Source and the selling stockholders have entered into an underwriting
agreement with the underwriters named below. CIBC Oppenheimer Corp. and Donald &
Co. Securities Inc. are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC Oppenheimer Corp.......................................
Donald & Co. Securities Inc.................................
--------
Total.....................................................
========
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The representatives have advised The Source and the selling stockholders that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to certain securities
dealers at such price less a concession of $ per share. The underwriters may
also allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the shares are released for sale to
the public, the representatives may change the offering price and other selling
terms at various times.

The Source and the selling stockholders have granted the underwriters an
over-allotment option. This option, which is exercisable for up to 30 days after
the date of this prospectus, permits the underwriters to purchase a maximum of
600,000 additional shares from the selling stockholders to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the public offering price that
appears on the cover page of this prospectus, less the underwriting discount. If
this option is exercised in full, the total price to public will be $ ,
the total proceeds to The Source will be $ and the total proceeds to
the selling stockholders will be $ . The underwriters have severally
agreed that, to the extent the over-allotment option is exercised, they will
each purchase a number of additional shares proportionate to the underwriter's
initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount to
be paid to the underwriters by The Source and the selling stockholders:

<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- ---------------
<S> <C> <C> <C>
The Source......................................... $ $ $
Selling Stockholders............................... $ $ $
------- -------
Total............................................ $ $
</TABLE>

45
<PAGE> 47

The Source will pay all of the total expenses of the offering, excluding the
underwriting discount, which we estimate will be approximately $ .

The Source and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

The Source, its officers and directors and certain other stockholders have
agreed to a 180-day "lock up" with respect to 4,621,397 shares of common stock
and certain other securities that they beneficially own, including securities
that are convertible into shares of common stock and securities that are
exchangeable or exercisable for shares of common stock. This means that, subject
to certain exceptions, for a period of 180 days following the date of this
prospectus, The Source and such persons may not offer, sell, pledge or otherwise
dispose of these securities without the prior written consent of CIBC
Oppenheimer Corp.

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:

- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of shares, so
long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.

- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither The Source nor the underwriters makes any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.

Donald & Co. Securities Inc. acted as representative in connection with The
Source's June 1998 public offering of 2,000,000 shares of common stock. As
compensation for these services, Donald & Co. received (a) $970,050 in
underwriting discounts, (b) an extension of its engagement as financial
consultant to The Source until June 7, 2001 at a fee of $3,000 per month, (c) a
non-accountable expense allowance of $159,900 and (d) a warrant to purchase up
to 200,000 shares of common stock at an exercise price of $8.40 per share,
subject to adjustment, exercisable for a period of four years commencing on June
15, 1999. With regard to its warrants, Donald & Co. was granted certain demand
and "piggy back" rights for periods of four and six years, respectively,
commencing June 15, 1999 with respect to the registration of the common stock
issuable upon exercise of the warrants.

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be
passed upon for The Source by Armstrong Teasdale LLP, St. Louis, Missouri.
Certain legal matters will be passed upon for the underwriters by Schulte Roth &
Zabel LLP, New York, New York.

46
<PAGE> 48

EXPERTS

The financial statements of The Source Information Management Company as of
January 31, 1997 and 1998 and for the fiscal years ending January 31, 1996, 1997
and 1998 included in the prospectus and the Registration Statement have been
audited by BDO Seidman, LLP independent certified public accountants, and are
included herein in reliance upon such reports given upon the authority of said
Firm as experts in accounting and auditing.

The financial statements of U.S. Marketing Services, Inc. as of December 31,
1998 and for the period from March 25, 1998 through December 31, 1998 included
in the prospectus and the Registration Statement have been audited by BDO
Seidman, LLP, and are included herein in reliance upon such reports given upon
the authority of said Firm as experts in accounting and auditing.

The financial statements of Brand Manufacturing Corp. and T.C.E. Corporation as
of May 20, 1998 and for the period from January 1, 1998 through May 20, 1998
included in the prospectus and the Registration Statement have been audited by
BDO Seidman, LLP, and are included herein in reliance upon such reports given
upon the authority of said Firm as experts in accounting and auditing.

The financial statements of Brand Manufacturing Corp. as of December 31, 1997,
and for the year ended December 31, 1997 appearing in this prospectus and
registration statement of The Source Information Management Company have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
on these financial statements appearing in this prospectus, and are included in
reliance upon this report given upon the authority of Ernst & Young LLP as
experts in auditing and accounting.

The financial statements of T.C.E. Corporation as of December 31, 1997, and for
the year ended December 31, 1997 appearing in this prospectus and registration
statement of The Source Information Management Company have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report on these
financial statements appearing in this prospectus, and are included in reliance
upon this report given upon the authority of Ernst & Young LLP as experts in
auditing and accounting.

47
<PAGE> 49

WHERE YOU CAN FIND MORE INFORMATION

The Source has filed a registration statement on Form S-2 with the Securities
and Exchange Commission in connection with this offering. In addition, The
Source files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the registration statement and any other documents filed by The Source at the
Securities and Exchange Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the Public Reference Room. The
Source's Securities and Exchange Commission filings are also available to the
public at the Securities and Exchange Commission's Internet site at
"http//www.sec.gov." In addition, reports, proxy statements and other
information concerning the Source 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.

This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of The Source, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.

The Securities and Exchange Commission allows The Source to "incorporate by
reference" into this prospectus the information The Source files with it, which
means that The Source can disclose important information to you by referring you
to those documents. Information incorporated by reference is part of this
prospectus. Later information filed with the Securities and Exchange Commission
will update and supersede this information.

The Source incorporates by reference the documents listed below and any future
filing made with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed:

- Annual Report on Form 10-KSB for fiscal 1998.

- Quarterly Reports on Form 10-QSB for the quarters ended April 30, July 31
and October 31, 1998.

- Current Reports on Form 8-K filed on December 11, 1998 and January 21 and
March 11, 1999, and on Form 8-K/A filed on March 23, 1999.

You may request a copy of these filings, at no cost, by contacting the Company
at:

The Source Information Management Company
11644 Lilburn Park Road
St. Louis, Missouri 63146
Attention: W. Brian Rodgers
Telephone Number: (314) 995-9040

48
<PAGE> 50

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENT OF THE SOURCE
INFORMATION MANAGEMENT COMPANY
The Report of the Independent Certified Public
Accountants............................................... F-2
Consolidated Balance Sheets of January 31, 1997 and 1998.... F-3
Consolidated Statements of Operations for the fiscal years
ended January 31, 1996, 1997 and 1998..................... F-5
Consolidated Statements of Stockholders' Equity............. F-6
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1996, 1997 and 1998..................... F-7
Summary of Accounting Policies.............................. F-9
UNAUDITED FINANCIAL STATEMENTS OF THE SOURCE INFORMATION
MANAGEMENT COMPANY
Unaudited Balance Sheet as of October 31, 1998.............. F-25
Unaudited Statements of Operations for the three months and
nine months ended October 31, 1997 and 1998............... F-27
Unaudited Statements of Cash Flows for the nine months ended
October 31, 1997 and 1998................................. F-28
Notes to Financial Statements............................... F-30
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF U.S. MARKETING
SERVICES, INC.
The Report of the Independent Certified Public
Accountants............................................... F-36
Consolidated Balance Sheet as of December 31, 1998.......... F-37
Consolidated Statement of Operations for the period from
March 25, 1998 through December 31, 1998.................. F-38
Consolidated Statement of Capital Deficit for the period
from March 28, 1998 through December 31, 1998............. F-39
Consolidated Statement of Cash Flows for the period from
March 25, 1998 through December 31, 1998.................. F-40
Notes to Consolidated Financial Statements.................. F-41
AUDITED COMBINED FINANCIAL STATEMENTS OF BRAND MANUFACTURING
CORPORATION AND T.C.E. CORPORATION
The Report of the Independent Certified Public
Accountants............................................... F-47
Combined Balance Sheet as of May 20, 1998................... F-48
Combined Statement of Income for the period from January 1,
1998 through May 20, 1998................................. F-49
Combined Statement of Stockholders' Equity for the period
from January 1, 1998 through May 20, 1998................. F-50
Combined Statement of Cash Flows for the period from January
1, 1998 through May 20, 1998.............................. F-51
Notes to Combined Financial Statements...................... F-52
AUDITED FINANCIAL STATEMENTS OF BRAND MANUFACTURING
CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-57
Balance Sheet as of December 31, 1997....................... F-58
Statement of Operations for the year ended December 31,
1997...................................................... F-59
Statement of Stockholders' Equity........................... F-60
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-61
Notes to the Financial Statements........................... F-62
AUDITED FINANCIAL STATEMENTS OF T.C.E. CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-67
Balance Sheet as of December 31, 1997....................... F-68
Statement of Operations for the year ended December 31,
1997...................................................... F-69
Statement of Stockholders' Equity........................... F-70
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-71
Notes to the Financial Statements........................... F-72
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Balance Sheet as of October 31, 1998.... F-76
Notes to Unaudited Pro Forma Balance Sheet.................. F-77
Unaudited Pro Forma Statement of Operations for the nine
months ended October 31, 1998............................. F-78
Unaudited Pro Forma Statement of Operations for the year
ended January 31, 1998.................................... F-79
Notes to Unaudited Pro Forma Statements of Operations....... F-80
</TABLE>

F-1
<PAGE> 51

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 sheets of The Source Information
Management Company as of January 31, 1997 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three 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, 1997 and 1998 and the results of
its operations and its cash flows for each of the three 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> 52

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents................................... $ 284,921 $ 31,455
Trade receivables (net of allowance for doubtful accounts of
$323,587 and $460,898) (Note 10).......................... 12,922,738 18,874,764
Income taxes receivable..................................... 171,305 492,688
Notes receivable -- officers (Note 2)....................... 58,395 7,351
Other current assets........................................ 87,306 187,876
----------- -----------
TOTAL CURRENT ASSETS........................................ 13,524,665 19,594,134
=========== ===========
Office equipment and furniture (Note 4)..................... 1,823,004 2,249,688
Less accumulated depreciation and amortization.............. 1,191,668 1,445,005
----------- -----------
NET OFFICE EQUIPMENT AND FURNITURE.......................... 631,336 804,683
=========== ===========
OTHER ASSETS
Notes receivable -- officers (Note 2)....................... 175,183 14,742
Goodwill, net of accumulated amortization of $72,209 and
$250,579 (Note 8)......................................... 1,022,824 3,227,354
Other....................................................... 215,641 166,944
----------- -----------
TOTAL OTHER ASSETS.......................................... 1,413,648 3,409,040
----------- -----------
$15,569,649 $23,807,857
=========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-3
<PAGE> 53

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits....................... $ 3,225,668 $ 132,189
Accounts payable and accrued expenses....................... 559,441 680,055
Due to retailers (Note 11).................................. 199,575 993,846
Deferred income taxes (Note 7).............................. 24,000 769,000
Current maturities of long-term debt (Note 3)............... 7,193,203 30,997
----------- -----------
TOTAL CURRENT LIABILITIES................................... 11,201,887 2,606,087
=========== ===========
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 3)............ 22,814 8,604,057
=========== ===========
DEFERRED INCOME TAXES (NOTE 7).............................. 173,000 103,000
=========== ===========
TOTAL LIABILITIES........................................... 11,397,701 11,313,144
=========== ===========
COMMITMENTS (NOTES 4 AND 5)
REDEEMABLE PREFERRED STOCK, $.01 par -- shares authorized,
2,000,000; outstanding, 5,600 and -0-, respectively, at
January 31, 1997 and 1998 (Note 9)........................ 522,506 --
REDEEMABLE COMMON STOCK,
91,938 and -0- shares outstanding at January 31, 1997 and
1998 (Note 13)............................................ 503,820 --
----------- -----------
1,026,326 --
=========== ===========
STOCKHOLDERS' EQUITY
Common Stock, $.01 par -- shares authorized, 16,528,925;
outstanding 5,727,465 and 8,016,367, respectively, at
January 31, 1997 and 1998 (Note 12)....................... 57,275 80,163
Additional paid-in-capital.................................. 2,757,207 10,513,949
Retained earnings........................................... 331,140 1,900,601
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 3,145,622 12,494,713
=========== ===========
$15,569,649 $23,807,857
=========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-4
<PAGE> 54

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service Revenues.................................. $ 7,195,176 $ 7,056,270 $11,795,496
Merchandise Revenues.............................. 926,008 242,177 8,348
----------- ----------- -----------
8,121,184 7,298,447 11,803,844
=========== =========== ===========
Cost of Service Revenues.......................... 3,859,409 4,862,207 5,827,933
Cost of Merchandise Sold.......................... 549,813 202,381 32,720
----------- ----------- -----------
4,409,222 5,064,588 5,860,653
----------- ----------- -----------
3,711,962 2,233,859 5,943,191
Selling, General and Administrative Expense
(Notes 2, 4 and 5).............................. 2,799,841 2,904,372 2,350,622
----------- ----------- -----------
Operating Income (Loss)........................... 912,121 (670,513) 3,592,569
----------- ----------- -----------
Other Income (Expense)
Interest income................................. 25,403 30,628 21,164
Interest expense................................ (120,427) (311,737) (714,404)
Registration expense............................ (213,666) -- --
Other........................................... (5,437) (28,883) (79,321)
----------- ----------- -----------
Total Other Income (Expense)...................... (314,127) (309,992) (772,561)
=========== =========== ===========
Income (Loss) Before Income Taxes................. 597,994 (980,505) 2,820,008
Income Tax (Expense) Benefit (Note 7)............. 406,000 377,188 (1,231,000)
----------- ----------- -----------
Net Income (Loss)................................. $ 191,994 $ (603,317) $ 1,589,008
=========== =========== ===========
Earnings (Loss) per Share -- Basic................ $ 0.04 $ (0.11) $ 0.23
=========== =========== ===========
Weighted Average of Shares Outstanding -- Basic... 5,028,547 5,557,223 6,561,761
=========== =========== ===========
Earnings (Loss) per Share -- Diluted.............. $ 0.04 $ (0.11) $ 0.22
=========== =========== ===========
Weighted Average of Shares Outstanding --
Diluted......................................... 5,028,547 5,557,223 6,693,666
=========== =========== ===========
Pro Forma Amounts (unaudited)
Income before income taxes...................... $ 597,997
Provision for income taxes (Note 7)............. 284,000
-----------
Net Income (unaudited)............................ $ 313,997
===========
Net Income per Share (unaudited).................. $ 0.06
===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-5
<PAGE> 55

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1995............. 4,413,224 $44,132 $ 204,788 $1,377,587 $ 1,626,507
Issuance of Common Stock (Note 8)..... 792,883 7,929 (7,929) -- --
Issuance of Common Stock.............. 61,983 620 225,505 -- 226,125
Reclassification of Subchapter S
retained earnings, net of tax, net
of distributions to stockholders
(Note 8)............................ -- -- 565,657 (592,657) (27,000)
Net income for the year............... 191,994 191,994
--------- ------- ----------- ---------- -----------
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 8)... 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 12).... 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 9)............... 186,667 1,867 520,639 -- 522,506
Redeemable Common Stock converted to
Common Stock (Note 8)............... 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> 56

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................. $ 191,994 $ (603,317) $ 1,589,008
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization................... 140,622 246,599 432,632
Loss on disposition of equipment................ -- 299 1,338
Provision for losses on accounts receivable..... (35,149) 224,387 97,311
Impairment of investment in limited
partnership.................................. 20,000 20,000 20,000
Deferred income taxes........................... (59,000) (259,064) 470,000
Write-off of uncollectible note receivable...... 92,063 -- --
Shareholder distribution........................ (27,000) -- --
Services received in exchange for Common
Stock........................................ -- 51,750 8,000
Changes in assets and liabilities:
Increase in accounts receivable.............. (1,765,173) (8,789,885) (5,537,689)
Increase in other assets..................... (63,463) (230,004) (421,882)
(Decrease) increase in checks issued against
future deposits............................ -- 3,225,668 (3,093,479)
Increase (decrease) in accounts payable and
accrued expenses........................... 107,590 (513,110) 120,614
Increase in amounts due customers............ 29,137 116,120 794,271
----------- ----------- -----------
CASH USED IN OPERATING ACTIVITIES................. (1,368,379) (6,510,557) (5,519,876)
=========== =========== ===========
INVESTMENT ACTIVITIES
Acquisition of Mike Kessler & Associates, Inc.,
net of cash acquired............................ -- -- (608,650)
Acquisition of Magazine Marketing, Inc............ -- (275,000) --
Capital expenditures.............................. (197,331) (276,729) (344,847)
Loans to officers................................. (33,900) -- (10,000)
Collection on officers notes receivable........... 483 29,715 221,485
Collections from related party.................... 280,884 53,171 --
Proceeds from sale of fixed assets................ -- -- 2,000
Increase in cash surrender value of life
insurance....................................... (22,696) (32,740) (55,333)
Proceeds from surrender of life insurance
policies........................................ -- -- 83,959
----------- ----------- -----------
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES... 27,440 (501,583) (711,386)
=========== =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-7
<PAGE> 57

THE SOURCE INFORMATION MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock......... 226,125 30,000 6,720,602
Proceeds from issuance of Preferred Stock...... -- 1,922,075 --
Borrowings under credit facility............... -- 9,791,000 37,777,000
Principal payments on credit facility.......... (183,387) (2,756,121) (36,303,000)
Borrowings under short-term debt agreements.... 2,739,844 2,836,366 --
Repayments under short-term debt agreements.... (1,670,370) (4,550,081) (2,221,961)
Other financing activities..................... -- (6) 5,155
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES.......... 1,112,212 7,273,233 5,977,796
============ ============ ============
(DECREASE) INCREASE IN CASH.................... (228,727) 261,093 (253,466)
Cash, beginning of period...................... 252,555 23,828 284,921
------------ ------------ ------------
Cash, end of period............................ $ 23,828 $ 284,921 $ 31,455
============ ============ ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-8
<PAGE> 58

THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements of The Source Information Management
Company for 1996 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. The consolidated financial statements at January 31,
1997 and 1998 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 10), 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.

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.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.

F-9
<PAGE> 59
THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES -- CONTINUED

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 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.

F-10
<PAGE> 60
THE SOURCE INFORMATION MANAGEMENT COMPANY

SUMMARY OF ACCOUNTING POLICIES -- CONTINUED

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.

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.

RECLASSIFICATIONS

Certain 1996 and 1997 amounts have been reclassified to conform to the 1998
presentation.

F-11
<PAGE> 61

THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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.

2. 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 and $307,000 of such purchases made during 1996 and 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 has been engaged by Specialty Marketing Co., Inc. a corporation in
which Robert B. Dixon is the principal shareholder, to provide consulting
services. In fiscal 1996 Specialty Marketing Co., Inc. paid the Company $85,6111
in consideration for the Company's services.

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 $183,000, $207,000 and $223,000 for
1996, 1997 and 1998, respectively. Amounts paid for the airplane were
approximately $58,000, $0 and $12,000 for 1996, 1997 and 1998, 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.

F-12
<PAGE> 62
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

3. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consists of:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revolving Credit Facility................................... $7,124,000 $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........... 46,710 9,774
Term note payable in monthly installments of $629 through
November 1999, collateralized by an automobile............ -- 12,800
Obligations under capital lease (Note 4).................... 45,307 14,480
---------- ----------
Total Long-term Debt........................................ 7,216,017 8,635,054
Less current maturities..................................... 7,193,203 30,997
---------- ----------
Long-term Debt.............................................. $ 22,814 $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.

4. 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 $410,000, $427,000 and $462,000 for the years ended January 31,
1996, 1997 and 1998, respectively. Amounts paid to related parties included in
total rent expense were approximately $240,000, $207,000 and $223,000 for 1996,
1997 and 1998, respectively.

Office equipment and furniture includes $71,066 at January 31, 1997 and 1998 for
equipment leases which have been capitalized. Accumulated amortization was
$35,148 and $63,626, respectively, at January 31, 1997 and 1998. Lease
amortization is included in depreciation and amortization expense.

F-13
<PAGE> 63
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

5. 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, 1996, 1997 and 1998.

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, 1996, 1997 and 1998 pursuant to
this Plan were approximately $40,000, $50,000 and $63,000, respectively.

F-14
<PAGE> 64
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

The following summarizes the options restated to reflect the 1-for-1.21 reverse
stock split in October 1997:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF RANGE OF AVERAGE
OPTIONS EXERCISE PRICES EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Options outstanding at January 31, 1996............. -- -- --
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>

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

<TABLE>
<CAPTION>
REMAINING
NUMBER CONTRACTUAL OPTIONS
EXERCISE PRICE 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>

F-15
<PAGE> 65
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The following table summarizes information about the stock options outstanding
at January 31, 1997:

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,
-----------------------
1997 1998
--------- ----------
<S> <C> <C> <C>
Net income (loss)................................... As reported $(603,317) $1,589,008
Pro forma (637,373) 1,575,534
Basic earnings (loss) per share..................... As reported (0.11) .23
Pro forma (0.11) .22
Diluted earnings (loss) per share................... As reported (0.11) .22
Pro forma (0.11) .22
</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,
----------------------
1997 1998
----- -----------
<S> <C> <C>
Dividend yield.............................................. 0% 0%
Range of expected lives (years)............................. 1 3.6 - 10
Range of expected volatility................................ 0.30 0.40 - 0.60
Risk-free interest rate..................................... 4.88% 5.90%
</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.

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

F-16
<PAGE> 66
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

6. SUPPLEMENTAL CASH FLOW INFORMATION

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

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
----------------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Interest................................................ $109,000 $285,000 $ 700,000
Income Taxes............................................ $254,000 $264,000 $1,081,000
</TABLE>

Capital lease obligations of $59,095 and $15,687 were incurred in 1996 and 1997,
respectively, 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 82,644 shares and 91,938 shares of
Common Stock (Note 8). During 1996 the Company issued 792,883 shares of Common
Stock in connection with the acquisition of the Company by Periodico, Inc. (Note
8).

As part of the acquisition of Mike Kessler & 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.

7. INCOME TAXES

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

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1996 1997 1998
-------- --------- ----------
<S> <C> <C> <C>
Current
Federal.............................................. $355,000 $(102,768) $ 606,000
State................................................ 110,000 (15,356) 155,000
-------- --------- ----------
Total Current.......................................... 465,000 (118,124) 761,000
======== ========= ==========
Pro Forma (Unaudited)
Federal.............................................. (105,000)
State................................................ (17,000)
--------
Total Pro Forma........................................ (122,000)
========
Deferred
Federal.............................................. (46,000) (225,386) 376,000
State................................................ (13,000) (33,678) 94,000
-------- --------- ----------
Total Deferred......................................... (59,000) (259,064) 470,000
======== ========= ==========
TOTAL INCOME TAX EXPENSE (BENEFIT)..................... $284,000 $(377,188) $1,231,000
======== ========= ==========
</TABLE>

F-17
<PAGE> 67
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO 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,
-----------------------
1997 1998
--------- ----------
<S> <C> <C>
Deferred Tax Assets
Allowance for doubtful accounts........................... $ 126,000 $ 165,000
Deferred compensation..................................... 14,000 33,000
Other..................................................... 3,000 16,000
--------- ----------
Total Deferred Tax Assets................................... 143,000 214,000
========= ==========
Deferred Tax Liabilities
Book/tax difference in accounts receivable................ -- 708,000
Income not previously taxed under cash basis of accounting
for income tax purposes................................ 312,000 316,000
Depreciation.............................................. 28,000 30,000
Other..................................................... -- 32,000
--------- ----------
Total Deferred Tax Liabilities.............................. 340,000 1,086,000
========= ==========
Net Deferred Tax Liability.................................. 197,000 872,000
========= ==========
Classified as
Current................................................... 24,000 769,000
Non-current............................................... 173,000 103,000
--------- ----------
NET DEFERRED TAX LIABILITY.................................. $ 197,000 $ 872,000
========= ==========
</TABLE>

The following summary reconciles income taxes at the maximum federal statutory
rate with the effective rates for 1996, 1997 and the pro forma effective rate
for 1998:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1996 1997 1998
-------- --------- ----------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate......... $204,000 $(333,372) $ 960,000
State income tax expense (benefit), net of federal
income tax benefit................................... 52,000 (80,421) 200,000
Non-deductible meals and entertainment................. 26,000 35,320 30,000
Non-deductible officers' life insurance................ 4,300 (3,250) 7,000
Non-deductible goodwill amortization................... 2,300 2,306 61,000
Utilization of NOL carryforwards....................... -- -- (19,000)
Other, net............................................. (4,600) 2,229 (8,000)
-------- --------- ----------
INCOME TAX EXPENSE (BENEFIT)........................... $284,000 $(377,188) $1,231,000
======== ========= ==========
</TABLE>

8. BUSINESS COMBINATIONS

Pooling of Interests of DISC and PMM

On February 1, 1995 DISC and PMM merged into The Source Company. DISC
stockholders exchanged all of their shares of common stock for 2,520,000 shares
of Common Stock of The Source Company, and PMM stockholders exchanged all of
their shares of common stock for 2,520,000 shares of Common Stock

F-18
<PAGE> 68
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

of The Source Company. The merger has been accounted for as a pooling of
interests and, accordingly, the Company's financial statements have been
restated for all periods prior to the merger to include the results of
operations, financial position, and cash flows of DISC and PMM.

The S corporation retained earnings of DISC totaling $462,389 representing
undistributed earnings on February 1, 1995 has been credited to additional
paid-in capital net of deferred taxes of approximately $122,000 which has been
recognized through a charge to income tax expense.

Acquisition of the Company by Periodico, Inc.

On May 1, 1995 Periodico, Inc. (formerly Garner Investments, Inc.) acquired the
Company through an exchange of stock. Periodico then changed its name to The
Source Company.

Since Periodico had no significant assets or operations at the transaction date,
the transaction was accounted for as an issuance of 959,389 shares of Common
Stock by the Company in exchange for the net assets of Periodico, which were
recorded at Periodico's cost basis and amounted to $0 at the transaction date.

Acquisition of Dixon's Modern Marketing Concepts, Inc. and Tri-State Stores,
Inc.

On June 15, 1995 the Company acquired the assets of Dixon's Modern Marketing
Concepts, Inc. and Tri-State Stores, Inc. (MMC) in exchange for 300,000 shares
of Common Stock of The Source Company and the assumption by the Company of all
the liabilities of MMC. The transaction has been accounted for as a pooling of
interests and, accordingly, the Company's financial statements have been
restated for all periods prior to the acquisition to include the results of
operations, financial position, and cash flows of The Source Company and MMC.

The S corporation retained earnings of MMC totaling approximately $225,000,
representing undistributed earnings on June 15, 1995 net of $27,000 distributed
in lieu of taxes to shareholders, has been credited to additional paid-in
capital.

Revenues and net income (loss) for the individual entities and combined prior to
the mergers were as follows:

<TABLE>
<CAPTION>
THE SOURCE
INFORMATION
MANAGEMENT
COMPANY MMC COMBINED
----------- -------- ---------
<S> <C> <C> <C>
February 1 to June 15, 1995
Revenues.............................................. $2,175,383 $435,529 $2,610,912
Net income (loss)..................................... $ 96,829 $ (5,609) $ 91,220
</TABLE>

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

F-19
<PAGE> 69
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 1997 and 1998 for the Company and
MKA is listed below:

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

9. 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

F-20
<PAGE> 70
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

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.

F-21
<PAGE> 71
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

10. 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, 1997 and 1998 are $11,206,666 and
$14,587,531, respectively, due the Company under the Advance Pay Program (net of
$2,314,727 and $$3,859,15, respectively, due the program participants). Service
revenues from the program were approximately $1,150,000 and $4,576,000 during
1997 and 1998, respectively and were not material in 1996.

11. 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
$199,575 and $993,846, respectively, at January 31, 1997 and 1998 under such
arrangements.

12. 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 (the "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.

13. REDEEMABLE COMMON STOCK

During June 1996, the Company issued 82,644 shares of Common Stock to James W.
Looman in connection with the purchase of Magazine Marketing, Inc. (Note 8).
Pursuant to the terms of the Purchase Agreement, Mr. Looman was granted an
option to sell his shares to the Company at a price of $1.21 per share if, at
any time during the two year period following the acquisition date (June 28,
1996), the market value of all shares acquired in the transaction becomes less
than $100,000 for ten consecutive trading days.

Also during June 1996, the Company issued 91,938 shares of Common Stock to
United Magazine Company ("United Magazine") in connection with the purchase of
Readers Choice, Inc. (Note 8). Pursuant to the terms of the Purchase Agreement,
United Magazine was granted an option to sell its shares to the Company at a
price of $4.84 per share if the Company's stock price for the last five days of
any calendar quarter during the two year period following the acquisition date
(June 30, 1996) is less than $4.84 per share.

F-22
<PAGE> 72
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The stock which was issued in each of the foregoing transactions is recorded at
the value which was assigned in the respective transactions.

14. NOTES RECEIVABLE

The Company had a $120,000 unsecured, non-interest bearing note from a
non-affiliated company which required quarterly installments of $6,000 through
June 2000. The note was stated net of discount of $27,454 which was computed
using a 10% imputed interest rate. On March 31, 1996 the debtor defaulted on the
note. Based on the financial condition of the debtor, the note was written off
resulting in a charge to selling, general and administrative expenses during the
year ended January 31, 1996 of $92,063.

15. 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 and Cash Surrender Value of Life Insurance

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

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.

F-23
<PAGE> 73
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
----------- -----------
<S> <C> <C>
JANUARY 31, 1997
Financial Assets
Trade receivables......................................... $12,922,738 $12,922,738
Notes receivable -- officers.............................. $ 233,578 $ 207,600
Cash surrender value of life insurance.................... $ 104,358 $ 104,358
Financial Liabilities
Accounts payable and accrued expenses..................... $ 559,441 $ 559,441
Due to retailers.......................................... $ 199,575 $ 199,575
Long-term debt (excluding obligations under capital
leases)................................................ $ 7,170,710 $ 7,170,710
JANUARY 31, 1998
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>

16. 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>
YEAR ENDED JANUARY 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of common shares outstanding.... 5,028,547 5,557,223 6,561,761
Effect of dilutive securities -- stock options and
warrants.............................................. -- -- 131,905
--------- --------- ---------
Weighted average number of common shares
outstanding -- as adjusted............................ 5,028,547 5,557,223 6,693,666
========= ========= =========
</TABLE>

F-24
<PAGE> 74

THE SOURCE INFORMATION MANAGEMENT COMPANY

UNAUDITED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
ASSETS (NOTE 3)
CURRENT
Cash and cash equivalents................................... $ 31,455 $ 8,667
Trade receivables (net of allowance for doubtful accounts of
$469,658 and $460,898) (Note 5)........................... 18,874,764 28,638,913
Income taxes receivable..................................... 492,688 --
Notes receivable -- officers (Note 2)....................... 7,351 --
Other current assets........................................ 187,876 145,916
----------- -----------
TOTAL CURRENT ASSETS........................................ 19,594,134 28,793,496
=========== ===========
Office equipment and furniture.............................. 2,249,688 2,743,999
Less accumulated depreciation and amortization.............. 1,445,005 1,656,889
----------- -----------
NET OFFICE EQUIPMENT AND FURNITURE.......................... 804,683 1,087,110
=========== ===========
OTHER ASSETS
Notes receivable -- officers (Note 2)....................... 14,742 --
Goodwill (net of accumulated amortization of $464,007 and
$250,579)................................................. 3,227,354 5,410,074
Other....................................................... 166,944 167,880
----------- -----------
TOTAL OTHER ASSETS.......................................... 3,409,040 5,577,954
=========== ===========
$23,807,857 $35,458,560
=========== ===========
</TABLE>

See accompanying notes to financial statements

F-25
<PAGE> 75

THE SOURCE INFORMATION MANAGEMENT COMPANY

UNAUDITED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits....................... $ 132,189 $ 3,779,247
Accounts payable and accrued expenses....................... 680,055 1,289,970
Income taxes payable........................................ -- 299,413
Due to retailers (Note 6)................................... 993,846 918,239
Deferred income taxes (Note 7).............................. 769,000 867,000
Current maturities of long-term debt (Note 3)............... 30,997 7,170
----------- -----------
TOTAL CURRENT LIABILITIES................................... 2,606,087 7,161,039
=========== ===========
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3)............ 8,604,057 5,041,625
=========== ===========
DEFERRED INCOME TAXES (Note 7).............................. 103,000 33,000
=========== ===========
TOTAL LIABILITIES........................................... 11,313,144 12,235,664
=========== ===========
COMMITMENTS AND CONTINGENCIES...............................
STOCKHOLDERS' EQUITY
Contributed capital:
Common Stock, $.01 par -- shares authorized, 16,528,925;
October 31, 1998 -- 9,610,718 issued, of which 8,000
are being held as Treasury Stock, January 31,
1998 -- 8,016,367...................................... 80,163 96,106
Additional paid-in capital on Common Stock................ 10,513,949 18,790,899
----------- -----------
Total contributed capital.............................. 10,594,112 18,887,005
Retained earnings........................................... 1,900,601 4,377,022
----------- -----------
Total contributed capital and retained earnings........ 12,494,713 23,264,027
Less: Treasury Stock (8,000 shares at cost)................. -- (41,131)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 12,494,713 23,222,896
=========== ===========
$23,807,857 $35,458,560
=========== ===========
</TABLE>

See accompanying notes to financial statements.

F-26
<PAGE> 76

THE SOURCE INFORMATION MANAGEMENT COMPANY

UNAUDITED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Service Revenues...................... $2,943,766 $ 3,960,409 $8,411,782 $11,136,199
Cost of Service Revenues.............. 1,522,201 1,651,341 4,406,778 4,797,247
---------- ----------- ---------- -----------
Gross Profit.......................... 1,421,565 2,309,068 4,005,004 6,338,952
Selling, General and Administrative
Expense............................. 536,058 612,701 1,598,231 1,832,621
---------- ----------- ---------- -----------
Operating Income...................... 885,507 1,696,367 2,406,773 4,506,331
========== =========== ========== ===========
Other Income (Expense)
Interest income..................... 1,198 11,991 14,860 22,270
Interest expense.................... (192,494) (46,108) (680,245) (264,986)
Other............................... (20,955) (3,244) (61,579) (9,194)
---------- ----------- ---------- -----------
Total Other Income (Expense).......... (212,251) (37,361) (645,964) (251,910)
---------- ----------- ---------- -----------
Income Before Income Taxes............ 673,256 1,659,006 1,751,809 4,254,421
Income Tax Expense (Note 7)........... 296,000 700,000 785,000 1,778,000
---------- ----------- ---------- -----------
Net Income............................ $ 377,256 $ 959,006 $ 966,809 $ 2,476,421
========== =========== ========== ===========
Earnings per Share
Basic............................... $ .06 $ .10 $ .14 $ .28
========== =========== ========== ===========
Diluted............................. $ .06 $ .10 $ .14 $ .27
========== =========== ========== ===========
Weighted Average of Shares Outstanding
Basic............................... 6,535,980 9,586,239 6,064,476 8,783,125
========== =========== ========== ===========
Diluted............................. 6,724,638 10,030,461 6,147,243 9,247,799
========== =========== ========== ===========
</TABLE>

See accompanying notes to financial statements

F-27
<PAGE> 77

THE SOURCE INFORMATION MANAGEMENT COMPANY

UNAUDITED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 966,809 $ 2,476,421
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization............................. 307,151 425,311
Provision for losses on accounts receivable............... 39,224 8,760
Impairment of investment in limited partnership........... 15,000 15,000
Loss on disposition of assets............................. 1,338 --
Deferred income taxes..................................... (161,000) 28,000
Services received in exchange for Common Stock............ 8,000 3,000
Services received in exchange for Common Stock Warrants... -- 13,506
Changes in assets and liabilities:
Increase in accounts receivable........................ (2,284,433) (9,655,127)
Decrease (increase) in other assets.................... (101,942) 551,253
Increase (decrease) in checks issued against future
deposits............................................. (2,369,231) 3,647,058
Increase (decrease) in accounts payable and accrued
expenses............................................. (177,711) 885,987
Decrease in amounts due customers...................... (16,321) (75,607)
----------- -----------
CASH USED IN OPERATING ACTIVITIES........................... (3,773,116) (1,676,438)
=========== ===========
INVESTMENT ACTIVITIES
Acquisition of Periodical Concepts.......................... -- (2,500,000)
Acquisition of Mike Kessler & Associates, Inc., net of cash
acquired.................................................. (349,777) --
Capital expenditures........................................ (205,113) (484,899)
Loan to affiliate........................................... (38,000) --
Collections from affiliate.................................. 27,576 --
Loan to officer............................................. (10,000) --
Collections on loan to officer.............................. 221,485 22,093
Proceeds from sale of fixed assets.......................... 2,000 --
Increase in cash surrender value of life insurance.......... (43,564) (32,541)
Proceeds from surrender of life insurance policies.......... 83,959 --
----------- -----------
CASH USED IN INVESTING ACTIVITIES........................... (311,434) (2,995,347)
=========== ===========
</TABLE>

See accompanying notes to financial statements

F-28
<PAGE> 78

THE SOURCE INFORMATION MANAGEMENT COMPANY

UNAUDITED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1997 1998
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock...................... 6,828,797 8,012,651
Borrowings under credit facility............................ 27,051,000 25,775,000
Principal payments on credit facility....................... (30,019,000) (29,332,000)
Repayments under short-term debt agreements................. (43,656) (29,259)
Proceeds from exercise of stock options..................... -- 263,536
Proceeds from issuance of warrants.......................... 200 200
Purchase of treasury stock.................................. -- (41,131)
Purchase of fractional shares............................... (322) --
Preferred Stock dividends................................... (3) --
------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 3,817,016 4,648,997
============ ============
DECREASE IN CASH............................................ (267,534) (22,788)
CASH, beginning of period................................... 284,921 31,455
------------ ------------
CASH, end of period......................................... $ 17,387 $ 8,667
============ ============
</TABLE>

See accompanying notes to financial statements

F-29
<PAGE> 79

THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS
1. UNAUDITED FINANCIAL STATEMENTS

In the opinion of management, the unaudited financial information as of October
31, 1998 contained herein reflects all adjustments (consisting only of normal
recurring adjustments) necessary to fairly present such information in
accordance with generally accepted accounting principles. The results of
operations for the nine months ended October 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.

2. RELATED PARTY TRANSACTIONS

The Company currently leases certain office space from businesses controlled by
stockholders of the Company. Amounts paid for the office space were
approximately $169,000 and $199,000 for the nine months ended October 31, 1997
and 1998, respectively. The Company occasionally charters an airplane owned by a
partnership in which one of the Company's stockholders owns an interest. Amounts
paid to the partnership were $7,400 and $1,800 for the nine months ended October
31, 1997 and 1998, 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 amount of $295,293. These notes have been collected in full at
October 31, 1998.

3. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consists of:

<TABLE>
<CAPTION>
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Revolving Credit Facility................................... $8,598,000 $5,041,000
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 7,795
Obligations under capital lease............................. 14,480 --
---------- ----------
Total Long-term Debt........................................ 8,635,054 5,048,795
Less current maturities..................................... 30,997 7,170
---------- ----------
Long-term Debt.............................................. $8,604,057 $5,041,625
========== ==========
</TABLE>

The Company has an agreement providing for a revolving loan up to $15,000,000.
The agreement has no termination date; however, 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
8.0938% at October 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.

F-30
<PAGE> 80
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. SUPPLEMENTAL CASH FLOW INFORMATION

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
Interest Paid............................................... $549,000 $284,000
Income Taxes Paid........................................... $925,000 $953,000
</TABLE>

On February 28, 1997, 7,721 shares of Common Stock were issued as a dividend to
the Preferred Stockholders as of that date.

As part of the acquisition of Mike Kessler & 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.

5. 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 and October 31, 1998 are
$14,587,531 and $22,146,032, respectively, due the Company under the Advance Pay
Program (net of $3,859,154 and $7,126,487, respectively, due the program
participants).

6. 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 and $918,239 at January 31, 1998 and October 31, 1998, respectively,
under such arrangements.

F-31
<PAGE> 81
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

7. INCOME TAXES

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Current
Federal................................................... $ 750,000 $1,394,000
State..................................................... 196,000 356,000
---------- ----------
Total Current............................................... 946,000 1,750,000
========== ==========
Deferred
Federal................................................... (128,000) 22,000
State..................................................... (33,000) 6,000
---------- ----------
Total Deferred.............................................. (161,000) 28,000
========== ==========
Total Income Tax Expense.................................... $ 785,000 $1,778,000
========== ==========
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Deferred Tax Assets
Allowance for doubtful accounts........................... $ 165,000 $ 181,000
Deferred compensation..................................... 33,000 45,000
Other..................................................... 16,000 22,000
---------- ----------
Total Deferred Tax Assets................................... 214,000 248,000
========== ==========
Deferred Tax Liabilities
Book/Tax differences in accounts receivable............... 708,000 945,000
Income not previously taxed under cash basis of accounting
for income tax purposes................................ 316,000 150,000
Depreciation.............................................. 30,000 32,000
Other..................................................... 32,000 21,000
---------- ----------
Total Deferred Tax Liabilities.............................. 1,086,000 1,148,000
========== ==========
Net Deferred Tax Liability.................................. 872,000 900,000
========== ==========
Classified as:
Current................................................... 769,000 867,000
Non-current............................................... 103,000 33,000
---------- ----------
Net Deferred Tax Liability.................................. 872,000 $ 900,000
========== ==========
</TABLE>

F-32
<PAGE> 82
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

The following summary reconciles income taxes at the maximum federal statutory
rate with the effective rate for the first nine months of fiscal 1998 and 1999:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
------------------------
1997 1998
-------- ----------
<S> <C> <C>
Income tax expense at statutory rate........................ $596,000 $1,447,000
State income tax expense, net of federal income tax
benefit................................................... 129,000 235,000
Non-deductible goodwill amortization........................ 40,000 73,000
Non-deductible meals and entertainment...................... 15,000 26,000
Non-deductible officers' life insurance..................... (6,000) 8,000
Other, net.................................................. 11,000 (11,000)
-------- ----------
Income Tax Expense.......................................... $785,000 $1,778,000
======== ==========
</TABLE>

8. BUSINESS COMBINATIONS

Mike Kessler and Associates, Inc.

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 exceeds the fair value of the assets acquired in the amount of
$2,382,900 and is being amortized over 15 years.

Periodical Concepts

On July 27, 1998, the Company acquired all the assets of Periodical Concepts, a
Texas general partnership doing business as PC2, for $2,500,000 in cash. Prior
to the acquisition, PC2 provided information and marketing services to retail
stores selling magazines and other periodicals. The Company intends to continue
the operation of such business and does not intend to substantially change the
nature of PC2's operation.

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 exceeds the fair value of the assets acquired by approximately
$2,400,000 and is being amortized over 15 years.

9. PREFERRED STOCK

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 of $109,937, which was
reported in the fiscal quarter ending July 31, 1997.

F-33
<PAGE> 83
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

10. 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. Thus, expense of approximately $54,000 will be recognized ratably
over those periods.

In June 1998, the Company sold in a public offering 1,538,334 shares of the
Company's Common Stock for an aggregate price of $9,230,004.

11. EARNINGS PER SHARE

In calculating earnings per share, Net Income for the nine months ended October
31, 1997 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 expiring in 2000 to
purchase 310,709 shares of Common Stock at an exercise price of $3.00 per share.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ---------------------
1997 1998 1997 1998
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding.................................. 6,535,980 9,586,239 6,064,476 8,783,125
Effect of dilutive securities -- stock options
and warrants................................. 188,657 444,222 82,767 464,673
--------- ---------- --------- ---------
Weighted average number of common shares
outstanding -- as adjusted................... 6,724,638 10,030,461 6,147,243 9,247,799
========= ========== ========= =========
</TABLE>

12. SUBSEQUENT EVENTS

On November 19, 1998, the Company issued a press release announcing that it had
signed letters of intent to acquire the assets and assume specified liabilities
of two front-end manufacturers and their affiliates. The Company expects the
acquisition of MYCO, Inc. and an affiliated real estate holding company to be
consummated on January 7, 1999 and expects the acquisition of Chestnut Display
Systems, Inc. ("Chestnut") and an affiliate of Chestnut to be completed on or
around February 1, 1999. The Company expects to acquire the assets of these
companies for an aggregate of approximately $16.25 million cash and
approximately $4.5 million in the Company's stock.

On December 2, 1998, the Company issued a press release announcing that it had
signed a letter of intent to acquire the assets and assume specified liabilities
of Yeager Industries, Inc. ("Yeager"), another

F-34
<PAGE> 84
THE SOURCE INFORMATION MANAGEMENT COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

front-end fixture manufacturer. The Company expects to complete this acquisition
by January 15, 1999. The Company plans to acquire the assets of Yeager for
approximately $500,000 cash and 142,860 shares of the Company's stock.

On January 7, 1999, the Company entered into an agreement and plan of merger
(the "Merger") with U.S. Marketing Services, Inc. pursuant to which U.S.
Marketing Services, Inc. became a wholly-owned subsidiary of the Company. In
connection with the Merger the Company exchanged 3,400,000 shares of common
stock for all of the capital stock of U.S. Marketing Services, Inc. The merger
was accounted for as a purchase and, accordingly, the assets and liabilities
have been recorded at fair market value.

F-35
<PAGE> 85

REPORT OF THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
U.S. Marketing Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of U.S. Marketing
Services, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, capital deficit, and cash flows for the
period from March 25, 1998 (inception) through December 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Marketing
Services, Inc. and Subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the period from March 25, 1998
(inception) through December 31, 1998 in conformity with generally accepted
accounting principles.

/s/ BDO Seidman, LLP

March 9, 1999
New York, NY

F-36
<PAGE> 86

U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents................................... $ 467,706
Accounts receivable (Note 12)............................... 2,588,956
Inventories (Notes 3 and 4)................................. 3,008,670
Deferred finance costs (Note 3)............................. 389,907
Prepaid expenses............................................ 37,685
Prepaid income taxes........................................ 595,184
-----------
TOTAL CURRENT ASSETS........................................ 7,088,108
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION (NOTES 3 AND 5).............................. 182,375
INTANGIBLE ASSETS, NET (NOTES 3, 6 AND 13).................. 14,121,672
DEPOSITS AND OTHER.......................................... 82,974
-----------
$21,475,129
-----------
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable -- bank (Note 7).............................. $17,500,000
Accounts payable............................................ 2,475,751
Accrued expenses and other liabilities...................... 1,507,300
Current maturities of long-term debt (Note 13).............. 60,000
Due to retailers............................................ 1,141,634
Due to stockholders (Note 9)................................ 575,383
-----------
TOTAL CURRENT LIABILITIES................................... 23,260,068
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 13)........... 240,000
-----------
TOTAL LIABILITIES........................................... 23,500,068
-----------
MINORITY INTEREST........................................... 288,831
COMMITMENTS AND CONTINGENCIES (NOTE 10)
CAPITAL DEFICIT (NOTE 14):
Common stock, $0.001 par value -- 100,000,000 authorized;
4,907,500 shares issued and outstanding................... 4,908
Preferred stock, $0.001 par value -- 10,000,000 authorized;
no shares issued or outstanding........................... --
Additional paid-in capital.................................. 127,989
Deficit..................................................... (2,446,667)
-----------
TOTAL CAPITAL DEFICIT....................................... (2,313,770)
-----------
$21,475,129
===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-37
<PAGE> 87

U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 25,
1998
(INCEPTION)
THROUGH
DECEMBER 31,
1998
------------
<S> <C>
NET REVENUES (NOTE 12)...................................... $ 7,694,811
COST OF REVENUES............................................ 4,643,781
-----------
GROSS PROFIT................................................ 3,051,030
-----------
OPERATING EXPENSES:
Selling..................................................... 355,086
General and administrative.................................. 3,886,988
Amortization expense........................................ 481,996
-----------
TOTAL OPERATING EXPENSES.................................... 4,724,070
-----------
LOSS FROM OPERATIONS........................................ (1,673,040)
-----------
OTHER INCOME (EXPENSES):
Interest expense............................................ (913,271)
Interest income............................................. 49,947
-----------
TOTAL OTHER EXPENSES........................................ (863,324)
-----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
IN
NET LOSS OF CONSOLIDATED SUBSIDIARIES....................... (2,536,364)
PROVISION FOR INCOME TAXES (NOTE 8)......................... 160,603
-----------
LOSS BEFORE MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES................................................ (2,696,967)
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES.............................................. 250,300
-----------
NET LOSS.................................................... $(2,446,667)
===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-38
<PAGE> 88

U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
PERIOD FROM MARCH 25, 1998 (INCEPTION) THROUGH
DECEMBER 31, 1998
-----------------------------------------------
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, MARCH 25, 1998....................... $ -- $ -- $ -- $ --
Issuance of common stock...................... 4,908 127,989 -- 132,897
Net loss...................................... -- -- (2,446,667) (2,446,667)
------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1998.................... $4,908 $127,989 $(2,446,667) $(2,313,770)
====== ======== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-39
<PAGE> 89

U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (NOTE 11)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 25, 1998
(INCEPTION)
THROUGH
DECEMBER 31,
1998
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (2,446,667)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................ 51,110
Amortization................................................ 481,996
Minority interest in net loss of consolidated
subsidiaries.............................................. (250,300)
Decrease (increase) in:
Accounts receivable......................................... 266,064
Inventories................................................. (2,164,913)
Prepaid expenses and other current assets................... (282,893)
Deposits and other.......................................... 8,001
Increase (decrease) in:
Accounts payable and accrued expenses....................... 2,540,645
Due to retailers............................................ (606,247)
------------
TOTAL ADJUSTMENTS........................................... 43,463
------------
NET CASH USED IN OPERATING ACTIVITIES....................... (2,403,204)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (31,836)
Business acquisitions, net of cash acquired................. (14,875,234)
------------
NET CASH USED IN INVESTING ACTIVITIES....................... (14,907,070)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from majority stockholder.............................. 15,131,911
Repayment of loan from majority stockholder................. (15,131,911)
Issuance of common stock.................................... 132,897
Proceeds from notes payable -- bank......................... 18,500,000
Payments on notes payable -- bank........................... (1,000,000)
Due to stockholders......................................... 575,383
Finance costs............................................... (430,300)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 17,777,980
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 467,706
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. --
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 467,706
============
</TABLE>

See accompanying notes to consolidated financial statements.

F-40
<PAGE> 90

U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY STRUCTURE

U.S. Marketing Services, Inc. (the "Parent") was founded in March 1998 to create
a nationwide consolidator of marketing service companies. On May 20, 1998, the
Parent, through a loan from its majority shareholder, acquired 70% of the voting
shares of Brand Manufacturing Corp. ("Brand") and TCE Corporation ("TCE")
(collectively, the "Company") in a business combination accounted for as a
purchase. The total cost of $15,521,000 to acquire the companies exceeded the
fair value of the net assets acquired by approximately $14,300,000, which was
recorded as goodwill.

2. BUSINESS

Brand designs and manufactures custom-designed product display units that are
categorized as front-end merchandisers or point-of-purchase displays, that are
used by retailers and consumer product manufacturers nationwide. TCE provides
trucking, consulting, and warehousing services exclusively for Brand and its
customers.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Parent and its
subsidiaries, Brand and TCE. The results of operations of Brand and TCE are
included in the accompanying financial statements as of the date of acquisition.
All material intercompany balances and transactions have been eliminated.

Revenue Recognition

Revenues are recognized as products are shipped to customers.

Cash and Cash Equivalents.

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

Inventories

Inventories, consisting of steel and product display units, are stated at the
lower of cost or market. Cost is determined by the FIFO (first-in, first-out)
method.

Property and Equipment

Property and equipment, including leasehold improvements, are stated at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the related assets, which range from five to seven
years. Leasehold improvements are amortized over their estimated useful lives or
lease terms, whichever is shorter.

Goodwill, Tradename and Deferred Finance Costs

Goodwill represents the excess of cost over the fair value of the net assets of
companies acquired at the date of acquisition. The balance is being amortized on
a straight-line basis over 20 years. Tradename is

F-41
<PAGE> 91
U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

being amortized on a straight-line basis over 20 years. Deferred finance costs
are amortized over the term of the related debt.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 requires the use of the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the
immediate or short-term maturity of these financial instruments. The carrying
amount reported for notes payable and long-term debt approximates fair value as
the effective rates on the underlying instruments reflect market rates for
similar debt.

Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable.

The Company places its cash and short-term cash investments with high credit
quality financial institutions which limit the amount of credit exposure.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the Company's diverse client base. Losses relating to accounts
receivable have historically been minimal; as a result, the Company does not
maintain an allowance for potential losses. The Company does not require
collateral from its customers. The majority of the inventory at December 31,
1998 is for shipment to one customer in 1999.

Use of Estimates

Long-Lived Assets

Long-lived assets, such as intangible assets and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amounts of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to their fair value.
This policy is in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of". No write-downs have been necessary
through December 31, 1998.

F-42
<PAGE> 92
U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

4. INVENTORIES

Inventories at December 31, 1998 consist of the following:

<TABLE>
<S> <C>
Raw materials............................................... $ 358,520
Work-in-process............................................. 540,648
Finished goods.............................................. 2,109,502
---------
$3,008,670
=========
</TABLE>

5. PROPERTY AND EQUIPMENT

Major classes of property and equipment at December 31, 1998 consist of the
following:

<TABLE>
<S> <C>
Machinery and equipment..................................... $ 59,533
Furniture, fixtures and equipment........................... 7,119
Computer equipment.......................................... 31,500
Leasehold improvements...................................... 135,333
--------
233,485
Less:
Accumulated depreciation and amortization................. 51,110
--------
Property and equipment, net................................. $182,375
========
</TABLE>

6. INTANGIBLE ASSETS

Intangible assets at December 31, 1998 consist of the following:

<TABLE>
<S> <C>
Goodwill.................................................... $14,263,275
Tradename................................................... 300,000
-----------
14,563,275
Less: Accumulated amortization.............................. 441,603
-----------
Intangible assets, net...................................... $14,121,672
===========
</TABLE>

7. NOTES PAYABLE -- BANK

The Company has an $18,500,000 credit facility with a bank which expires on July
13, 2003. The facility provides for a term loan in the amount of $15,000,000,
which is payable in 20 quarterly installments ranging from $500,000 to
$1,000,000, plus interest, through June 30, 2003. The facility also provides for
short-term borrowings up to $3,500,000 under a revolving line of credit.
Borrowings on the credit facility bear interest at LIBOR plus 2.5% or the prime
rate plus 1.5%, at the borrower's option.

The borrowing agreement which contains certain restrictions and covenants, as
defined, is collateralized by all the assets of the Company and is personally
guaranteed by the stockholders.

In connection with the sale of the Company on January 7, 1999 (see Note 14), all
borrowings under the credit facility were repaid through a capital contribution
to the Company by the majority stockholders. At such time, the Company wrote off
the balance of deferred finance costs in the amount of $389,907 to expense.

F-43
<PAGE> 93
U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

8. INCOME TAXES

Effective May 20, 1998, in connection with the acquisition of Brand and TCE by
the Parent, Brand and TCE became C corporations for Federal, state and local
income tax purposes.

The provisions for income taxes for the period ended December 31, 1998 consist
of the following:

<TABLE>
<S> <C>
Current:
Federal..................................................... $ 98,652
State....................................................... 61,951
--------
$160,603
========
</TABLE>

The difference between the Company's effective tax rate for financial statement
purposes and the statutory Federal income tax rate for 1998 is primarily due to
net operating losses incurred during the period.

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Deferred tax assets:
Depreciation................................................ $ 97,000
Inventory capitalization.................................... 120,000
Net operating loss carryforward............................. 1,082,000
Other....................................................... 24,000
-----------
1,323,000
Deferred tax liabilities:
Goodwill amortization....................................... (48,000)
-----------
1,275,000
Less: Valuation allowance................................... (1,275,000)
-----------
Deferred tax asset (liability), net......................... $ --
===========
</TABLE>

The deferred tax asset is fully offset by a valuation allowance of the same
amount due to uncertainty regarding its ultimate utilization.

At December 31, 1998, the Parent had net operating loss ("NOL") carryforwards of
approximately $1,800,000 expiring through 2018. Brand had NOL carryforwards at
December 31, 1998 of approximately $880,000 expiring through 2018.

9. RELATED PARTY TRANSACTIONS

At December 31, 1998, the Company had balances due to minority stockholders of
the Company in the amount of $575,383 arising from the May 20, 1998 acquisition
agreement (see Note 1). These balances are non-interest bearing and are payable
on demand. The balances were paid in full in January 1999.

F-44
<PAGE> 94
U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

10. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases equipment and certain office, plant and warehouse space in
New York and New Jersey under non-cancelable operating leases. Certain leases
provide for escalations based on increases in the landlord's operating expenses
and real estate taxes.

Minimum annual lease commitments under noncancelable operating leases at
December 31, 1998 are as follows:

Rent expense for the period ended December 31, 1998 was approximately $404,000.

Employment Contracts

The Company is obligated under various employment contracts with certain
officers and other employees of the Company for salary and other compensation,
as well as for providing various benefits. Future minimum annual payments for
salaries and other compensation under these contracts are as follows:

Union Contracts

At December 31, 1998, approximately 75% of the Company's employees were members
of Local 810, affiliated with the International Brotherhood of Teamsters (the
"Union"). All non-supervisory plant employees who have met certain criteria are
considered members of the Union. The Company is party to a collective bargaining
agreement with the Union, which expires on September 30, 1999.

Company contributions to the Union funds charged to operations were
approximately $254,000 for the period ended December 31, 1998.

Litigation

The Company is a party to various litigation matters arising in the ordinary
course of business. In the opinion of management, the outcome of these
litigation matters will not have a material adverse effect on the Company's
financial position.

F-45
<PAGE> 95
U.S. MARKETING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid income taxes of approximately $642,000 for the period ended
December 31, 1998. Interest paid amounted to $913,271 for the period ended
December 31, 1998.

The Company incurred loans in the amount of $300,000 for the acquisition of the
tradename of the acquired company (see Note 13).

The Parent acquired 70% of the voting shares of Brand and TCE for $15,521,000.
In conjunction with the acquisition, liabilities were assumed as follows:

<TABLE>
<S> <C>
Fair value of assets purchased.............................. $18,711,000
Cash paid for the capital stock............................. (15,521,000)
-----------
Liabilities assumed......................................... $ 3,190,000
===========
</TABLE>

12. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

For the period ended December 31, 1998, three customers accounted for
approximately 34% of net revenues. In addition, three customers accounted for
approximately 44% of accounts receivable at December 31, 1998.

13. ACQUISITION

On November 19, 1998, the Company acquired the tradename of a company that
performs services for Brand. The purchase price of $300,000 will be paid in
equal annual installments over 5 years starting November 1999. The balance is
included in intangible assets and is being amortized over five years. In
connection with the acquisition, the Company entered into employment contracts
with the former owners of the acquired company (see Notes 6 and 10).

14. SUBSEQUENT EVENT

On January 7, 1999, the Parent entered into an agreement and plan of merger (the
"Merger") with Source Information Management Company ("Source"), pursuant to
which the Parent and its subsidiaries were merged with and into Source, and
became a wholly-owned subsidiary of Source. In connection with the Merger, all
of the capital stock of the Parent was exchanged for 3,400,000 shares of the
capital stock of Source. On January 7, 1999, prior to entering into the Merger,
the majority stockholder of the Parent purchased the remaining outstanding
minority interest in Brand and TCE, so that the Parent owned 100% of the stock
of Brand and TCE at the closing.

F-46
<PAGE> 96

REPORT OF THIS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Brand Manufacturing Corp. and TCE Corporation

We have audited the accompanying combined balance sheet of Brand Manufacturing
Corp. and TCE Corporation as of May 20, 1998, and the related combined
statements of income, stockholders' equity, and cash flows for the period from
January 1, 1998 through May 20, 1998. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Brand Manufacturing
Corp. and TCE Corporation as of May 20, 1998, and the results of their
operations and their cash flows for the period from January 1, 1998 through May
20, 1998 in conformity with generally accepted accounting principles.

/s/ BDO Seidman, LLP

March 9, 1999
New York, NY

F-47
<PAGE> 97

BRAND MANUFACTURING CORP. AND TCE CORPORATION

COMBINED BALANCE SHEET

<TABLE>
<CAPTION>
MAY 20, 1998
------------
<S> <C>
ASSETS (NOTE 2)
CURRENT:
Cash and cash equivalents................................... $ 646,013
Accounts receivable (Note 8)................................ 2,855,020
Inventories (Note 3)........................................ 843,757
Refundable income taxes..................................... 103,349
Prepaid expenses and other current assets................... 246,627
----------
TOTAL CURRENT ASSETS........................................ 4,694,766
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION (NOTE 4)..................................... 194,897
OTHER ASSETS................................................ 90,975
----------
$4,980,638
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 971,144
Accrued expenses and other liabilities...................... 455,208
Due to retailers............................................ 1,747,881
Income taxes payable........................................ 16,054
----------
TOTAL CURRENT LIABILITIES................................... 3,190,287
----------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 10)
STOCKHOLDERS' EQUITY (NOTE 9):
Common stock (Note 5)....................................... 7,375
Retained earnings........................................... 1,782,976
----------
TOTAL STOCKHOLDERS' EQUITY.................................. 1,790,351
----------
$4,980,638
==========
</TABLE>

See accompanying notes to combined financial statements.

F-48
<PAGE> 98

BRAND MANUFACTURING CORP. AND TCE CORPORATION

COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998
THROUGH
MAY 20,
1998
-----------
<S> <C>
NET REVENUES (NOTE 8)....................................... $6,078,934
COST OF REVENUES............................................ 3,589,239
----------
GROSS PROFIT................................................ 2,489,695
----------
OPERATING EXPENSES:
Selling..................................................... 205,223
General and administrative.................................. 1,413,556
----------
TOTAL OPERATING EXPENSES.................................... 1,618,779
----------
INCOME FROM OPERATIONS...................................... 870,916
----------
OTHER INCOME (EXPENSES):
Interest expense............................................ (3,994)
Interest income............................................. 13,686
Other....................................................... 14,332
----------
TOTAL OTHER INCOME.......................................... 24,024
----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 894,940
PROVISION FOR INCOME TAXES.................................. 36,500
----------
NET INCOME.................................................. $ 858,440
==========
</TABLE>

See accompanying notes to combined financial statements.

F-49
<PAGE> 99

BRAND MANUFACTURING CORP. AND TCE CORPORATION

COMBINED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 20, 1998
------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998.............. $11,767 $ 100,000 $ 3,359,113 $(690,024) $ 2,780,856
Retirement of common stock............ (4,392) (100,000) (585,632) 690,024 --
S corporation distributions........... -- -- (1,848,945) -- (1,848,945)
Net income............................ -- -- 858,440 -- 858,440
------- --------- ----------- --------- -----------
BALANCE, MAY 20, 1998................. $ 7,375 $ -- $ 1,782,976 $ -- $ 1,790,351
======= ========= =========== ========= ===========
</TABLE>

See accompanying notes to combined financial statements.

F-50
<PAGE> 100

BRAND MANUFACTURING CORP. AND TCE CORPORATION

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
THROUGH
MAY 20, 1998
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 858,440
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 13,579
Decrease (increase) in:
Accounts receivable......................................... (63,120)
Inventories................................................. (178,679)
Prepaid expenses and other current assets................... 131,146
Prepaid income taxes........................................ (103,349)
Other assets................................................ (17,000)
Increase (decrease) in:
Accounts payable............................................ (537,907)
Accrued expenses and other liabilities...................... (218,263)
Due to retailers............................................ 1,623,578
Income taxes payable........................................ (9,946)
-----------
TOTAL ADJUSTMENTS........................................... 640,039
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 1,498,479
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (14,371)
CASH FLOWS FROM FINANCING ACTIVITIES:
S corporation distributions................................. (1,848,945)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (364,837)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 1,010,850
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 646,013
===========
</TABLE>

See accompanying notes to combined financial statements.

F-51
<PAGE> 101

BRAND MANUFACTURING CORP. AND TCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Brand Manufacturing Corp. ("Brand") designs and manufactures custom-designed
product display units that are categorized as front-end merchandisers or
point-of-purchase displays, that are used by retailers and consumer product
manufacturers nationwide.

TCE Corporation ("TCE") provides trucking, consulting, and warehousing services
exclusively for Brand and its customers.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The combined financial statements include the accounts of Brand and TCE
(collectively, the "Company"). The combined companies are related through common
ownership and control. All material intercompany balances and transactions are
eliminated in combination.

Revenue Recognition

Revenues are recognized as products are shipped to customers.

Cash and Cash Equivalents

Cash and Cash Equivalents The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

Inventories

Inventories, consisting of steel and product display units, are stated at the
lower of cost or market. Cost is determined by the FIFO (first-in, first-out)
method.

Property and Equipment

Income Taxes

The Company, with the consent of its stockholders, has elected to be taxed as an
S corporation under the provisions of the Internal Revenue Code and the States
of New York and New Jersey tax laws. Under these provisions, the stockholders
are taxed on their proportionate shares of the Company's taxable income on their
individual tax returns. Certain states impose a corporate level tax based upon
the differential between the corporate and individual tax rates. The financial
statements include a provision for these taxes, as well as New York City income
taxes.

As a result of the acquisition of the companies on May 20, 1998 (see Note 9),
the companies' S corporation status was terminated and both Brand and TCE became
C corporations for Federal, state and local income tax purposes.

F-52
<PAGE> 102
BRAND MANUFACTURING CORP. AND TCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Fair Value of Financial Instruments

The carrying value of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities, due to retailers and loans payable to stockholders approximate fair
value due to the immediate or short-term maturity of these financial
instruments.

Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable.

The Company places its cash and short-term cash investments with high credit
quality financial institutions which limit the amount of credit exposure.

Concentrations of credit risk with respect to trade accounts receivable are
limited due to the Company's diverse client base. Losses relating to the
accounts receivable have historically been minimal. As a result, the Company
does not maintain an allowance for potential losses. The Company does not
require collateral from its customers.

Use of Estimates

Long-Lived Assets

F-53
<PAGE> 103
BRAND MANUFACTURING CORP. AND TCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

3. INVENTORIES

Inventories at May 20, 1998 consist of the following:

<TABLE>
<S> <C>
Raw materials............................................... $162,890
Work-in-process............................................. 357,467
Finished goods.............................................. 323,400
--------
$843,757
========
</TABLE>

4. PROPERTY AND EQUIPMENT

Major classes of property and equipment at May 20, 1998 consist of the
following:

<TABLE>
<S> <C>
Machinery and equipment..................................... $ 980,800
Furniture, fixtures and equipment........................... 129,826
Computer equipment.......................................... 155,856
Leasehold improvements...................................... 117,640
----------
1,384,122
Less:
Accumulated depreciation and amortization................. 1,189,225
----------
Property and equipment, net................................. $ 194,897
==========
</TABLE>

5. COMMON STOCK

Common stock (no par value) at May 20, 1998 consists of the following:

<TABLE>
<CAPTION>
BRAND TCE TOTAL
------ ---- ------
<S> <C> <C> <C>
Shares authorized........................................... 320 200 520
Shares issued and outstanding............................... 100 125 225
Common stock value.......................................... $7,292 $ 83 $7,375
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

Lease Commitments

Minimum annual lease commitments under noncancelable operating leases at May 20,
1998 are as follows:

F-54
<PAGE> 104
BRAND MANUFACTURING CORP. AND TCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Rent expense for the period ended May 20, 1998 was approximately $283,000.

Employment Contracts

<TABLE>
<S> <C>
1999........................................................ $ 465,000
2000........................................................ 647,000
2001........................................................ 365,000
2002........................................................ 160,000
2003........................................................ 150,000
Thereafter.................................................. 87,000
----------
$1,874,000
==========
</TABLE>

Union Contracts

At May 20, 1998, approximately 75% of the Company's employees were members of
Local 810, affiliated with the International Brotherhood of Teamsters (the
"Union"). All non-supervisory plant employees who have met certain criteria are
considered members of the Union. The Company is party to a collective bargaining
agreement with the Union, which is for three years and expires on September 30,
1999.

Company contributions to the Union funds charged to operations were
approximately $155,000 for the period ended May 20, 1998.

Litigation

7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid income taxes of approximately $600 for the period ended May 20,
1998. Interest paid amounted to $3,994 for the period ended May 20, 1998.

The Company retired common stock in the amount of $690,024.

8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

For the period ended May 20, 1998, three customers accounted for approximately
53% of net revenues. In addition, three customers accounted for approximately
50% of accounts receivable at May 20, 1998.

9. SUBSEQUENT EVENTS

(a) On May 20, 1998, U.S. Marketing Services, Inc. (the "Parent") acquired 70%
of the voting shares of the Company in a business combination accounted for as a
purchase. The total cost to acquire the Company exceeded the fair value of the
net assets acquired by approximately $14,300,000, which was recorded as
goodwill. It will be amortized over a 20 year period.

F-55
<PAGE> 105
BRAND MANUFACTURING CORP. AND TCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

(b) On November 19, 1998, the Parent acquired the assets and trade name of a
company that performs services for Brand. The purchase price of $300,000 will be
paid in equal annual installments over five years. The balance is included in
intangible assets and is being amortized over five years. In connection with the
acquisition and as part of the purchase price, the Parent entered into
employment contracts with the former owners of the acquired company.

(c) On January 7, 1999, the Parent entered into an agreement and plan of merger
(the "Merger") with Source Information Management Company ("Source"), pursuant
to which the Parent and its subsidiaries were merged with and into Source, and
became a wholly-owned subsidiary of Source. In connection with the Merger, all
of the capital stock of the Parent was exchanged for 3,400,000 shares of the
capital stock of Source. On January 7, 1999, prior to entering into the Merger,
the majority stockholder of the Parent purchased the remaining outstanding
minority interest in Brand and TCE, so that the Parent owned 100% of the stock
of Brand and TCE at the closing.

F-56
<PAGE> 106

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of Brand Manufacturing Corp.

We have audited the accompanying balance sheet of Brand Manufacturing Corp. as
of December 31, 1997 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brand Manufacturing Corp. at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Vienna, Virginia
April 17, 1998

F-57
<PAGE> 107

BRAND MANUFACTURING CORP.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 864,910
Accounts receivable....................................... 2,876,911
Inventory................................................. 665,078
Prepaid expenses and other current assets................. 54,619
Refundable income taxes................................... 134,069
----------
Total current assets................................... 4,595,587
Property and equipment, net................................. 178,434
Cash surrender value of officers' life insurance............ 155,945
Other assets................................................ 68,434
----------
Total assets........................................... $4,998,400
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $1,502,125
Accrued expenses.......................................... 584,571
Due to affiliate.......................................... 591,135
Deferred revenue.......................................... 124,303
Income tax payable........................................ --
Distributions payable to stockholders..................... --
Payable to related party.................................. 88,900
----------
Total current liabilities.............................. 2,891,034
Payable to related party, less current portion.............. --
Stockholders' equity:
Common stock, no par value; 320 shares authorized, 160
shares issued and outstanding.......................... 111,667
Retained earnings......................................... 2,665,723
Less: treasury stock, at cost; 60 shares.................. (670,024)
----------
Total stockholders' equity............................. 2,107,366
----------
Total liabilities and stockholders' equity............. $4,998,400
==========
</TABLE>

See accompanying notes.
F-58
<PAGE> 108

BRAND MANUFACTURING CORP.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Net revenues................................................ $17,457,498
Cost of revenues............................................ 10,812,877
-----------
Gross profit.............................................. 6,644,621
Operating expenses:
Selling, general and administrative expenses.............. 4,979,592
-----------
Operating income............................................ 1,665,029
Other income (expense):
Other income.............................................. 69,133
Interest income........................................... 27,780
Interest (expense)........................................ (23,227)
-----------
73,686
Income before income tax provision.......................... 1,738,715
Income tax provision...................................... 72,993
-----------
Net income.................................................. $ 1,665,722
===========
Unaudited pro forma information:
Net income before income tax provision.................... $ 1,738,715
Pro forma income tax provision............................ 683,495
-----------
Pro forma net income (see Note 2)......................... $ 1,055,220
===========
</TABLE>

See accompanying notes.
F-59
<PAGE> 109

BRAND MANUFACTURING CORP.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
----------------- ------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
------ -------- ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 160 $111,667 (60) $(670,024) $ 2,693,052 $ 2,134,695
Net income....................... -- -- -- -- 1,665,722 1,665,722
Distributions.................... -- -- -- -- (1,693,051) (1,693,051)
--- -------- --- --------- ----------- -----------
Balance at December 31, 1997....... 160 $111,667 (60) $(670,024) $ 2,665,723 $ 2,107,366
=== ======== === ========= =========== ===========
</TABLE>

See accompanying notes.
F-60
<PAGE> 110

BRAND MANUFACTURING CORP.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,665,722
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss on disposal of property and equipment................ 10,340
Depreciation and amortization............................. 60,047
Cash surrender value of officers' life insurance.......... (32,076)
Changes in operating assets and liabilities:
Accounts receivable.................................... (959,215)
Inventory.............................................. (231,870)
Prepaid expenses and other current assets.............. (16,547)
Refundable income taxes................................ (134,069)
Other assets........................................... --
Accounts payable....................................... 720,604
Accrued expenses....................................... (29,357)
Due to affiliate....................................... 302,881
Deferred revenue....................................... (888,108)
Income tax payable..................................... (46,347)
-----------
Net cash provided by operating activities................... 422,005
INVESTING ACTIVITIES
Purchases of property and equipment......................... (33,574)
Proceeds from the sale of property and equipment............ 14,000
-----------
Net cash used in investing activities....................... (19,574)
FINANCING ACTIVITIES
Loan from officers' life insurance.......................... 3,895
Payment of payable to related party......................... (134,400)
Distributions to stockholders............................... (1,693,051)
-----------
Net cash used in financing activities....................... (1,823,556)
-----------
Net decrease in cash and cash equivalents................... (1,421,125)
Cash and cash equivalents at beginning of year.............. 2,286,035
-----------
Cash and cash equivalents at end of year.................... $ 864,910
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash transaction:
Interest paid............................................... $ 23,227
===========
Income taxes paid........................................... $ 220,683
===========
</TABLE>

See accompanying notes.
F-61
<PAGE> 111

BRAND MANUFACTURING CORP.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 1997

1. BUSINESS AND ORGANIZATION

Brand Manufacturing Corp. ("Brand" or the "Company"), incorporated in New York
in 1956, designs and manufactures custom in-store merchandising units and
point-of-purchase displays for a wide range of retail store chains and product
manufacturers. For many of its retail store clients, Brand also involves the
retailers' suppliers and coordinates the collection of payments on these
invoices.

The Company is operated under common ownership with T.C.E. Corporation ("TCE"),
an affiliated company incorporated in Delaware in 1978. TCE provides trucking
services to the Company's customers and consulting services and warehousing
space to the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company generally recognizes revenues as products are shipped to customers,
assuming that collection of the receivable is probable and the Company has no
significant remaining obligations. When the Company receives payment in advance
of shipment, the Company records the amount as deferred revenue and recognizes
the amount as revenues when the above revenue recognition criteria have been
met.

Advertising Costs

Advertising costs are expensed when incurred. Advertising costs for the year
ended December 31, 1997 were approximately $6,000.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment, including leasehold improvements, are stated at cost.
Depreciation and amortization is calculated on a straight-line basis over
estimated useful lives of the related assets, which range from five to seven
years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or lease term, using the straight-line method.

Impairment of Long-Lived Assets

The Company reviews the recoverability of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, in accordance with criteria established by Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets". A loss is recognized for the difference between the carrying amount and
the estimated fair value

F-62
<PAGE> 112
BRAND MANUFACTURING CORP.

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

of the asset. The Company made no adjustment to the carrying values of the
assets during the year ended December 31, 1997.

Fair Value of Financial Instruments

At December 31, 1997, the fair value of the Company's cash and cash equivalents,
accounts receivable, and accounts payable approximates carrying amounts due to
the short-term maturities of such instruments. The carrying amount of the
payable to the related party approximates fair value since the current effective
rate reflects the market rate for debt with similar terms and remaining
maturities.

Concentration of Credit Risk and Other Risks

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with high credit
quality financial institutions and investment grade short-term investments,
which limit the amount of credit exposure.

For accounts receivable, the Company does not require collateral, however
consistent with management's expectations, losses have historically been minimal
due to the Company's diverse customer base. Therefore, the Company does not
maintain an allowance for losses.

Two customers approximated 22% of net revenues for the years ended December 31,
1997. Additionally, three customers approximated 62% of accounts receivable at
December 31, 1997.

At December 31, 1997, the Company maintained approximately $1,008,000, in an
account with a bank that was not insured by the Federal Deposit Insurance
Corporation.

At December 31, 1997, 85% of the Company's labor force was subject to collective
bargaining agreements ("CBA"). The CBA expires in September 1999.

Income Taxes

Historically, the Company has elected, by the consent of its stockholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code (the
"Code"). Under the provisions of the Code, the stockholders include the
Company's corporate income in their personal income tax returns. Accordingly,
the Company was not subject to federal corporate income tax during the period
for which it was an S Corporation. Certain states, in which the Company does
business, do not accept certain provisions under Subchapter S of the Code, and
as a result, income taxes in these states are a direct responsibility of the
Company.

The unaudited pro forma income tax information included in the statement of
operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and certain state income taxes for the year ended December
31, 1997.

Use of Estimates

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

F-63
<PAGE> 113
BRAND MANUFACTURING CORP.

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

3. INVENTORY

Inventory consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Raw materials............................................... $364,467
Work-in-process............................................. 252,592
Finished goods.............................................. 48,019
--------
$665,078
========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Machinery and equipment..................................... $ 960,461
Furniture and equipment..................................... 283,179
Leasehold improvements...................................... 110,440
----------
1,354,080
Less accumulated depreciation and amortization.............. 1,175,646
----------
$ 178,434
==========
</TABLE>

5. RELATED PARTY TRANSACTIONS

Due to Affiliate

The Company collects trucking service fees from its customers for trucking
services provided by its affiliated company, TCE. The Company remits the amounts
collected to TCE. TCE also provides consulting and warehousing services to the
Company. Expenses for these services were approximately $571,500 for the year
ended December 31, 1997. At December 31, 1997, the Company owed the affiliate
approximately $591,100. The due to affiliate account is settled periodically and
is classified as a current liability. There are no terms of settlement or
interest expense associated with the account.

Payable to Related Party

At December 31, 1997, the Company had an amount payable due to a former
stockholder of approximately $88,900. Although no formal note exists, the
Company effectively pays interest at 9% per annum and pays principal and
interest payable monthly. The balance is payable on demand.

6. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases equipment and certain office, plant and warehouse space in
New York under non-cancelable operating lease agreements. Certain leases contain
escalation clauses and require the Company to pay its share of any increases in
operating expenses and real estate taxes. Rent expense was

F-64
<PAGE> 114
BRAND MANUFACTURING CORP.

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

approximately $414,000 for the year ended December 31, 1997. At December 31,
1997, future minimum commitments under non-cancelable operating lease
arrangements are as follows:

Employee Contracts

The Company entered into employment contracts with key employees. At December
31, 1997, future minimum annual payments for salaries are approximated as
follows:

Collective Bargaining Agreement

In October 1996, the Company entered into a three year collective bargaining
agreement with Local 810, affiliated with the International Brotherhood of
Teamsters (the "Union"). All of the Company's non-supervisory plant employees
who have met the Union's criteria are considered members of Local 810. The
collective bargaining agreement calls for the Company to provide stipulated
amounts per employee to the Union's defined benefit pension fund and health and
welfare fund (the "Plan"). Expenses related to a previously terminated agreement
and the current agreement described above were approximately $429,000 for the
year ended December 31, 1997.

Under the Multiemployer Pension Plan Amendment Act of 1980, an employer is
liable, upon withdrawal from or termination of a multiemployer plan, for its
proportionate share of the plan's unfunded vested benefits liability, if any. As
of December 31, 1997, no such liability existed. Currently, the Company has no
intent of terminating or withdrawing from the Plan.

Legal Matters

The Company is a party to various legal actions and administrative proceedings
arising in the normal course of business. In the opinion of the Company's
management, dispositions of these matters are not anticipated to have a material
adverse effect on the financial position, results of operations or cash flows of
the Company.

7. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF
INDEPENDENT AUDITORS' REPORT

On May 20, 1998, U.S. Marketing Services, Inc. ("U.S. Marketing") acquired 70%
of the outstanding stock of the Company and its affiliate, TCE, for $15.1
million in cash in the first step of a two-step stock purchase.

F-65
<PAGE> 115
BRAND MANUFACTURING CORP.

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

On January 7, 1999, U.S. Marketing entered into an agreement and plan of merger
(the "Merger") with Source Information Management Company ("Source"), pursuant
to which U.S. Marketing and its subsidiaries were merged with and into Source,
and became a wholly-owned subsidiary of Source. In connection with the Merger,
all of the capital stock of U.S. Marketing was exchanged for 3,400,000 shares of
the capital stock of Source. On January 7, 1999, prior to entering into the
Merger, the majority stockholder of U.S. Marketing purchased the remaining
outstanding minority interest in Brand and TCE, so that U.S. Marketing owned
100% of the stock of Brand and TCE at the closing.

F-66
<PAGE> 116

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of T.C.E. Corporation

We have audited the accompanying balance sheet of T.C.E. Corporation as of
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of T.C.E. Corporation at December
31, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Vienna, Virginia
April 17, 1998

F-67
<PAGE> 117

T.C.E. CORPORATION

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $145,940
Due from affiliate........................................ 591,135
Prepaid expenses and other current assets................. 33,140
--------
Total current assets................................... 770,215
Property and equipment, net................................. 15,671
Other assets................................................ 5,541
--------
Total assets........................................... $791,427
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 91,937
Income tax payable........................................ 26,000
--------
Total current liabilities.............................. 117,937
Stockholders' equity:
Common stock, no par value; 200 shares authorized, 150
shares issued and outstanding.......................... 100
Retained earnings......................................... 693,390
Less: treasury stock, at cost; 25 shares.................. (20,000)
--------
Total stockholders' equity............................. 673,490
--------
Total liabilities and stockholders' equity............. $791,427
========
</TABLE>

See accompanying notes.

F-68
<PAGE> 118

T.C.E. CORPORATION

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Net revenues................................................ $2,144,067
Cost of revenues............................................ 508,661
----------
Gross profit................................................ 1,635,406
Operating expenses:
Selling, general and administrative expenses.............. 699,485
----------
Operating income............................................ 935,921
Interest (expense).......................................... --
----------
Income before income tax provision.......................... 935,921
Income tax provision........................................ 42,514
----------
Net income.................................................. $ 893,407
==========
Unaudited pro forma information:
Net income before income tax provision.................... 935,921
Pro forma income tax provision............................ 361,032
----------
Pro forma net income (see Note 2)......................... $ 574,889
==========
</TABLE>

See accompanying notes.
F-69
<PAGE> 119

T.C.E. CORPORATION

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
--------------- ------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 150 $100 (25) $(20,000) $ 560,384 $ 540,484
Net income......................... -- -- -- -- 893,407 893,407
Distributions...................... -- -- -- -- (760,401) (760,401)
--- ---- --- -------- --------- ---------
Balance at December 31, 1997......... 150 $100 (25) $(20,000) $ 693,390 $ 673,490
=== ==== === ======== ========= =========
</TABLE>

See accompanying notes.
F-70
<PAGE> 120

T.C.E. CORPORATION

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 893,407
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 18,672
Changes in operating assets and liabilities:
Due from affiliate..................................... (302,881)
Prepaid expenses and other current assets.............. (33,140)
Accounts payable and accrued expenses.................. 87,572
Income tax payable..................................... 26,000
---------
Net cash provided by operating activities................... 689,630
FINANCING ACTIVITIES
Distributions to stockholders............................... (760,401)
---------
Net cash used in financing activities....................... (760,401)
---------
Net (decrease) in cash and cash equivalents................. (70,771)
Cash and cash equivalents at beginning of period............ 216,711
---------
Cash and cash equivalents at end of period.................. 145,940
=========
Supplemental disclosures of cash flow information:
Income taxes paid........................................... $ 16,140
=========
</TABLE>

See accompanying notes.
F-71
<PAGE> 121

T.C.E. CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 1997

1. BUSINESS AND ORGANIZATION

T.C.E. Corporation ("TCE" or the "Company") is a Delaware corporation organized
in 1978, under Subchapter S of the Internal Revenue Code (the "Code"), to
provide trucking and consulting services, and warehousing space to primarily one
customer, Brand Manufacturing Corp. ("Brand"), a company affiliated by common
ownership and control.

Brand designs and manufactures custom in-store merchandising units and
point-of-purchase displays for a wide range of retail store chains and product
manufacturers. For many of its retail store clients, Brand also invoices the
retailers' suppliers and coordinates the collection of payments on these
invoices.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company generally recognizes trucking revenues as shipments are completed
assuming that collection of the receivable is probable and the Company has no
significant remaining obligations. Consulting and warehousing revenues are
earned and recognized as services are rendered.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is
calculated on a straight-line basis over estimated useful lives of the related
assets, which range from three to seven years.

Impairment of Long-Lived Assets

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments, including cash and
cash equivalents, receivables from the affiliate, and accounts payable,
approximate fair value.

Concentration of Credit Risk and Other Risks

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and receivables from
the affiliate. The Company places its cash and

F-72
<PAGE> 122
T.C.E. CORPORATION

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

DECEMBER 31, 1997

cash equivalents with high credit quality financial institutions and investment
grade short-term investments, which limit the amount of credit exposure.

For receivables from the affiliate, the Company does not require collateral, as
transactions giving rise to this account only occur with the affiliated company,
Brand. TCE has not recorded any reserves with respect to receivables from
affiliate as it has historically not experienced any credit losses.

Income Taxes

Historically, the Company has elected, by the consent of its stockholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code (the
"Code"). Under the provisions of the Code, the stockholders include the
Company's corporate income in their personal income tax returns. Accordingly,
the Company was not subject to corporate income tax during the period for which
it was an S Corporation. Certain states, in which the Company does business, do
not accept certain provisions under Subchapter S of the Code, and as a result,
income taxes in these states are a direct responsibility of the Company.

Use of Estimates

3. DUE FROM AFFILIATE

The Company provides trucking services to customers of Brand, an affiliated
company. Brand collects the trucking service fees from its customers and remits
the amounts to the Company. Additionally, the Company provides consulting and
warehousing services to Brand, for which the Company recorded revenues of
approximately $571,500 during the year ended December 31, 1997.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Trucks...................................................... $ 207,824
Furniture and equipment..................................... 4,527
---------
212,351
Less accumulated depreciation............................... (196,680)
---------
$ 15,671
=========
</TABLE>

F-73
<PAGE> 123
T.C.E. CORPORATION

NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED

DECEMBER 31, 1997

5. COMMITMENTS

The Company rents certain warehouse space in New Jersey under a month-to-month
arrangement. Rent expense was approximately $245,000 for the year ended December
31, 1997.

6. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT
AUDITORS' REPORT

On May 20, 1998, U.S. Marketing Services, Inc. ("U.S. Marketing") acquired 70%
of the outstanding stock of the Company and its affiliate, Brand, for $15.1
million in cash in the first step of a two-step stock purchase.

On January 7, 1999, U.S. Marketing entered into an agreement and plan of merger
(the "Merger") with Source Information Management Company ("Source"), pursuant
to which U.S. Marketing and its subsidiaries were merged with and into Source,
and became a wholly-owned subsidiary of Source. In connection with the Merger,
all of the capital stock of U.S. Marketing was exchanged for 3,400,000 shares of
capital stock of Source. On January 7, 1999, prior to entering into the Merger,
the majority stockholder of U.S. Marketing purchased the remaining outstanding
minority interest in Brand and TCE, so that U.S. Marketing owned 100% of the
stock of Brand and TCE at the closing.

F-74
<PAGE> 124

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On January 7, 1999, the Source Information Management Company, Inc. (Source)
acquired U.S. Marketing Services, Inc. (US Marketing), the holding company of
Brand Manufacturing Corporation (Brand) and T.C.E. Corporation (TCE) for
1,926,719 shares of common stock and 1,473,281 shares of preferred stock (one
for one conversion to common stock) with a market value of $26,282,000. The
acquisition has been accounted for under the purchase method of accounting. The
Pro Forma information has been presented as if the shares of preferred stock
were converted to common stock in a one for one exchange.

The Pro Forma Condensed Combined Balance Sheet was prepared as if the above
transaction occurred on October 31, 1998, combining the balance sheets of Source
at October 31, 1998 with that of US Marketing at September 30, 1998.

The Pro Forma Condensed Combined Statement of Operations gives effect to the
above transaction as if it had occurred at the beginning of the earliest period
presented.

The following periods are presented:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998
---------------------------
<S> <C>
Source....................................... February 1, 1997 through January 31, 1998
Brand........................................ January 1, 1997 through December 31, 1997
TCE.......................................... January 1, 1997 through December 31, 1997
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31, 1998
----------------------------------
<S> <C>
Source....................................... February 1, 1998 through October 31, 1998
Combined Brand and TCE....................... January 1, 1998 through May 31, 1998 (date of
acquisition)
US Marketing................................. March 25, 1998 (date of inception) through September
30, 1998
</TABLE>

The Pro Forma Condensed Combined Financial Information is unaudited and not
necessarily indicative of the consolidated results which actually would have
occurred if the above transaction would have been consummated at the beginning
of the periods presented, nor does it purport to present the future financial
position and results of operations for future periods. The Pro Forma Condensed
Consolidated Financial Information gives effect to the acquisition and is based
upon estimated allocations of the purchase price and includes all adjustments
described in the notes there to.

F-75
<PAGE> 125

UNAUDITED PRO FORMA BALANCE SHEET

AS OF OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL US PRO FORMA
SOURCE MARKETING ADJUSTMENTS PRO FORMA
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash......................................... $ 8 $ 873 $ -- $ 881
Trade receivables, net of allowance.......... 28,639 5,059 -- 33,698
Inventory.................................... -- 457 500(3) 957
Other current assets......................... 146 61 -- 207
------- ------- -------- -------
TOTAL CURRENT ASSETS........................... 28,793 6,450 500 35,743
------- ------- -------- -------
PROPERTY, PLANT AND EQUIPMENT, net............. 1,087 195 -- 1,282
------- ------- -------- -------
OTHER ASSETS
Goodwill, net of accumulated amortization.... 5,410 14,132 9,034(1)(3) 28,576
Other........................................ 168 486 (412)(2) 242
------- ------- -------- -------
TOTAL OTHER ASSETS............................. 5,578 14,618 8,622 28,818
------- ------- -------- -------
$35,458 $21,263 $ 9,122 $65,843
======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits........ $ 3,779 $ -- $ -- $ 3,779
Notes payable................................ -- 2,000 (2,000)(1) --
Accounts payable and accrued expenses........ 1,290 2,907 (1,500)(1) 2,697
Deferred revenue............................. -- 73 -- 73
Income taxes payable......................... 299 230 -- 529
Due to retailers............................. 918 1,768 -- 2,686
Deferred income taxes........................ 867 -- -- 867
Due to stockholders/officers................. -- 425 -- 425
Current maturities of long-term debt......... 7 2,250 (2,250)(1) 7
------- ------- -------- -------
TOTAL CURRENT LIABILITIES...................... 7,160 9,653 (5,750) 11,063
LONG-TERM DEBT, less current maturities........ 5,042 12,250 (12,250)(1) 5,042
DEFERRED INCOME TAXES.......................... 33 -- 200(3) 233
------- ------- -------- -------
TOTAL LIABILITIES.............................. 12,235 21,903 (17,800) 16,338
------- ------- -------- -------
MINORITY INTEREST.............................. -- 699 (699)(1) --
------- ------- -------- -------
STOCKHOLDERS' EQUITY
Contributed capital:
Common Stock.............................. 96 5 29(4) 130
Additional paid-in capital................ 18,791 127 26,121(5) 45,039
------- ------- -------- -------
Total contributed capital...................... 18,887 132 26,150 45,169
Retained earnings.............................. 4,377 (1,471) 1,471(6) 4,377
------- ------- -------- -------
Total contributed capital and retained
earnings..................................... 23,264 (1,339) 27,621 49,546
Less Treasury Stock............................ (41) -- -- (41)
------- ------- -------- -------
TOTAL STOCKHOLDERS' EQUITY..................... 23,223 (1,339) 27,621 49,505
------- ------- -------- -------
$35,458 $21,263 $ 9,122 $65,843
======= ======= ======== =======
</TABLE>

F-76
<PAGE> 126

NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
(1) To record additional cash contribution to additional
paid in capital by principal shareholder to reflect the
following:............................................. $ 21,790
(i) repayment of the bank loan....................... (16,500)
(ii) repayment of accrued expenses.................... (1,500)
(iii) elimination of minority interest in Brand and
TCE................................................ (699)
(iv) goodwill on the additional investment in Brand and
TCE................................................ (3,091)
--------
Net additional cash.................................... $ --
========
The principal shareholder is still obligated to pay any
remaining principal and interest on the bank loan at
the closing date
--------
(2) To record the write-off of deferred loan costs.......... $ (412)
--------
(3) To reflect the acquisition of US Marketing and the
allocation of purchase price on the basis of the fair
values of the assets acquired and liabilities assumed.
The components of the purchase price and its allocation
are as follows:
Market value of Source common stock issued............ $ 26,282
Allocation of purchase price:
Stockholders' equity of US Marketing
[(1,339) + 21,790 - 412]........................... (20,039)
Increase in inventory to fair value................. (500)
Increase in deferred taxes.......................... 200
--------
Cost in excess of net assets acquired................. $ 5,943
========
(4) To reflect:
(i) the par value of Source common stock issued...... $ 34
(ii) the elimination of historical equity balance of
US Marketing....................................... (5)
--------
$ 29
(5) To reflect:
(i) the excess of the market value over the par value
of the Source common stock issued.................. $ 26,248
(ii) the additional cash contribution by principal
shareholder........................................ 21,790
(iii) the elimination of the additional contribution... (21,790)
(iv) the elimination of the historical equity balance
of US Marketing.................................... (127)
--------
$ 26,121
========
(6) To reflect the elimination of historical equity balances
of US Marketing........................................ $ 1,471
========
</TABLE>

F-77
<PAGE> 127

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

NINE MONTHS ENDED OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL COMBINED US PRO FORMA
SOURCE BRAND AND TCE MARKETING ADJUSTMENTS PRO FORMA
---------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET REVENUES...................... $11,136 $ 6,078 $ 6,391 $ -- $23,605
COST OF REVENUES.................. 4,797 3,589 3,467 -- 11,853
------- ------- ------- ----- -------
GROSS PROFIT...................... 6,339 2,489 2,924 -- 11,752
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE.......... 1,833 1,618 3,150 $ 120(1) 6,721
------- ------- ------- ----- -------
OPERATING INCOME (LOSS)........... 4,506 871 (226) (120) 5,031
------- ------- ------- ----- -------
OTHER INCOME (EXPENSE)
Interest income................. 22 10 25 -- 57
Interest expense................ (265) -- (566) 561(2) (270)
Other........................... (9) 14 (33) 19(3) (9)
------- ------- ------- ----- -------
TOTAL OTHER INCOME (EXPENSE)...... (252) 24 (574) 580 (222)
------- ------- ------- ----- -------
MINORITY INTEREST IN INCOME....... -- -- 160 (160)(4) --
------- ------- ------- ----- -------
INCOME TAX EXPENSE................ 1,778 30 511 849(5)(6) 3,168
------- ------- ------- ----- -------
NET INCOME (LOSS)................. $ 2,476 $ 865 $(1,471) $(229) $ 1,641
======= ======= ======= ===== =======
EARNINGS PER SHARE
Basic........................... $ .28 $ .13
------- -------
Diluted......................... $ .27 $ .13
------- -------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic........................... 8,783 12,183
------- -------
Diluted......................... 9,248 12,648
------- -------
</TABLE>

F-78
<PAGE> 128

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

YEAR ENDED JANUARY 31, 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SOURCE BRAND TCE ADJUSTMENTS PRO FORMA
---------- ------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
NET REVENUES.......................... $11,804 $17,457 $2,144 $ -- $31,405
COST OF REVENUES...................... 5,861 10,813 509 -- 17,183
------- ------- ------ ------- -------
GROSS PROFIT.......................... 5,943 6,644 1,635 -- 14,222
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE............................. 2,351 4,979 699 (1,747)(1) 6,282
------- ------- ------ ------- -------
OPERATING INCOME (LOSS)............... 3,592 1,665 936 1,747 7,940
------- ------- ------ ------- -------
OTHER INCOME (EXPENSE)
Interest income..................... 21 28 -- -- 49
Interest expense.................... (714) (23) -- -- (737)
Other............................... (79) 69 -- -- (10)
------- ------- ------ ------- -------
TOTAL OTHER INCOME (EXPENSE).......... (772) 74 -- -- (698)
------- ------- ------ ------- -------
INCOME TAX EXPENSE.................... 1,231 73 43 2,074(5)(6) 3,421
------- ------- ------ ------- -------
NET INCOME............................ $ 1,589 $ 1,666 $ 893 $ (327) $ 3,821
======= ======= ====== ======= =======
DIVIDEND ON PREFERRED STOCK........... $ (110) $ (110)
------- -------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS................. $ 1,479 $ 3,711
======= =======
EARNINGS PER SHARE
Basic............................... $ .23 $ .37
------- -------
Diluted............................. $ .22 $ .37
------- -------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic............................ 6,562 9,962
------- -------
Diluted.......................... 6,694 10,094
------- -------
</TABLE>

F-79
<PAGE> 129

NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

The Pro Forma Combined Statements of Operations reflect the adjustments for the
Acquisitions as of February 1, 1997.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
(1) To reflect:
(i) portion of compensation expense for executive
officers on the basis of current and anticipated
arrangements as if they were effective February
1, 1997.......................................... $(2,911) $(622)
(ii) amortization of goodwill arising from the
acquisition of US Marketing, for the period prior
to the acquisition (estimated life 20 years)..... 1,164 742
------- -----
$ 1,747 $ 120
======= =====
(2) To reflect the elimination interest expense related to
US Marketing for the period prior to the acquisition... $ -- $ 561
(3) To reflect the elimination of the amortization of the
deferred loan costs.................................... $ -- $ 19
(4) To reflect the elimination of minority interests........ $ -- $ 160
(5) To adjust tax expense to reflect the income tax effects
at the Company's effective tax rate (after
consideration of the nondeductibility of the
amortization of the cost in excess of net assets
acquired) of the pro forma adjustments to income before
income taxes........................................... $ 1,164 $ 545
(6) To reflect the additional tax expense at statutory rates
in connection with the S-Corporation status of Brand
and TCE which was terminated in May 1998............... $ 910 $ 304
</TABLE>

F-80
<PAGE> 130

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

[THE SOURCE INFORMATION MANAGEMENT COMPANY LOGO]
THE SOURCE INFORMATION
MANAGEMENT COMPANY

4,000,000 SHARES

COMMON STOCK
---------------------------

PROSPECTUS
---------------------------
, 1999
CIBC WORLD MARKETS
DONALD & CO. SECURITIES INC.

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
<PAGE> 131

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $15,665
-------
National Association of Securities Dealers, Inc. Fee........ 6,135
-------
Nasdaq National Market Listing Fee.......................... 17,500
-------
Printing Expenses........................................... *
Legal Fees and Expenses..................................... *
Auditors' Fees and Expenses................................. *
Transfer Agent and Registrar Fees........................... *
Miscellaneous Expenses...................................... *
-------
Total....................................................... $ *
=======
</TABLE>

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

* To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 351.355 of the Missouri General and Business Corporation Law and Article
Eight of the Registrant's Bylaws provide for indemnification of the Registrant's
directors, officers and employees in a variety of circumstances, which may
include liabilities under the Securities Act. The Registrant also maintains
directors' and officers' liability insurance.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification by
the Underwriters of the Registrant, each of its directors, each of its officers
who signed the Registration Statement and each person who controls the
Registrant within the meaning of the Securities Act from certain liabilities
under the Securities Act.

The Company has entered into an indemnification agreement with its directors and
certain of its executive officers. The form of indemnity agreement provides that
such persons 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 such person's services as a director or
executive 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, 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.

II-1
<PAGE> 132

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
3.3 Amendment to Articles of Incorporation(2)
3.4 Amendments to Bylaws(2)
3.5 Amendment to Articles of Incorporation(3)
3.6 Amendment to Articles of Incorporation*
4.1 Form of Common Stock Certificate(2)
4.2 Form of Representative's Warrants(2)
4.3 Form of Privately Issued Warrant(2)
5.1 Opinion of Armstrong Teasdale LLP*
5.2 Opinion of Schulte Roth & Zabel LLP*
9.1 Voting Agreement dated January 7, 1999 between S. Leslie
Flegel and Jonathan J. Ledecky.**
10.1 Form of Indemnity Agreement with Officers and Directors(1)
10.2 Lease Agreement dated June 22, 1991 with 711 Gallimore
Partnership(1)
10.3 Addendum to the Lease Agreement, dated as of January 1,
1994, with 711 Gallimore Partnership(3)
10.4 Addendum to the Lease Agreement, dated as of January 1,
1996, with 711 Gallimore Partnership(3)
10.5 Addendum to the Lease Agreement, dated as of April 1, 1996,
with 711 Gallimore Partnership(3)
10.6 Addendum to the Lease Agreement, dated as of April 25, 1996,
with 711 Gallimore Partnership(3)
10.7 Amended and Restated Credit Agreement dated as of March 31,
1999 among The Source Information Management Company, its
subsidiaries and Wachovia Bank National Association**
10.8 The Source Information Management Company Amended and
Restated 1995 Incentive Stock Option Plan*
10.9 The Source Information Management Company Stock Award
Plan(4)
10.10 Form of Employment Agreement with S. Leslie Flegel, William
H. Lee and W. Brian Rodgers(2)
10.11 Employment and Non-Competition Agreement with James R.
Gillis dated as of December 14, 1998*
10.12 Employment Agreement with Richard A. Jacobsen dated as of
March 24, 1999.*
10.13 Agreement with Dwight L. DeGolia(2)
10.14 Form of Financial Consulting Agreement with Donald & Co.
Securities Inc.(2)
10.15 Asset Purchase Agreement dated as of July 10, 1998 by and
among The Source Information Management Company, PC-SUB,
Inc. and Periodical Concepts.(5)
10.16 Agreement and Plan of Merger dated as of January 7, 1999 by
and among The Source Information Management Company,
Source-U.S. Marketing Services, Inc., U.S. Marketing
Services, Inc. and U.S. Marketing Shareholders.(6)
10.17 Asset Purchase Agreement dated as January 7, 1999 by and
among The Source Information Management Company and Yeager
Industries, Inc.(6)
10.18 Asset Purchase Agreement dated as of February 1, 1999 by and
among The Source Information Management Company, Chestnut
Display Systems, Inc. and Chestnut Display Systems (North),
Inc.(7)
10.19 Asset Purchase Agreement dated as of February 26, 1999 by
and among The Source Information Management Company, MYCO,
Inc. and RY, Inc.(7)
</TABLE>

II-2
<PAGE> 133

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20 Amendment to Asset Purchase Agreement dated as of February
26, 1999 by and among The Source Information Management
Company, MYCO, Inc. and RY, Inc.(7)
10.21 Asset Purchase Agreement dated March 19, 1999 between The
Source Information Management Company, The Source-Canada
Corp. and 132127 Canada Inc.*
21.1 Subsidiaries of the Company*
23.1 Consent of BDO Seidman, LLP**
23.2 Consent of BDO Seidman, LLP**
23.3 Consent of BDO Seidman, LLP**
23.4 Consent of Ernst & Young LLP, Independent Auditors**
23.5 Consent of Ernst & Young LLP, Independent Auditors**
23.6 Consent of Armstrong Teasdale LLP (included in Exhibit 5.1)
24.1 Power of Attorney(8)
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

(1) Incorporated by reference to Registration Statement on Form 10-SB (File no.
0-26238)

(2) Incorporated by reference to Registration Statement on Form SB-2 (File no.
333-32733)

(3) Incorporated by reference to Form 10-KSB for the fiscal year ended January
31, 1996

(4) Incorporated by reference to Form S-8 (File no. 333-16059) filed on November
13, 1996.

(5) Incorporated by reference to Current Report on Form 8-K filed on August 10,
1998.

(6) Incorporated by reference to Current Report on Form 8-K filed on January 22,
1999

(7) Incorporated by reference to Current Report on Form 8-K filed on March 12,
1999

(8) This exhibit is contained on the signature page hereof.

(B) FINANCIAL STATEMENT SCHEDULES.

None.

ITEM 17. UNDERTAKINGS.

A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

B. The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act of 1933, the exhibit omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this Registration Statement as of the time it
was declared effective.

II-3
<PAGE> 134

(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-4
<PAGE> 135

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of St. Louis and State of Missouri on the 23rd day of
April, 1999.

THE SOURCE INFORMATION MANAGEMENT
COMPANY

By: /s/ S. LESLIE FLEGEL
-----------------------------------
S. Leslie Flegel
Chairman of the Board
and Chief Executive Officer

Each person whose signature appears below constitutes and appoints S. Leslie
Flegel and W. Brian Rodgers his true and lawful attorneys-in-fact and agents,
each acting alone, with full powers of substitution and re-substitution for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to sign a Registration Statement pursuant to Section 462(b) of the
Securities Act, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ S. LESLIE FLEGEL Chairman of the Board, Chief Executive April 23, 1999
- --------------------------------------------- Officer and Director (Principal
S. Leslie Flegel Executive Officer)

/s/ W. BRIAN RODGERS Assistant Secretary, Chief Financial April 23, 1999
- --------------------------------------------- Officer (Principal Financial Officer
W. Brian Rodgers and Principal Accounting Officer)

/s/ RICHARD A. JACOBSEN Vice Chairman, Chief Operating Officer April 23, 1999
- --------------------------------------------- and Director
Richard A. Jacobsen

/s/ WILLIAM H. LEE Chief Administrative Officer, Chairman April 23, 1999
- --------------------------------------------- of the Executive Committee and Director
William H. Lee

/s/ ROBERT ADERS Director April 23, 1999
- ---------------------------------------------
Robert Aders
</TABLE>

II-5
<PAGE> 136

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TIMOTHY A. BRASWELL Director April 23, 1999
- ---------------------------------------------
Timothy A. Braswell

/s/ HARRY L. FRANC, III Director April 23, 1999
- ---------------------------------------------
Harry L. Franc, III

/s/ ARON KATZMAN Director April 23, 1999
- ---------------------------------------------
Aron Katzman

/s/ RANDALL S. MINIX Director April 23, 1999
- ---------------------------------------------
Randall S. Minix
</TABLE>

II-6
<PAGE> 137

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20 Amendment to Asset Purchase Agreement dated as of February
26, 1999 by and among TheSource Information Management
Company, MYCO, Inc. and RY, Inc.(7)
10.21 Asset Purchase Agreement dated March 19, 1999 between The
Source Information Management Company, The Source-Canada
Corp. and 132127 Canada Inc.
21.1 Subsidiaries of the Company*
23.1 Consent of BDO Seidman, LLP**
23.2 Consent of BDO Seidman, LLP**
23.3 Consent of BDO Seidman, LLP**
23.4 Consent of Ernst & Young LLP, Independent Auditors**
23.5 Consent of Ernst & Young LLP, Independent Auditors**
23.6 Consent of Armstrong Teasdale LLP (included in Exhibit 5.1)
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

(1) Incorporated by reference to Registration Statement on Form 10-SB (File no.
0-26238)

(2) Incorporated by reference to Registration Statement on Form SB-2 (File no.
333-32733)

(3) Incorporated by reference to Form 10-KSB for the fiscal year ended January
31, 1996

(4) Incorporated by reference to Form S-8 (File no. 333-16059) filed on November
13, 1996.

(5) Incorporated by reference to Current Report on Form 8-K filed on August 10,
1998.

(6) Incorporated by reference to Current Report on Form 8-K filed on January 22,
1999

(7) Incorporated by reference to Current Report on Form 8-K filed on March 12,
1999

(8) This exhibit is contained on the signature page hereof.

<PAGE> 1
EXHIBIT 9.1

VOTING AGREEMENT

This Voting Agreement (the "Agreement") is entered into by and between S.
Leslie Flegel ("Flegel") and Jonathan J. Ledecky ("Ledecky") as of January 7,
1999.

RECITALS

WHEREAS, Flegel is the CEO & Chairman and the owner of certain shares of
the common stock, $0.1 par value per share (the "Common Stock"), of The Source
Information Management Company, a Missouri corporation (the "Corporation"), and

WHEREAS, as of the date hereof, the Corporation has effectuated a merger
of U.S. Marketing Services, Inc., a Delaware corporation ("Target"), with and
into Source - U.S. Marketing Co., a Missouri corporation and a wholly-owned
subsidiary of the Corporation ("S-US"), pursuant to an Agreement and Plan of
Merger among the Corporation, Target, S-US, Ledecky, James R. Gillis and Monte
Weiner dated as of January 7, 1999 (the "Merger Agreement"); and

WHEREAS, in connection with the Merger Agreement, the Corporation issued
1,779,383 shares of Common Stock and 1,360,617 shares of Series A Convertible
Preferred Stock, $.01 par value per share (the "Preferred Stock") to Ledecky;
and

WHEREAS, the Merger Agreement requires Flegel and Ledecky to enter into an
agreement pursuant to which Ledecky will vote his Common Stock in the same
manner as Flegel on certain matters.

NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions set forth herein, the receipt and sufficiency of which are
acknowledged by the parties hereto, the parties agree to the following.

1. Voting Agreement.

(a) Ledecky agrees to vote any and all of his shares of Common
Stock, whether now owned or hereafter acquired, in the same manner as Flegel
on matters pertaining to the election of directors of the Corporation; the
ratification of the Corporation's auditors; composition of senior management;
financings; stock bonus, option or incentive plans or programs for
<PAGE> 2
employees and consultants of the Corporation and amendments thereto; the
amendment of the Articles of Incorporation of the Corporation to increase the
authorized capital of the Corporation; and similar matters pertaining to the
day-to-day operations of the Corporation.

(b) Such agreement specifically excludes matters pertaining to
fundamental changes in the Corporation, including, but not limited to, mergers,
acquisitions requiring shareholder approval, tender offers, sales of all or
substantially all of the assets of the Corporation, changes in control of the
Corporation, and the issuance of capital stock of the Corporation requiring
shareholder approval.

2. Irrevocable Proxy. In order to insure the voting of Ledecky in
accordance with this Agreement, Ledecky agrees to execute an irrevocable proxy,
at or prior to each meeting of shareholders called for the purpose of
considering the matters specified in ss.1(a) hereof, in the form of Exhibit A
attached hereto and made a part hereof granting to Flegel the right to vote, or
to execute and deliver stockholder written consents, in respect of all of the
Common Stock now owned or hereafter acquired (including Common Stock received
upon the conversion of the Preferred Stock) by Ledecky.

3. Changes in Common Stock. In the event that subsequent to the date of
this Agreement any shares or other securities of the Corporation are issued on,
or in exchange for, the Common Stock of the Corporation held by Ledecky by
reason of any stock dividend, stock split, consolidation of shares or
reclassification, such Common Stock or securities shall be deemed to be covered
by the terms of this Agreement.

4. Representations of Ledecky. Ledecky hereby represents and warrants
to Flegel that (a) he was the record owner as of the date hereof of the Common
Stock and the Preferred stock stated in the recitals above and has the right to
vote the number of shares of Common Stock stated in the recitals above, (b) he
has full power to enter into this Agreement and has not, prior to the date of
this Agreement, executed or delivered any proxy or entered into any other
voting agreement or similar arrangement other than one which has expired or
terminated prior to the date hereof or which is superseded by this Irrevocable
Proxy, and (c) he will not take any action inconsistent with the purpose and
provisions of this Agreement.

5. Enforceability. Ledecky expressly agrees that this Agreement shall
be specifically enforceable in any court of competent jurisdiction in
accordance with its terms.

6. Termination. This Agreement shall terminate and be void and of no
effect upon the earliest of the following to occur: (a) the second anniversary
of this Agreement, (b) Ledecky and his permitted transferees under Registration
Rights Agreement by and among the Corporation, Ledecky, James R. Gillis and
Monte Weiner of even date hereof beneficially owning less than ten percent of
the issued and outstanding capital stock of the Corporation, or (c) the removal
or resignation of Flegel from either of his positions as Chief Executive
Officer and as Chairman of the Board of Directors of the Corporation.

7. Proxy Holder. Flegel hereby agrees to act as proxy for Ledecky
subject to the terms and conditions set forth herein.

-2-
<PAGE> 3
8. General Provisions.

(a) All of the covenants and agreements contained in this Agreement
shall be binding upon, and enure to the benefit of, the respective parties and
their successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.

(b) This Agreement and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of Missouri.

(c) The Agreement shall be executed in one or more counterparts
(including by facsimile transmission) each of which will be deemed an original
but all of which together shall constitute one and the same instrument.

(d) If any provision of this Agreement shall be declared void or
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of this
Agreement and this Agreement shall continue in all respects to be valid and
enforceable.

(e) No waivers of any breach of this Agreement extended by any party
hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.

(f) Whenever the context of this Agreement shall so require, the use
of the singular number shall include the plural and the use of any gender shall
include all genders.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

/s/ Jonathan J. Ledecky /s/ S. Leslie Flegel
- ----------------------- ---------------------
Jonathan J. Ledecky S. Leslie Flegel

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<PAGE> 1

TABLE OF CONTENTS

[Not a part of the Agreement]
<TABLE>

<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................1
SECTION 1.01. Definitions...............................................................................1
SECTION 1.02. Accounting Terms and Determinations......................................................17
SECTION 1.03. Use of Defined Terms.....................................................................17
SECTION 1.04. Terminology..............................................................................17

ARTICLE IIA. THE REVOLVING CREDIT LOAN..........................................................................18
SECTION 2A.01. Revolving Credit Commitment.............................................................18
SECTION 2A.02. Method of Borrowing.....................................................................18
SECTION 2A.03. Revolving Credit Note...................................................................18
SECTION 2A.04. Payment of Advances.....................................................................18
SECTION 2A.05. Interest Rates..........................................................................19
SECTION 2A.06. Facility Fee............................................................................19
SECTION 2A.07. Optional Termination or Reduction of Revolving Credit Commitment
..............................................................................................19
SECTION 2A.08. Termination of Revolving Credit Commitment..............................................20
SECTION 2A.09. Optional Prepayments....................................................................20
SECTION 2A.10. Mandatory Prepayments...................................................................20

ARTICLE IIB. THE TERM LOAN......................................................................................21
SECTION 2B.01. The Term Loan...........................................................................21
SECTION 2B.02. Term Loan Note..........................................................................21
SECTION 2B.03. Selection of Interest Periods...........................................................21
SECTION 2B.04. Interest Rates..........................................................................21
SECTION 2B.05. Payment of Principal and Interest.......................................................22
SECTION 2B.06. Prepayment..............................................................................22

ARTICLE IIC. GENERAL PROVISIONS CONCERNING PAYMENTS AND FEES....................................................23
SECTION 2C.01. General Provisions Concerning Payments..................................................23
SECTION 2C.02. Computation of Interest.................................................................24

ARTICLE III. CHANGE IN CIRCUMSTANCES; COMPENSATION..............................................................24
SECTION 3.01. Basis for Determining Interest Rate Inadequate or Unfair.................................24
SECTION 3.02. Illegality...............................................................................25
SECTION 3.03. Increased Cost and Reduced Return........................................................25
SECTION 3.04. Base Rate Loans Substituted for Affected Euro-Dollar Loans...............................26
SECTION 3.05. Compensation.............................................................................27

ARTICLE IV. CONDITIONS PRECEDENT................................................................................27
SECTION 4.01. Conditions to First Borrowing............................................................27
</TABLE>

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<PAGE> 2

<TABLE>

<S> <C>
SECTION 4.02. Conditions to All Loans or Advances......................................................29

ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................................30
SECTION 5.01. Corporate Existence and Power............................................................30
SECTION 5.02. Corporate and Governmental Authorization; No Contravention...............................30
SECTION 5.03. Binding Effect...........................................................................30
SECTION 5.04. Financial Information....................................................................30
SECTION 5.05. Litigation...............................................................................31
SECTION 5.06. Compliance with ERISA....................................................................31
SECTION 5.07. Taxes....................................................................................31
SECTION 5.08. Subsidiaries.............................................................................31
SECTION 5.09. Not an Investment Company................................................................32
SECTION 5.10. Public Utility Holding Company Act.......................................................32
SECTION 5.11. Ownership of Property; Liens.............................................................32
SECTION 5.12. No Default...............................................................................32
SECTION 5.13. Full Disclosure..........................................................................32
SECTION 5.14. Environmental Matters...................................................................32
SECTION 5.15. Compliance with Laws.....................................................................33
SECTION 5.16. Capital Stock............................................................................33
SECTION 5.17. Margin Stock.............................................................................33
SECTION 5.18. Insolvency...............................................................................33
SECTION 5.19. Insurance................................................................................33
SECTION 5.20. Year 2000................................................................................33

ARTICLE VI. COVENANTS...........................................................................................34
SECTION 6.01. Information..............................................................................34
SECTION 6.02. Inspection of Property, Books and Records................................................35
SECTION 6.03. Consolidated Fixed Charges Coverage Ratio................................................36
SECTION 6.04. Ratio Funded Debt to Consolidated EBITDA.................................................36
SECTION 6.05. Ratio of Funded Debt to Consolidated Total Capitalization................................36
SECTION 6.06. Minimum Consolidated Tangible Net Worth..................................................36
SECTION 6.07. Accounts Receivable......................................................................36
SECTION 6.08. Capital Expenditures.....................................................................36
SECTION 6.09. Restricted Payments......................................................................36
SECTION 6.10. Loans or Advances........................................................................36
SECTION 6.11. Investments..............................................................................37
SECTION 6.12. Negative Pledge..........................................................................37
SECTION 6.13. Maintenance of Existence.................................................................37
SECTION 6.14. Dissolution..............................................................................37
SECTION 6.15. Consolidations, Mergers and Sales of Assets..............................................37
SECTION 6.16. Use of Proceeds..........................................................................38
SECTION 6.17. Compliance with Laws; Payment of Taxes...................................................38
SECTION 6.18. Insurance................................................................................38
SECTION 6.19. Change in Fiscal Year....................................................................39
SECTION 6.20. Maintenance of Property..................................................................39
SECTION 6.21. Environmental Notices....................................................................39
</TABLE>

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<PAGE> 3

<TABLE>

<S> <C>
SECTION 6.22. Environmental Matters....................................................................39
---------------------
SECTION 6.23. Environmental Release....................................................................39
---------------------
SECTION 6.24. Transactions with Affiliates.............................................................39
----------------------------
SECTION 6.25. Collateral...............................................................................40
----------
SECTION 6.26. Interest Rate Protection.................................................................40
------------------------
SECTION 6.27. Creation, Formation or Acquisition of a Subsidiary.......................................40
--------------------------------------------------
SECTION 6.28. Y2K......................................................................................41
---
SECTION 6.29. New Mortgages............................................................................41
-------------
SECTION 6.30. Inactive Subsidiaries....................................................................41
---------------------

ARTICLE VII. DEFAULTS...........................................................................................41
SECTION 7.01. Events of Default........................................................................41
SECTION 7.02. Remedies on Default......................................................................44
SECTION 7.03. Security Interest; Offset................................................................44

ARTICLE VIII. MISCELLANEOUS.....................................................................................44
SECTION 8.01. Notices..................................................................................44
SECTION 8.02. No Waivers...............................................................................45
SECTION 8.03. Expenses; Documentary Taxes; Indemnification.............................................45
SECTION 8.04. Amendments and Waivers...................................................................46
SECTION 8.05. Successors and Assigns...................................................................46
SECTION 8.06. Confidentiality..........................................................................48
SECTION 8.07. Interest Limitation......................................................................48
SECTION 8.08. Survival of Certain Obligations..........................................................48
SECTION 8.09. Governing Law............................................................................48
SECTION 8.10. Counterparts.............................................................................48
SECTION 8.11. Consent to Jurisdiction..................................................................48
SECTION 8.12. Joint and Several Liability..............................................................49
SECTION 8.13. Severability.............................................................................51
SECTION 8.14. Captions.................................................................................51
</TABLE>

EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Term Loan Note
EXHIBIT C Form of Opinion of Counsel for the Borrowers
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Closing Certificate
EXHIBIT F Form of Officer's Certificate
EXHIBIT G Form of Receivables Certification
EXHIBIT H Location of Collateral
EXHIBIT I Form of Compliance Certificate
EXHIBIT J Description of Illinois Property
EXHIBIT K Description of Pennsylvania Real Property
EXHIBIT L Form of Joinder Agreement

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<PAGE> 4

Schedule 1.01 Definitions
Schedule 5.05 Litigation Disclosure
Schedule 5.07 Taxes Disclosure
Schedule 5.08 List of Subsidiaries
Schedule 5.11 Liens;List of Patents, Trade Names, Trademarks and Applications
Schedule 5.14 Environmental Matters
Schedule 6.10 Parameters/Criteria for Richard Jacobsen Loan
Schedule 6.30 Inactive Subsidiaries

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<PAGE> 5

CREDIT AGREEMENT

THIS CREDIT AGREEMENT, made as of the 31st day of March,
1999, by and among THE SOURCE INFORMATION MANAGEMENT COMPANY, a Missouri
corporation (the "Parent Company"), SOURCE-MYCO, INC., a Delaware corporation
("Myco"), SOURCE- YEAGER INDUSTRIES, INC., a Delaware corporation ("Yeager"),
SOURCE-U.S. MARKETING SERVICES, INC.,a Delaware corporation ("Marketing"),
SOURCE-CHESTNUT DISPLAY SYSTEMS, INC., a Delaware corporation ("Chestnut"), THE
SOURCE-CANADA CORP., an Ontario, Canada corporation ("Canada Corp."), T.C.E.
CORPORATION, a Delaware corporation ("T.C.E. Corp."), BRAND MANUFACTURING CORP.,
a New York corporation ("Brand"), and VAIL COMPANIES, INC., a Delaware
corporation ("Vail" -- hereinafter, the Parent Company, Myco, Yeager, Marketing,
Chestnut, Canada Corp., T.C.E. Corp., Brand, and Vail are sometimes individually
referred to as a "Borrower" and collectively as the "Borrowers"); and WACHOVIA
BANK, NATIONAL ASSOCIATION (together with endorsees, successors and assigns, the
"Bank").

BACKGROUND

The Borrowers have requested the Bank to make (i) a revolving
credit loan to the Borrowers in the aggregate maximum principal amount at any
time outstanding of $15,000,000, and (ii) a term loan to the Borrowers in the
principal amount of $15,000,000, and the Bank is willing to do so on the terms
and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the
promises herein contained, and each intending to be legally bound hereby, the
parties agree as follows:

ARTICLE I. DEFINITIONS

SECTION 1.01. Definitions. The terms as defined in this
Section 1.01 shall, for all purposes of this Agreement and any amendment hereto
(except as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein:

"Accounts," "Chattel Paper," "Contracts," "Contract Rights,"
"Documents," "Equipment," "General Intangibles," "Goods," "Instruments,"
"Fixtures," and "Inventory" shall have the same respective meanings as are given
to those terms in the Uniform Commercial Code of North Carolina.

"Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the
applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00
minus the Euro-Dollar Reserve Percentage.

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<PAGE> 6

"Adjusted Monthly LIBOR Index Rate" means a rate per annum
(rounded upward, if necessary, to the next higher 1/10,000th of 1%) determined
by the Bank pursuant to the following formula:

Adjusted Monthly LIBOR = Monthly Libor Index Rate + Applicable Margin for
Index Rate ------------------------------------ Euro-Dollar Loans
1.0 - Euro-Dollar Reserve Percentage

"Advance" means any advance by the Bank under the Revolving
Credit Commitment made under the terms and provisions of this Agreement and the
FMA Agreement.

"Affiliate" of any Person means (i) any other Person which
directly, or indirectly through one or more intermediaries, controls such
Person, (ii) any other Person which directly, or indirectly through one or more
intermediaries, is controlled by or is under common control with such Person, or
(iii) any other Person of which such Person owns, directly or indirectly, 20% or
more of the common stock or equivalent equity interests. As used herein, the
term "control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

"Agreement" means this Credit Agreement, as amended, restated,
supplemented, modified and extended from time to time.

"Applicable Margin" means, for any Base Rate Loan for any day
and for any Euro-Dollar Loan and any Letter of Credit Fee, (i) a positive number
equal to 0.25% for Base Rate Loans and a positive number equal to 2.50% for
Euro-Dollar Loans from the Closing Date through April 30, 1999, and thereafter,
(ii) a positive number equal to the percentages set forth below during the
Borrowers' fiscal periods that the ratio of Funded Debt to EBITDA, based upon
the financial information submitted to the Bank pursuant to Section 6.01, is as
follows:

Ratio of Funded Applicable Margin Applicable Margin Applicable Margin
Debt to EBITDA for Base Rate Loans for Euro-Dollar Loans Letter of Credit Fee
- -------------- ------------------- --------------------- --------------------

"Approved Appraised Value" means an appraised value approved
by the Bank and set by the Bank prior to or not less than 30 days after the
Closing Date based upon an appraisal satisfactory to the Bank prepared by an
appraiser satisfactory to the Bank (which appraisal must be submitted to and
approved by the Bank prior to or not less than 30 days after the Closing Date).
Once the Approved Appraised Value is determined and set by the Bank, it shall
not change during the term of the Loans.

"Assignee" has the meaning set forth in Section 8.05(c).

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<PAGE> 7

"Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 8.05(c) in the form attached hereto as
Exhibit D.

"Authority" has the meaning set forth in Section 3.02.

"Base Rate" means for any Base Rate Loan for any day, the rate
per annum equal to the higher as of such day of (i) the Prime Rate, and (ii)
one-half of one percent above the Federal Funds Rate for such day. For purposes
of determining the Base Rate for any day, changes in the Prime Rate shall be
effective on the date of each such change.

"Base Rate Loan" means the Term Loan or the Revolving Credit
Loan at the times and during the periods such Loan bears interest calculated by
reference to the Base Rate.

"Borrowers" means those Borrowers identified on the first page
of this Agreement and any Borrowers added by the Joinder Agreement attached
hereto as Exhibit L and pursuant to the provisions of Section 6.27 of this
Agreement.

"Borrowing" means a borrowing under the Revolving Credit
Commitment consisting of an Advance by the Bank. A Borrowing is a "Euro-Dollar
Borrowing" if the Advance is made as a Euro-Dollar Loan and a "Base Rate
Borrowing" if the Advance is made as a Base Rate Loan.

"Borrowing Base" means, based on the most recent Quarterly
Receivables Certification, which as of the date of a determination of the
Borrowing Base has been received by the Bank, the aggregate of: (a) 85% of the
aggregate net amount of Tier I Eligible Receivables; (b) 70% of the aggregate
net amount of Tier II Eligible Receivables; (c) 80% of the Approved Appraised
Value of the Illinois Real Property; and (d) 70% of $3,000,000.00 representing
the agreed upon value of the Equipment Collateral, until such time as an
Approved Appraised Value of the Equipment Collateral has been delivered to the
Bank and approved by the Bank, and thereafter, 70% of the Approved Appraised
Value of the Equipment Collateral; MINUS the sum of (i) the principal amount of
the Term Loan then outstanding, (ii) the Stated Amount (as to the Letter of
Credit), and (iii) $1,000,000.00.

"Capital Expenditures" means for any period the sum of all
amounts paid and all Debt incurred by the Parent Company and its Consolidated
Subsidiaries during such period for the acquisition of any fixed assets or
improvements, replacements, substitutions or additions thereto which have a
useful life of more than one (1) year, including the total principal portion of
Capital Leases, all as determined in accordance with generally accepted
accounting principles consistently applied.

"Capital Leases" means all leases reflected on a consolidated
balance sheet of the Parent Company and its Consolidated Subsidiaries or a lease
that should be so reflected in accordance with generally accepted accounting
principles consistently applied.

"Capital Stock" means any nonredeemable capital stock of the
Parent Company or any Consolidated Subsidiary (to the extent issued to a Person
other than the Parent Company), whether common or preferred.

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<PAGE> 8

"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act.

"CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.

"Change of Law" has the meaning set forth in Section 3.02.

"Closing Certificate" has the meaning set forth in Section
4.01(d).

"Closing Date" means the date of this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended, or
any successor Federal tax code. Any reference to any provision of the Code shall
also be deemed to be a reference to any successor provision or provisions
thereof.

"Collateral" means the Collateral defined and described in the
Security Agreement, together with all Real Property Collateral.

"Collateral Documents" shall mean, collectively, (i) the
Security Agreement; (ii) the FMA Agreement; and (iii) the Mortgages; as any one
or more of the foregoing may be amended, modified, extended, supplemented,
restated, replaced or renewed.

"Commitment" means at any time the sum of (a) the Revolving
Credit Commitment and (b) the principal amount of the Term Loan then
outstanding.

"Compliance Certificate" has the meaning set forth in Section
6.01(c).

"Consolidated Cash Interest Expense" means, for any period,
cash interest (whether expensed or capitalized) in respect of Funded Debt
outstanding during such period, determined on a consolidated basis in accordance
with generally accepted accounting principles consistently applied.

"Consolidated Debt" means at any date the Debt of the Parent
Company and its Consolidated Subsidiaries, determined on a consolidated basis as
of such date.

"Consolidated EBITDA" means, without duplication, for any
fiscal period, as applied to the Parent Company and its Consolidated
Subsidiaries, the sum of the amounts for such fiscal period of: (i) Consolidated
Net Income, (ii) Consolidated Interest Expense, (iii) taxes based on income of
the Parent Company and its Consolidated Subsidiaries and actually paid during
such period, (iv) Depreciation, and (v) amortization expense, all as determined
and computed in accordance with generally accepted accounting principles
consistently applied.

"Consolidated Fixed Charge Coverage Ratio" means, for any
period, the ratio of Consolidated EBITDA for such period to the sum of (without
duplication) during such period of (i)

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<PAGE> 9

Consolidated Cash Interest Expense, plus (ii) regularly scheduled payments of
Funded Debt maturing during such period, plus (iii) Capital Expenditures.

"Consolidated Interest Expense" for any period means interest,
whether expensed or capitalized, in respect of Debt of the Parent Company or any
of its Consolidated Subsidiaries outstanding during such period.

"Consolidated Operating Profits" means, for any period, the
Operating Profits of the Parent Company and its Consolidated Subsidiaries.

"Consolidated Net Income" means, for any period, the Net
Income of the Parent Company and its Consolidated Subsidiaries determined on a
consolidated basis, but excluding (i) extraordinary items and (ii) any equity
interests of the Parent Company or any Subsidiary in the unremitted earnings of
any Person that is not a Subsidiary.

"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which, in accordance with generally accepted
accounting principles consistently applied, would be consolidated with those of
the Parent Company in its consolidated financial statements as of such date.

"Consolidated Tangible Net Worth" means, at any time,
Stockholders' Equity, less the sum of the value, as set forth or reflected on
the most recent consolidated balance sheet of the Parent Company and its
Consolidated Subsidiaries, prepared in accordance with generally accepted
accounting principles consistently applied, of

(A) Any surplus resulting from any write-up of assets
subsequent to January 31, 1999;

(B) All assets which would be treated as intangibles under
generally accepted accounting principles, including without limitation
goodwill (whether representing the excess of cost over book value of
assets acquired, or otherwise, with the exception of goodwill generated
from any transaction occurring after November 14, 1996, which is
approved in writing by the Bank), trademarks, trade names, copyrights,
patents and technologies, and unamortized debt discount and expense;

(C) To the extent not included in (B) of this definition, any
amount at which shares of capital stock of the Parent Company appear as
an asset on the consolidated balance sheet of the Parent Company and
its Consolidated Subsidiaries;

(D) Loans or advances to stockholders, directors, officers or
employees; and

(E) To the extent not included in (B) of this definition,
deferred expenses.

"Consolidated Total Assets" means, at any time, the total
assets of the Parent Company and its Consolidated Subsidiaries, determined on a
consolidated basis, as set forth or reflected on the

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<PAGE> 10

most recent consolidated balance sheet of the Parent Company and its
Consolidated Subsidiaries, prepared in accordance with generally accepted
accounting principles consistently applied.

"Consolidated Total Capitalization" means, at any time, the
sum of (i) Stockholders' Equity, and (ii) Consolidated Debt, as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.

"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Parent Company, are treated as a single
employer under Section 414 of the Code.

"Convertible Preferred Stock" of any Person means any
nonredeemable preferred stock issued by such Person which is at any time prior
to the Termination Date or the Maturity Date, whichever occurs later,
convertible to Capital Stock at the option of the holder thereof.

"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee under Capital
Leases, (v) all obligations of such Person to reimburse any bank or other Person
in respect of amounts payable under a banker's acceptance, (vi) all Redeemable
Preferred Stock of such Person (in the event such Person is a corporation),
(vii) all obligations of such Person to reimburse any bank or other Person in
respect of amounts paid under a letter of credit or similar instrument, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such
Person, and (x) all obligations of such Person with respect to interest rate
protection agreements, foreign currency exchange agreements or other hedging
agreements (valued as the termination value thereof computed in accordance with
a method approved by the International Swap Dealers Association and agreed to by
such Person in the applicable hedging agreement, if any).

"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

"Default Rate" means (i) with respect to any Advance, on any
day, the sum of 2% plus the higher of (x) the Adjusted Monthly LIBOR Index Rate,
or (y) the Base Rate plus the Applicable Margin; and (ii) with respect to the
Term Loan, on any day, the sum of 2% plus the higher of (a) the Adjusted London
Interbank Offered Rate plus the Applicable Margin, or (b) the Base Rate plus the
Applicable Margin.

"Depreciation" means for any period the sum of all
depreciation expenses of the Parent Company and its Consolidated Subsidiaries
for such period, as determined in accordance with generally accepted accounting
principles consistently applied.

"Dollars" or "$" means dollars in lawful currency of the
United States of America.

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<PAGE> 11

"Domestic Business Day" means any day on which the Bank is
open to the public for the conduct of banking business at its principal office
in Winston-Salem, North Carolina.

"Eligible Receivables" means those Receivables of a Borrower,
each of which meets the following requirements: (i) such Receivable arose in the
ordinary course of such Borrower's business; (ii) the right to payment has been
fully earned by completed performance and, if Goods are involved, the Goods have
been shipped by the Borrower (or if not so shipped, are held by the Borrower
under a "bill and hold" arrangement satisfactory to the Bank in its sole
discretion); (iii) the Receivable includes only that portion thereof not subject
to any offset, defense, counterclaim, credit, allowance or adjustment; (iv) the
Borrower's title to such Receivable is absolute and is subject to no prior
assignment, claim, lien or security interest; (v) the full amount reflected on
such Borrower's books and on any invoice or statement delivered to the Bank
related to such Receivable is owing to the Borrower and no partial payment has
been made thereon; (vi) such Receivable is currently due and payable and is not
past due beyond the requirements set forth in the definitions for Tier I and
Tier II Eligible Receivables; (vii) such Receivable did not arise out of a
contract or purchase order containing provisions prohibiting assignment thereof
or the creation of a security interest therein, and the Borrower has received no
note, trade acceptance, draft or other instrument with respect to such
Receivable or in payment thereof; (viii) the Borrower has received no notice of
the death of the account debtor or of the dissolution, termination of existence,
insolvency, bankruptcy, appointment of receiver for any part of the property of,
or assignment for the benefit of creditors made by, the account debtor; (ix)
such Receivable is not payable by any Affiliate of the Parent Company, any other
Borrower or any Subsidiary; (x) such Receivable is not payable by any foreign
Person (provided that Persons located in Canada and Persons present in
possessions of the United States of America shall not be considered foreign
Persons), unless such Receivable is payable in the full amount of the face value
of such Receivable in United States dollars and is supported by an irrevocable
letter of credit in form and substance acceptable to the Bank, in its sole
discretion, and issued by a bank satisfactory to the Bank, in its sole
discretion (and, if requested by the Bank, such letter of credit or the proceeds
thereof, as the Bank, in its sole discretion, shall require, have been assigned
to the Bank); (xi) such Receivable is not payable by the United States of
America or any political subdivision or agency thereof, unless the Bank and all
of the Borrowers have complied with the Assignment of Claims Act with respect to
such Receivable; (xii) the account debtor for such Receivable is not located in
the State of New Jersey unless the Borrowers have filed a Notice of Business
Activities Report with the New Jersey Division of Taxation for the then current
year; and (xiii) such Receivable is not payable by any Person who is the account
debtor for other Receivables and who is past due (as provided in (vi) above)
with regard to fifty percent (50%) or more of the aggregate amount of such other
Receivables.

"Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites for
conducting the business of the Borrowers required by any Environmental
Requirement.

"Environmental Authority" means any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement.

"Environmental Judgments and Orders" means all judgments,
decrees or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon

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<PAGE> 12

consent or written agreements with an Environmental Authority or other entity
arising from or in any way associated with any Environmental Requirement,
whether or not incorporated in a judgment, decree or order.

"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
groundwater or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.

"Environmental Liabilities" means any liabilities, whether
accrued, contingent or otherwise, arising from and in any way associated with
any Environmental Requirement.

"Environmental Notices" means notice from any Environmental
Authority or by any other person or entity, of possible or alleged noncompliance
with any Environmental Requirement, including without limitation any complaints,
citations, demands or requests from any Environmental Authority or from any
other person or entity for correction of any violation of any Environmental
Requirement or any investigations concerning any violation of any Environmental
Requirement.

"Environmental Proceedings" means any judicial or
administrative proceedings arising from or in any way associated with any
Environmental Requirement.

"Environmental Releases" means releases as defined in CERCLA
or under any applicable state or local environmental law or regulation.

"Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Borrowers,
any Subsidiary or the Properties, including but not limited to any such
requirement under CERCLA or similar state legislation and all federal, state and
local laws, ordinances, regulations, orders, writs, decrees and common law.

"Equipment Collateral" means the equipment and fixtures
(excluding fixtures which constitute part of the Illinois Real Property) owned
by the Borrowers as of the Closing Date and used in the Borrowers' respective
businesses, including machinery, furniture, furnishings, leasehold improvements
and computer equipment (but excluding motor vehicles), all of which the Bank has
a perfected first priority security interest in and lien upon at the time of the
Closing Date and thereafter during the term of the Loans.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law, including any rules or
regulations promulgated thereunder. Any reference to any provision of ERISA
shall also be deemed to be a reference to any successor provision or provisions
thereof.

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<PAGE> 13

"Euro-Dollar Business Day" means any Domestic Business Day on
which dealings in Dollar deposits are carried out in the London interbank
market.

"Euro-Dollar Loan" means (i) the Term Loan at the times and
during the periods such Loan bears interest calculated by reference to the
Adjusted London Interbank Offered Rate, and (ii) an Advance made or to be made
(pursuant to this Agreement and the FMA Agreement) as a Euro-Dollar Loan based
on the Adjusted Monthly LIBOR Index Rate.

"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of the Bank to United States residents). The Adjusted
Monthly LIBOR Index Rate and the Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.

"Event of Default" has the meaning set forth in Section 7.01.

"Facility Fee" shall have the meaning assigned to it in
Section 2A.06.

"Facility Fee Payment Date" means the first day of each May,
August, November and February, commencing May 1, 1999; provided that if any such
day is not a Domestic Business Day, the Facility Fee Payment Date shall be on
the next succeeding Domestic Business Day.

"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if the day for which
such rate is to be determined is not a Domestic Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Domestic Business Day as so published on the next succeeding Domestic Business
Day, and (ii) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to Wachovia on such day on
such transactions.

"Fiscal Quarter" means any fiscal quarter of the Borrowers.

"Fiscal Year" means any fiscal year of the Borrowers.

"FMA Agreement" means that certain Financial Management
Account Master Agreement dated of even date herewith, among the Borrowers and
the Bank, together with and as amended by that certain Financial Management
Account Investment/Commercial Loan Access Agreement dated of even date herewith,
among the Borrowers and the Bank, together with all supplements, amendments,
additions and schedules thereto from time to time.

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<PAGE> 14

"Funded Debt" means, at any date, any Debt of the Parent
Company and its Consolidated Subsidiaries.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to provide collateral security, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

"Guaranty" shall mean that certain Guaranty Agreement executed
by the Borrowers (other than the Parent Company) with respect to the
indebtedness of the Parent Company to the Lender under the Master Agreement.

"Hazardous Materials" includes, without limitation, (a) solid
or hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, or in any applicable state or local law or regulation, (b) any "hazardous
substance", "pollutant" or "contaminant", as defined in CERCLA, or in any
applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including crude oil or any fraction thereof,
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or
in any applicable state or local law or regulation and (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time to
time.

"Illinois Real Property" means the real property and the
improvements and fixtures located thereon, owned, as of the Closing Date, by
Myco and located in Winnebago County, Illinois, and which is covered by and
subject to a Mortgage in favor of the Bank, and is more particularly described
on Exhibit J hereto.

"Interest Period" means the period described in Section
2B.03(a) and: (1) with respect to any time the Term Loan is a Euro-Dollar Loan,
the period commencing on the last day of the preceding Interest Period, in the
event that the Borrowers have notified the Bank pursuant to Section 2B.03(b)
that the Term Loan is to become or remain a Euro-Dollar Loan, and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Borrowers may elect pursuant to Section 2B.03(b);
provided that:

(a) any Interest Period (other than an Interest Period
determined pursuant to clause (c) below) which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar Business
Day;

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<PAGE> 15

(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall, subject to clause (c) below, end on the last Euro-Dollar
Business Day of the appropriate subsequent calendar month; and

(c) any Interest Period which begins before the Maturity Date
and would otherwise end after the Maturity Date shall end on the
Maturity Date; and

(2) with respect to any time the Term Loan is a Base Rate Loan, the period
commencing on the last day of the preceding Interest Period, in the event that
the Borrowers have notified the Bank pursuant to Section 2B.03(b) that the Term
Loan is to become or remain a Base Rate Loan or on the date the Term Loan is
converted to or otherwise becomes a Base Rate Loan pursuant to this Agreement,
and in any event ending 30 days thereafter; provided that:

(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a
day which is not a Domestic Business Day shall be extended to the next
succeeding Domestic Business Day; and

(b) any Interest Period which begins before the Maturity Date
and would otherwise end after the Maturity Date shall end on the
Maturity Date.

"Investment" means any investment in any Person, whether by
means of purchase or acquisition of obligations or securities of such Person,
capital contribution to such Person, loan or advance to such Person, making of a
time deposit with such Person, Guarantee or assumption of any obligation of such
Person or otherwise.

"Lending Office" means the Bank's office located at its
address set forth on the signature pages hereof (or identified on the signature
pages hereof as its Lending Office) or such other office as the Bank may
hereafter designate as its Lending Office by notice to the Borrowers.

"Letter of Credit" has the meaning set forth in the
Reimbursement Agreement.

"Letter of Credit Fee" has the meaning set forth in the
Reimbursement Agreement.

"Lien" means, with respect to any asset, any mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, security interest, security
title, or encumbrance of any kind in respect of such asset. For the purposes of
this Agreement, a Borrower shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, Capital Lease or other title retention
agreement relating to such asset.

"Loan" or "Loans" means, individually or collectively as the
context may require, the Term Loan and the Revolving Credit Loan (and for
purposes of the Revolving Credit Loan, the term shall include any Borrowing or
Advance under the Revolving Credit Commitment).

"Loan Documents" means this Agreement, the Notes, the
Collateral Documents, the Reimbursement Agreement, any Master Agreement, the
Guaranty and any other document evidencing,

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<PAGE> 16

relating to or securing the Loans, and any other document or instrument
delivered by any Borrower or by any third party at the direction or request of a
Borrower or by any guarantor or by any third party at the direction or request
of a guarantor, from time to time in connection with this Agreement, the Notes,
the Collateral Documents, the Reimbursement Agreement, the Letter of Credit, the
Term Loan or the Revolving Credit Loan (including any Advance or Borrowing
thereunder), as such documents and instruments may be amended or supplemented
from time to time.

The "London Interbank Offered Rate" applicable to any Loan
bearing interest based upon the Adjusted London Interbank Offered Rate means,
for the Interest Period of such Loan, the rate per annum determined on the basis
of the rate for deposits in Dollars of amounts equal or comparable to the
principal amount of such Loan offered for a term comparable to such Interest
Period, which rate appears on the display designated as Page "3750" of the
Telerate Service (or such other page as may replace page 3750 of that service or
such other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates for
U.S. dollar deposits), determined as of 1:00 p.m. (New York time), 2 Euro-Dollar
Business Days prior to the first day of such Interest Period.

"Long Term Debt" means at any date any Debt which matures (or
the maturity of which may at the option of a Borrower be extended such that it
matures) more than one year after such date.

"Margin Stock" means "margin stock" as defined in Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System, as in
effect from time to time, together with all official rulings and interpretations
issued thereunder.

"Master Agreement" has the meaning set forth in Section
7.01(r).

"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences, whether or not
related, a material adverse change in, or a material adverse effect upon, any of
(a) the financial condition, operations, business, properties or prospects of
the Parent Company and its Consolidated Subsidiaries taken as a whole, (b) the
rights and remedies of the Bank under the Loan Documents, or the ability of any
Borrower or any Subsidiary to perform its obligations under the Loan Documents
to which it is a party, as applicable, or (c) the legality, validity or
enforceability of any Loan Document.

"Maturity Date" means May 1, 2002.

The "Monthly Libor Index Rate" applicable to any Euro-Dollar
Borrowing means the rate per annum designated by the Bank in its sole discretion
on each Rate Determination Date as the Bank's Monthly Libor Index Rate, taking
into account the offered rate for deposits in Dollars for a term of one month,
which appears on the display designated as Page "3750" of the Telerate Service
(or such other page as may replace Page 3750 of that service or such other
service or services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for U.S. dollar
deposits), determined as of 11:00 a.m. (London time), on each such Rate
Determination Date, and such other factors as the Bank shall deem relevant.

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<PAGE> 17

"Mortgages" means, collectively, (i) that certain Mortgage
executed by Myco in favor of the Bank covering the Illinois Real Property and
recorded in the land records of Winnebago County, Illinois and securing this
Agreement, the Loans, the Notes, the Letter of Credit and the Reimbursement
Obligations, and (ii) that certain Mortgage executed by Yeager in favor of the
Bank covering the Pennsylvania Real Property and recorded in the land records of
Philadelphia County, Pennsylvania and securing this Agreement, the Loans, and
the Notes; and (iii) any New Mortgages as referred to in Section 6.29; each as
originally executed and as the same may from time to time be supplemented,
modified, amended, renewed or extended.

"Multiemployer Plan" has the meaning set forth in Section
4001(a)(3) of ERISA.

"Net Income" means, as applied to any Person for any period,
gross revenues and other proper income of such Person during such period less
the aggregate during such period of (i) cost of merchandise sold, (ii) selling,
administrative and general expenses, (iii) taxes, (iv) Depreciation, depletion
and amortization of assets, and (v) any other items that are treated as expenses
under generally accepted accounting principles consistently applied, all as
computed in accordance with generally accepted accounting principles
consistently applied.

"Notes" means, collectively, the Term Loan Note and the
Revolving Credit Note, either as originally executed or as may from time to time
be supplemented, modified, amended, renewed or extended.

"Obligations" means all indebtedness, obligations and
liabilities to the Bank existing on the date of this Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, of the Borrowers under this
Agreement or any other Loan Document.

"Officer's Certificate" has the meaning set forth in Section
4.01.

"Operating Profits" means, as applied to any Person for any
period, the operating income of such Person for such period, as determined in
accordance with generally accepted accounting principles consistently applied.

"Participant" has the meaning set forth in Section 8.05(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

"Pennsylvania Real Property" means the real property and the
improvements and fixtures located thereon, owned, as of the Closing Date, by
Yeager and located in Philadelphia County, Pennsylvania, and which is covered by
and subject to a Mortgage in favor of the Bank, and is more particularly
described on Exhibit K hereto.

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<PAGE> 18

"Permitted Encumbrances" means:

(a) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business that are not yet due and payable;

(b) Pledges or deposits made in the ordinary course of
business to secure payment of workers' compensation, or to participate in any
fund in connection with workers' compensation, unemployment insurance, old-age
pensions or other social security programs;

(c) Liens of mechanics, materialmen, warehousemen, carriers,
or other like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable;

(d) Good faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of twenty percent
(20%) of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;

(e) Liens in favor of the Bank pursuant to the Loan Documents;
and

(f) Any Lien on any equipment of a Borrower securing Debt of
that Borrower incurred for the purpose of financing all of the cost of acquiring
such equipment, provided that (i) such Lien attaches to such equipment
concurrently with the acquisition thereof, and (ii) such Liens (as to all
Borrowers) shall not exceed, in the aggregate, $100,000.00 in any Fiscal Year.

"Person" means any individual, joint venture, corporation,
company, voluntary association, partnership, trust, joint stock company,
unincorporated organization, association, government, or any agency,
instrumentality, or political subdivision thereof, or any other form of entity
or organization.

"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a member
of the Controlled Group for employees of any member of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.

"Prime Rate" means that interest rate so denominated and set
by Wachovia from time to time as an interest rate basis for borrowings. The
Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia
lends at interest rates above and below the Prime Rate. A change in the Prime
Rate shall be effective on the date of such change.

"Properties" means all real property owned, leased or
otherwise used or occupied by the Borrowers, wherever located.

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<PAGE> 19

"Quarterly Receivables Certification" means a certification in
the form attached hereto as Exhibit G and otherwise satisfactory to the Bank,
certified by the chief financial officer or other authorized officer of the
Parent Company regarding the Receivables of the Borrowers.

"Rate Determination Date" means each day that is two
Euro-Dollar Business Days prior to the first day of each calendar month, and if
such day is not a Domestic Business Day, then on the immediately preceding
Domestic Business Day which is also a Euro-Dollar Business Day.

"RDA" has the meaning set forth on Schedule 1.01 attached
hereto.

"RDP" has the meaning set forth on Schedule 1.01 attached
hereto.

"Real Property Collateral" means the Illinois Real Property
and the Pennsylvania Real Property and any other real property added pursuant to
the provisions of Section 6.29.

"Receivables" means all obligations of every kind at any time
owing to a Borrower (whether now existing or hereafter arising, and whether
classified under the Uniform Commercial Code as Accounts, Instruments, Contract
Rights, Chattel Paper, Contracts, General Intangibles, or otherwise), all
proceeds thereof, all security therefor and all of the Borrower's rights to
Goods or other property sold or leased which may be represented thereby.

"Redeemable Preferred Stock" of any Person means any preferred
stock issued by such Person which is at any time prior to the Termination Date
or the Maturity Date, whichever occurs later, either (i) mandatorily redeemable
(by sinking fund or similar payments or otherwise) or (ii) redeemable at the
option of the holder thereof.

"Reimbursement Agreement" means that certain Reimbursement
Agreement dated February 26, 1999 executed by and among the Parent Company,
Myco, and Wachovia.

"Reimbursement Obligations" has the meaning set forth in the
Reimbursement Agreement.

"Reportable Event" has the meaning set forth in Section
4043(b) of Title V of ERISA.

"Reported Net Income" means, for any period, the Net Income of
the Parent Company and its Consolidated Subsidiaries determined on a
consolidated basis.

"Restricted Payment" means as to any Borrower (i) any dividend
or other distribution on any shares of such Borrower's capital stock (except
dividends payable solely in shares of its capital stock) or (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any shares
of such Borrower's capital stock (except shares acquired upon the conversion
thereof into other shares of its capital stock) or (b) any option, warrant or
other right to acquire shares of such Borrower's capital stock.

"Revolving Credit Commitment" means an amount equal to
$15,000,000.00, as such amount may be reduced from time to time as hereinafter
provided in this Agreement.

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<PAGE> 20

"Revolving Credit Loan" has the meaning set forth in Section
2A.01.

"Revolving Credit Note" has the meaning set forth in Section
2A.03.

"Security Agreement" shall have the meaning set forth in
Section 4.01(g).

"Stated Amount" has the meaning set forth in the
Reimbursement Agreement.

"Stockholders' Equity" means, at any time, the shareholders'
equity of the Parent Company and its Consolidated Subsidiaries, as set forth or
reflected on the most recent consolidated balance sheet of the Parent Company
and its Consolidated Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied, but excluding any Redeemable
Preferred Stock of the Parent Company or any of its Consolidated Subsidiaries,
and including any Convertible Preferred Stock of the Parent Company or any of
its Consolidated Subsidiaries. Shareholders' Equity would generally include, but
not be limited to (i) the par or stated value of all outstanding Capital Stock,
(ii) capital surplus, (iii) retained earnings, and (iv) various deductions such
as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables
due from an employee stock ownership plan, (D) employee stock ownership plan
debt guarantees, and (E) translation adjustments for foreign currency
transactions.

"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Parent Company or any other
Borrower.

"Termination Date" has the meaning set forth in Section
2A.07(b).

"Termination Fee" has the meaning set forth in Section
2B.06(c).

"Term Loan" has the meaning set forth in Section 2B.01.

"Term Loan Note" has the meaning set forth in Section 2B.02.

"Third Parties" means all lessees, sublessees, licensees and
other users of the Properties, excluding those users of the Properties in the
ordinary course of the Borrowers' respective businesses and on a temporary
basis.

"Tier I Eligible Receivables" means, as to each of the
Borrowers, those Receivables of such Borrower, each of which meets the following
requirements: (i) such Receivable meets all of the requirements set forth in the
definition of the term "Eligible Receivables", and (ii) such Receivable is
currently due and payable, and no more than 90 days for RDA and 180 days for RDP
have elapsed from the date the claim evidencing such Receivable was filed with
the publisher for payment, or alternatively, no more than 90 days have elapsed
from invoice date, and (iii) such Receivable is not a Tier II Eligible
Receivable.

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<PAGE> 21

"Tier II Eligible Receivables" means, as to each of the
Borrowers, those Receivables of such Borrower, each of which meets the following
requirements: (i) such Receivable meets all of the requirements set forth in the
definition of the term "Eligible Receivables", (ii) such Receivable is not a
Tier I Eligible Receivable, and (iii) such Receivable is currently due and
payable and more than 90 days for RDA and 180 days for RDP have elapsed from the
date the claim evidencing such Receivable was filed with the publisher for
payment, or alternatively, as may be applicable, from invoice date, but no more
than 365 days have elapsed from the date the claim evidencing such Receivable
was filed with the publisher for payment, or alternatively, as may be
applicable, from invoice date.

"Transferee" has the meaning set forth in Section 8.05(d).

"Unused Commitment" means at any date an amount equal to the
Revolving Credit Commitment less the aggregate outstanding principal amount of
the Advances.

"Wachovia" means Wachovia Bank, National Association,
together with its successors.

"Wholly-Owned Subsidiary" means any Subsidiary all of the
shares of capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Parent
Company or any other Borrower.

"Year 2000 Compliant and Ready" as used herein means that (A)
the Borrowers' hardware and software systems with respect to the operation of
their respective businesses and their respective general business plans will in
all material respects: (i) handle date information involving any and all dates
before, during and/or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (ii)
operate, accurately without interruption on and in respect of any and all dates
before, during and/or after January 1, 2000 and without any change in
performance; (iii) store and provide date input information without creating any
ambiguity as to the century and; (B) the Borrowers have developed alternative
plans to ensure business continuity in all material respects in the event of the
failure of any or all of items (i) through (iii) above.

SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles, applied on a basis
consistent (except for changes concurred in by the Borrowers' independent public
accountants) with the most recent audited consolidated financial statements of
the Parent Company and its Consolidated Subsidiaries delivered to the Bank.

SECTION 1.03. Use of Defined Terms. All terms defined in this
Agreement shall have the same meanings when used in any of the other Loan
Documents, unless otherwise defined therein or unless the context shall
otherwise require.

SECTION 1.04. Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural and the plural
shall include the singular. Titles of Articles and Sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of this
Agreement.

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<PAGE> 22

SECTION 1.05. References. Except as otherwise expressly
provided in this Agreement: the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole, including any
Schedules and Exhibits hereto which are a part hereof, and not to any particular
Section, Article, paragraph or other subdivision; "or" is not exclusive; the
words "include," "includes" and "including" are not limiting; a reference to any
agreement or other contract includes past and future permitted supplements,
amendments, modifications and restatements thereto or thereof; a reference to an
Article, Section, paragraph or other subdivision is a reference to an Article,
Section, paragraph or other subdivision of this Agreement; a reference to any
law includes any amendment or modification to such law and any rules and
regulations promulgated thereunder; a reference to a Person includes its
permitted successors and assigns; any right may be exercised at any time and
from time to time; and, except as otherwise expressly provided therein, all
obligations under any agreement or other contract are continuing obligations
throughout the term of such agreement or contract.

ARTICLE IIA. THE REVOLVING CREDIT LOAN

SECTION 2A.01. Revolving Credit Commitment. The Bank agrees,
on the terms and conditions set forth herein and in the FMA Agreement, to make
Advances to the Borrowers from time to time before the Termination Date;
provided that, immediately after each such Advance is made, the aggregate
principal amount of outstanding Advances shall not exceed the lesser of: (i) the
Revolving Credit Commitment, or (ii) the Borrowing Base. Within the foregoing
limits, the Borrowers may borrow under this Section, repay or, to the extent
permitted by Section 2A.09, prepay Advances and reborrow under this Section at
any time before the Termination Date. The Bank shall have no obligation to
advance funds pursuant to this Article or the FMA Agreement in excess of the
lesser of: (i) the Revolving Credit Commitment, or (ii) the Borrowing Base. The
aggregate amount of the Advances from time to time is herein referred to as the
"Revolving Credit Loan".

SECTION 2A.02. Method of Borrowing. (a) Advances to the
Borrowers shall be made in accordance with the Bank's Financial Management
Account service as set forth in the FMA Agreement, the terms and provisions of
which are incorporated herein by reference; provided that all Advances shall be
subject to the terms, covenants, conditions, restrictions and provisions of this
Agreement.

(b) Notwithstanding anything to the contrary contained in
this Agreement or the FMA Agreement, at the Bank's sole option, no Advance may
be made if there shall have occurred a Default or an Event of Default, which
Default or Event of Default shall not have been cured or waived.

SECTION 2A.03. Revolving Credit Note. The Advances shall be
evidenced by a single note (the "Revolving Credit Note") payable to the order of
the Bank for the account of its Lending Office in an amount equal to the
original principal amount of the Bank's Revolving Credit Commitment; the
Revolving Credit Note shall be in the form of Exhibit A hereto, with appropriate
insertions, payable to the order of the Bank and dated the Closing Date. The
Revolving Credit Note shall bear interest and be repaid in accordance with the
terms and provisions of the FMA Agreement and this Agreement.

SECTION 2A.04. Payment of Advances. The principal amount of
all outstanding Advances together with all accrued and unpaid interest thereon,
shall be due and payable in full, on the

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<PAGE> 23

Termination Date; provided, however, that the aggregate outstanding principal
amount of all Advances at any one time outstanding shall not exceed the lesser
of: (i) the Revolving Credit Commitment, or (ii) the Borrowing Base. In
addition, the Borrowers have authorized and directed the Bank to effect periodic
payments of principal and interest on Advances under the FMA Agreement.

SECTION 2A.05. Interest Rates. (a) Subject to the provisions
of Article III, each Advance shall bear interest on the outstanding principal
amount thereof at a rate per annum equal to the current Adjusted Monthly LIBOR
Index Rate. The Adjusted Monthly LIBOR Index Rate will change as of the first
(1st) day of each calendar month following the change in the Monthly Libor Index
Rate as of the immediately preceding Rate Determination Date. Such interest
shall be payable on the first (1st) day of each calendar month in accordance
with the FMA Agreement. Any overdue principal of and, to the extent permitted by
law, overdue interest on the Revolving Credit Loan shall bear interest, payable
on demand, for each day until paid at the Default Rate.

(b) The Bank shall determine the interest rate applicable to
each Advance hereunder and under the FMA Agreement, and shall, if requested by
the Borrowers, give prompt notice to the Borrowers by telephone or telecopy of
the rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.

(c) After the occurrence and during the continuance of a
Default, the principal amount of all outstanding Advances (and, to the extent
permitted by applicable law all accrued interest thereon), may, at the election
of the Bank, bear interest for each day until paid at the Default Rate. All
Advances shall bear interest at the Default Rate following any judgment in favor
of the Bank on the Revolving Credit Note.

SECTION 2A.06. Facility Fee. From and after the date hereof
up to and including the Termination Date, the Borrowers shall pay to the Bank a
facility fee at the rate of three-eighths of one percent (0.375%) per annum
(calculated from the date hereof on the basis of a year of 360 days and paid for
the actual number of days elapsed) on the average daily balance of the Unused
Commitment (the "Facility Fee"). The Facility Fee shall be payable by the
Borrowers quarterly in arrears on each Facility Fee Payment Date and on the
Termination Date, provided that should the Commitment be terminated at any time
prior to the Termination Date (whether by termination of the Commitment as
provided in Section 2A.07 or Section 2A.08, refinancing of the Advances or
otherwise), the entire accrued and unpaid Facility Fee shall be paid on the date
of such termination.

SECTION 2A.07. Optional Termination or Reduction of Revolving
Credit Commitment. (a) The Borrowers may, upon at least three Domestic Business
Days' notice to the Bank, terminate the Revolving Credit Commitment at any time,
or reduce the Revolving Credit Commitment from time to time by an aggregate
minimum amount of at least $1,000,000 or an integral multiple of $100,000 in
excess thereof. If the Revolving Credit Commitment is so reduced, such reduction
shall be accounted for in determining the Facility Fee due under Section 2A.06.
If the Revolving Credit Commitment is terminated in its entirety, (i) all
accrued fees as provided for in Section 2A.06 shall be payable on the effective
date of such termination, and (ii) the Borrowers shall pay to the Bank on the
effective date of such termination a termination fee equal to one tenth of one
percent (0.10%) of the Revolving Credit Commitment. A notice of reduction or
termination of the Revolving Credit Commitment hereunder, once given, shall not
thereafter be revocable by the Borrowers.

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<PAGE> 24

(b) NOTWITHSTANDING ANYTHING HEREIN OR IN THE FMA AGREEMENT
TO THE CONTRARY, the Bank shall have the right, in its sole and absolute
discretion, to terminate the Revolving Credit Commitment and the Bank's
obligation to extend the Revolving Credit Loan and Advances to the Borrowers
hereunder upon not less than thirteen (13) months' prior written notice. Such
termination shall become effective on the date specified in the written notice
which the Bank delivers to the Borrowers exercising the Bank's option under this
Section 2A.07(b) to terminate the Revolving Credit Commitment (the termination
date specified in said written notice being referred to as the "Termination
Date").

SECTION 2A.08. Termination of Revolving Credit Commitment.
The Revolving Credit Commitment shall terminate and the unpaid principal balance
and all accrued and unpaid interest on the Revolving Credit Note will be due and
payable upon the first of the following dates or events to occur: (i)
termination of the Revolving Credit Commitment in accordance with the remedies
contained in Section 7.02; (ii) the Borrower's termination of the Revolving
Credit Commitment pursuant to Section 2A.07(a); (iii) the Bank's termination of
the Revolving Credit Commitment pursuant to Section 2A.07(b); or (iv) upon the
expiration of the Revolving Credit Commitment on the Termination Date. From and
after the date of such termination, no Advances shall be made.

SECTION 2A.09. Optional Prepayments. (a) Optional prepayments
of Advances shall be permitted only as provided in the FMA Agreement.

(b) In connection with any prepayment under this Section
2A.09 or the FMA Agreement, the Borrowers will compensate the Bank for any
liabilities, losses, costs and expenses incurred by the Bank as provided for or
contemplated in Article III.

SECTION 2A.10. Mandatory Prepayments. (a) On each date on
which the Revolving Credit Commitment is reduced pursuant to Section 2A.07(a),
the Borrowers shall repay or prepay such principal amount of the outstanding
Advances, if any (together with interest accrued thereon), as may be necessary
so that after such payment the aggregate unpaid principal amount of the
outstanding Advances does not exceed the aggregate amount of the Revolving
Credit Commitment as then reduced. Each such payment or prepayment shall be
applied to Advances outstanding on the date of such payment.

(b) In the event that the aggregate principal amount of all
Advances at any one time outstanding shall exceed the lesser of: (i) the
Borrowing Base, or (ii) the Revolving Credit Commitment, the Borrowers shall
immediately repay so much of the Advances as is necessary in order that the
aggregate principal amount of the Advances thereafter outstanding shall not
exceed the lesser of: (i) the Borrowing Base, or (ii) the Revolving Credit
Commitment.

(c) In connection with any payment under this Section 2A.10,
the Borrowers will compensate the Bank for any liabilities, losses, costs and
expenses incurred by the Bank as provided for or contemplated in Article III.

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<PAGE> 25

ARTICLE IIB. THE TERM LOAN

SECTION 2B.01. The Term Loan. (a) Subject to the terms and
conditions of this Agreement, on the Closing Date, the Bank agrees to lend to
the Borrowers, and the Borrowers agree to borrow from the Bank, the sum of
Fifteen Million and No/100 Dollars ($15,000,000.00) (the "Term Loan").

(b) The closing of the Term Loan hereunder shall take place
at the office of the Bank in Greensboro, North Carolina, or such other place as
the parties may agree, on the Closing Date. On the Closing Date, upon receipt of
the documents required by, and satisfaction of the conditions specified in,
Article IV, the Bank will advance at the Bank's Lending Office, in immediately
available funds, the amount of the Term Loan to the Borrowers.

SECTION 2B.02. Term Loan Note. The Term Loan shall be
evidenced by a promissory note of the Borrowers (the "Term Loan Note") in the
aggregate principal amount of Fifteen Million and No/100 Dollars
($15,000,000.00) in the form of Exhibit B hereto, with appropriate insertions,
payable to the order of the Bank and dated the Closing Date.

SECTION 2B.03. Selection of Interest Periods. (a) The Term
Loan initially shall be a Euro-Dollar Loan, and the Interest Period applicable
thereto shall commence on the Closing Date and end on the numerically
corresponding day in the first calendar month thereafter.

(b) Thereafter, the Borrowers shall give the Bank irrevocable
written notice (i) at least two Euro-Dollar Business Days prior to the ending
date of the then current Interest Period, if the Borrowers elect to cause the
Term Loan to become or remain (as the case may be) a Euro-Dollar Loan, in which
event such notice shall state such election and the Interest Period applicable
thereto, which shall be for the number of months selected, subject to the
provisions of paragraph (1) of the definition of "Interest Period" contained in
Section 1.01; or (ii) at least two Domestic Business Days prior to the ending
date of the then current Interest Period, if the Borrowers elect to cause the
Term Loan to become or remain (as the case may be) a Base Rate Loan, in which
event such notice shall state such election.

(c) In the event that the Borrowers shall fail to deliver a
notice as provided for in paragraph (b) of this section, the Term Loan shall
become or remain (as the case may be) a Base Rate Loan and the Interest Period
applicable thereto shall be in accordance with paragraph (2) of the definition
of "Interest Period" contained in Section 1.01.

(d) Notwithstanding anything to the contrary contained in
this Agreement, the Borrowers may not elect to cause the Term Loan to become or
remain (as the case may be) a Euro-Dollar Loan if there shall have occurred a
Default or an Event of Default, which Default or Event of Default shall not have
been cured or waived.

SECTION 2B.04. Interest Rates. (a) The unpaid principal
balance of the Term Loan from time to time outstanding shall bear interest until
maturity at a rate per annum set in accordance with this Section.

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<PAGE> 26

(b) For each day that the Term Loan is a Base Rate Loan, the
Term Loan shall bear interest on the outstanding principal amount thereof at a
rate per annum equal to the Base Rate for such day plus the Applicable Margin
for Base Rate Loans.

(c) During each period that the Term Loan is a Euro-Dollar
Loan, the Term Loan shall bear interest on the outstanding principal amount
thereof, for each Interest Period applicable thereto, at a rate per annum equal
to the sum of the Applicable Margin for Euro-Dollars Loans plus the applicable
Adjusted London Interbank Offered Rate for such Interest Period; provided that
if such Euro- Dollar Loan shall, as a result of clause (1)(c) of the definition
of Interest Period, have an Interest Period of less than one month, such
Euro-Dollar Loan shall bear interest during such Interest Period at the rate
applicable to a Base Rate Loan during such period.

(d) Any overdue principal of and, to the extent permitted by
applicable law, overdue interest on the Term Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the Default
Rate.

(e) The Bank shall determine each interest rate applicable to
the Term Loan during each Interest Period and the Bank's determination thereof
shall be conclusive in the absence of manifest error.

(f) After the occurrence and during the continuance of a
Default, the principal amount of the Term Loan (and, to the extent permitted by
applicable law, all accrued interest thereon) may, at the election of the Bank,
bear interest at the Default Rate. The Term Loan shall bear interest at the
Default Rate following any judgment in favor of the Bank on the Term Loan Note.

SECTION 2B.05. Payment of Principal and Interest. The
Borrowers promise and agree to pay to the Bank the principal and interest on the
Term Loan and the Term Loan Note as follows:

(a) Interest shall be payable on the first day of each
calendar month.

(b) The principal of the Term Loan shall be payable in twelve
(12) consecutive quarterly installments on the first (1st) day of each August,
November, February and May, commencing August 1, 1999 and continuing until the
Maturity Date in the amounts set forth below:

<TABLE>
<S> <C> <C> <C>
August 1, 1999 $ 900,000 February 1, 2001 $1,250,000
November 1, 1999 $ 900,000 May 1, 2001 $1,250,000
February 1, 2000 $ 900,000 August 1, 2001 $1,600,000
May 1, 2000 $ 900,000 November 1, 2001 $1,600,000
August 1, 2000 $ 1,250,000 February 1, 2002 $1,600,000
November 1, 2000 $ 1,250,000 May 1, 2002 $1,600,000
</TABLE>

A final installment shall be due and payable on the Maturity Date in an amount
equal to the unpaid principal balance of, and all accrued but unpaid interest
on, the Term Loan.

SECTION 2B.06. Prepayment. (a) The Borrowers shall have the
right to prepay the outstanding principal of the Term Loan in whole or in part;
provided, however, (i) that all partial prepayments of the Loan made under this
section shall be in whole multiples of $100,000.00; (ii) at any

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<PAGE> 27

time the Term Loan is a Euro-Dollar Loan, prepayments may be made only on the
last day of the Interest Period applicable to the Term Loan; and (iii) at any
time the Term Loan is a Base Rate Loan, prepayments may be made at any time.

(b) Notwithstanding anything to the contrary in this Section,
no prepayment may be made pursuant to paragraph (a) of this Section except after
not more than ten (10), nor less than three (3), days prior written notice to
the Bank, specifying the prepayment date, the amount of such prepayment and that
such prepayment is being made pursuant to Section 2B.06 of this Agreement. Any
such notice shall be irrevocable. The Borrowers shall pay with such prepayment
all accrued interest on the principal of the Term Loan so prepaid to the date of
such prepayment and, if the prepayment is in whole, any and all other amounts
payable by the Borrowers to the Bank under this Agreement or any other Loan
Document, including, without limitation, the Termination Fee referred to below.

(c) If the Borrowers prepay the Term Loan in whole from
sources other than (i) excess cash flow of the Borrowers or (ii) proceeds from a
public equity offering by the Parent Company within the first twelve calendar
months following the Closing Date, the Borrowers shall pay to the Bank on the
effective date of such prepayment a termination fee equal to one half of one
percent (0.50%) of the amount prepaid ("Termination Fee").

(d) In connection with any prepayment under this Section
2B.06, the Borrowers will compensate the Bank for any liabilities, losses, costs
and expenses incurred by the Bank as provided for or contemplated in Article
III.

ARTICLE IIC. GENERAL PROVISIONS CONCERNING PAYMENTS AND FEES

SECTION 2C.01. General Provisions Concerning Payments. (a)
All payments of principal of, or interest on, the Notes, and of the Facility
Fee, the Termination Fee and any other fees due hereunder, shall be made in
Federal or other funds immediately available to the Bank at its office in
Greensboro, North Carolina not later than 1:00 p.m., Greensboro, North Carolina
time. Funds received after 1:00 p.m. shall be deemed to have been paid on the
next following Domestic Business Day.

(b) Whenever any payment of principal of, or interest on, the
Loans shall be due on a day which is not a Domestic Business Day, the date for
payment thereof shall be extended to the next succeeding Domestic Business Day,
except as to any payment of principal of or interest on the Term Loan during a
period that the Term Loan is a Euro-Dollar Loan, in which case the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.

(c) All payments of principal, interest and fees and all
other amounts to be made by the Borrowers pursuant to this Agreement shall be
paid without deduction for, and free from, any tax, imposts, levies, duties,
deductions, or withholdings of any nature now or at anytime hereafter imposed by
any governmental authority or by any taxing authority thereof or therein
excluding in the case of the

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<PAGE> 28

Bank, taxes imposed on or measured by its net income, and franchise taxes
imposed on it by the jurisdiction under the laws of which the Bank is organized
or any political subdivision thereof (all such non-excluded taxes, imposts,
levies, duties, deductions or withholdings of any nature being "Taxes"). In the
event that the Borrowers are required by applicable law to make any such
withholding or deduction of Taxes with respect to the Term Loan or Advances or
any fee relating thereto or other amount, the Borrowers shall pay such deduction
or withholding to the applicable taxing authority, shall promptly furnish to the
Bank all receipts and other documents evidencing such payment and shall pay to
the Bank additional amounts as may be necessary in order that the amount
received by the Bank after the required withholding or other payment shall equal
the amount the Bank would have received had no such withholding or other payment
been made. If no withholding or deduction of Taxes are payable in respect of the
Term Loan or any Advances or fee relating thereto, the Borrowers shall furnish,
at the Bank's request, a certificate from each applicable taxing authority or an
opinion of counsel acceptable to the Bank, in either case stating that such
payments are exempt from or not subject to withholding or deduction of Taxes. If
the Borrowers fail to provide such original or certified copy of a receipt
evidencing payment of Taxes or certificate(s) or opinion of counsel of
exemption, the Borrowers hereby agrees to compensate the Bank for, and indemnify
the Bank with respect to, the tax consequences of the Borrowers' failure to
provide evidence of tax payments or tax exemption.

In the event the Bank receives a refund of any Taxes paid by
the Borrowers pursuant to this Section 2C.01, it will pay to the Borrowers the
amount of such refund promptly upon receipt thereof; provided, however, if at
any time thereafter the Bank is required to return such refund, the Borrowers
shall promptly repay to the Bank the amount of such refund.

Without prejudice to the survival of any other agreement of
the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 2C.01 shall be applicable with respect to any
Participant, Assignee or other Transferee, and any calculations required by such
provisions (i) shall be made based upon the circumstances of such Participant,
Assignee or other Transferee, and (ii) constitute a continuing agreement and
shall survive the termination of this Agreement and the payment in full or
cancellation of the Notes.

SECTION 2C.02. Computation of Interest. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days in
each interest period.

ARTICLE III. CHANGE IN CIRCUMSTANCES; COMPENSATION

SECTION 3.01. Basis for Determining Interest Rate Inadequate
or Unfair. If at any time:

(a) The Bank determines that it is not possible to determine
the Monthly Libor Index Rate, or the Monthly Libor Index Rate is no
longer available, or the Monthly Libor Index Rate will not adequately
and fairly reflect the cost to the Bank of funding Advances as
Euro-Dollar Loans; or

(b) On or prior to the first day of an Interest Period, the
Bank determines that (i) deposits in Dollars (in the applicable
amounts) are not being offered in the

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<PAGE> 29

relevant market for such Interest Period, or (ii) the Interbank Offered
Rate as determined by the Bank will not adequately and fairly reflect
the cost to the Bank of funding the Term Loan as a Euro-Dollar Loan for
such Interest Period;

the Bank shall give notice thereof to the Borrowers, whereupon until the Bank
notifies the Borrowers that the circumstances giving rise to such suspension no
longer exist, the obligation of the Bank to make or maintain Euro-Dollar Loans
shall be suspended and the Borrowers shall, in the case of the Revolving Credit
Loan, immediately prepay in full the then outstanding principal amount of all
Euro-Dollar Borrowings, together with accrued interest thereon and concurrently
therewith shall borrow a Base Rate Loan in an equal principal amount from the
Bank, and, in the case of the Term Loan, the Term Loan shall immediately convert
to a Base Rate Loan.

SECTION 3.02. Illegality. If, after the date hereof, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof (any such authority, bank or agency being referred to as
an "Authority" and any such event being referred to as a "Change of Law"), or
compliance by the Bank (or its Lending Office) with any request or directive
(whether or not having the force of law) of any Authority shall make it unlawful
or impossible for the Bank (or its Lending Office) to make, maintain or fund
Euro-Dollar Loans and the Bank shall so notify the Borrowers, whereupon until
the Bank notifies the Borrowers that the circumstances giving rise to such
suspension no longer exist, the obligation of the Bank to make or maintain
Euro-Dollar Loans shall be suspended and the Borrowers shall, in the case of the
Revolving Credit Loan, immediately prepay in full the then outstanding principal
amount of all Euro-Dollar Borrowings, together with accrued interest thereon and
concurrently therewith shall borrow a Base Rate Loan in an equal principal
amount from the Bank, and, in the case of the Term Loan, the Term Loan shall
immediately convert to a Base Rate Loan.

SECTION 3.03. Increased Cost and Reduced Return. (a) If after
the date hereof, a Change of Law or compliance by the Bank (or its Lending
Office) with any request or directive (whether or not having the force of law)
of any Authority:

(i) shall subject the Bank (or its Lending Office) to any
tax, duty or other charge with respect to Euro-Dollar Loans, either of
the Notes or the Bank's obligation to make or maintain Euro-Dollar
Loans, or shall change the basis of taxation of payments to the Bank
(or its Lending Office) of the principal of or interest on its Euro-
Dollar Loans or any other amounts due under this Agreement in respect
of its Euro- Dollar Loans or its obligation to make or maintain
Euro-Dollar Loans (except for changes in the rate of tax on the overall
net income of the Bank or its Lending Office imposed by the
jurisdiction in which the Bank's principal executive office or Lending
Office is located); or

(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding any such requirement included in an
applicable Euro-Dollar Reserve Percentage) against assets of, deposits
with or for the account of, or credit extended by, the Bank (or its
Lending Office); or

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<PAGE> 30

(iii) shall impose on the Bank (or its Lending Office) or the London
interbank market any other condition affecting Euro-Dollar Loans, either
of the Notes, or the Bank's obligation to make or maintain Euro-Dollar
Loans;

and the result of any of the foregoing is to increase the cost to the Bank (or
its Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce
the amount of any sum received or receivable by the Bank (or its Lending Office)
under this Agreement or under the Notes with respect thereto, by an amount
deemed by the Bank to be material, then, within 15 days after demand by the
Bank, the Borrowers shall pay to the Bank such additional amount or amounts as
will compensate the Bank for such increased cost or reduction.

(b) If the Bank shall have determined that after the date hereof the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof, or compliance by the Bank (or its Lending Office) with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any Authority, has or would have the effect of reducing the rate of return on
the Bank's capital as a consequence of its obligations under this Agreement with
respect to any Loan to a level below that which the Bank could have achieved but
for such adoption, change or compliance (taking into consideration the Bank's
policies with respect to capital adequacy) by an amount deemed by the Bank to be
material, then from time to time, within 15 days after demand by the Bank, the
Borrowers shall pay to the Bank such additional amount or amounts as will
compensate the Bank for such reduction.

(c) The Bank will promptly notify the Borrowers of any event of
which it has knowledge, occurring after the date hereof, which will entitle the
Bank to compensation pursuant to this Section and will designate a different
Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of the Bank, be otherwise
disadvantageous to the Bank. A certificate of the Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, the Bank may use any reasonable averaging and
attribution methods.

(d) The provisions of this Section shall be applicable with respect
to any Participant in, or Assignee or other Transferee of, the obligations of
the Borrowers hereunder to the Bank, and any calculations required by such
provisions shall be made based upon the circumstances of such Participant,
Assignee or other Transferee.

SECTION 3.04. Base Rate Loans Substituted for Affected Euro-Dollar
Loans. If the Bank has demanded compensation under Section 3.03, and if the
Borrowers, by at least one Domestic Business Day's prior notice to the Bank,
shall have elected that the provisions of this Section shall apply, then, unless
and until the Bank notifies the Borrowers that the circumstances giving rise to
such demand for compensation no longer apply:

(a) all Loans which would otherwise be made by the Bank as
Euro-Dollar Loans shall be made instead as Base Rate Loans, and

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<PAGE> 31

(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such
Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

SECTION 3.05. Compensation. Upon the request of the Bank, delivered
to the Borrowers, the Borrowers shall pay to the Bank such amount or amounts as
shall compensate the Bank for any loss, cost or expense incurred by the Bank as
a result of or in connection with:

(a) any optional or mandatory payment or prepayment (pursuant to
this Agreement, the FMA Agreement or otherwise) of a Euro-Dollar Loan on
a date other than (i) the last day of an Interest Period for such
Euro-Dollar Loan, or (ii) the first day of a calendar month with respect
to an Advance or otherwise on an approved date for payment or prepayment
as provided for in the FMA Agreement; or

(b) any failure by the Borrowers to prepay a Euro-Dollar Loan on the
date for such prepayment specified in the relevant notice of prepayment,
or with respect to the Revolving Credit Loan, specified in the notice of
reduction of the Revolving Credit Commitment; or

(c) canceling, terminating, unwinding or replacing any interest rate
swap, cap, collar, floor, or similar hedging transaction under any
interest rate protection agreement, foreign currency exchange agreement
or other hedging agreement.

ARTICLE IV. CONDITIONS PRECEDENT

SECTION 4.01. Conditions to First Borrowing. The obligation of the
Bank to make any Loan on the Closing Date is subject to the satisfaction of the
conditions set forth in Section 4.02 and the following additional conditions:

(a) receipt by the Bank from the Borrowers of a duly executed
counterpart of this Agreement signed by the Borrowers;

(b) receipt by the Bank of the duly executed Notes;

(c) receipt by the Bank of an opinion of counsel of Armstrong
Teasdale LLP, counsel for the Borrowers, substantially in the form of
Exhibit "C" hereto, and covering such additional matters relating to the
transactions contemplated hereby as the Bank may reasonably request;

(d) receipt by the Bank of a certificate (the "Closing
Certificate"), dated the Closing Date, substantially in the form of
Exhibit "E" hereto, signed by the principal financial officer of each
Borrower to the effect that (i) no Default hereunder has occurred and is
continuing on the Closing Date and (ii) the representations and
warranties of the Borrowers contained in Article V are true on and as of
the Closing Date;

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<PAGE> 32

(e) receipt by the Bank of all documents which the Bank may
reasonably request relating to the existence of the Borrowers, the
corporate authority for and the validity of this Agreement, the Notes and
the other Loan Documents, and any other matters relevant hereto, all in
form and substance satisfactory to the Bank, including without limitation
a certificate of incumbency of each Borrower, signed by the Secretary or
an Assistant Secretary of such Borrower and substantially in the form of
Exhibit "F" hereto (the "Officer's Certificate"), certifying as to the
names, true signatures and incumbency of the officer or officers of such
Borrower authorized to execute and deliver the Loan Documents, and
certified copies of the following items as to each Borrower: (i) the
Borrower's Certificate of Incorporation, (ii) the Borrower's Bylaws,
(iii) a certificate of the Secretary of State (or other appropriate
office) of the jurisdiction of such Borrower's incorporation as to the
good standing of such Borrower as a corporation of such jurisdiction, and
(iv) the action taken by the Board of Directors of such Borrower
authorizing such Borrower's execution, delivery and performance of this
Agreement, the Notes, the Collateral Documents and the other Loan
Documents to which such Borrower is a party;

(f) receipt by the Bank of the FMA Agreement with all Schedules and
supplements thereto, on the Bank's form and duly executed by the
Borrowers;

(g) receipt by the Bank of a General Security Agreement on the
Bank's form duly executed by the Borrowers (the "Security Agreement"),
granting to or for the benefit of the Bank a first priority lien on and
security interest in the Collateral;

(h) receipt by the Bank of duly executed and filed Uniform
Commercial Code financing statements from the Borrowers covering the
Collateral and perfecting the Bank's first priority lien on and security
interest in the Collateral;

(i) receipt by the Bank of Uniform Commercial Code searches
confirming the Bank's first lien position with respect to the Collateral;

(j) receipt by the Bank of the Mortgage covering the Illinois Real
Property, in form and substance satisfactory to the Bank, executed by
Myco, and recorded on or prior to the Closing Date, in the land records
of Winnebago County, Illinois, and receipt by the Bank of an ALTA
mortgagee title insurance policy satisfactory to the Bank, insuring the
Bank's first lien position with respect to the Illinois Real Property;

(k) receipt by the Bank of the Mortgage covering the Pennsylvania
Real Property, in form and substance satisfactory to the Bank, executed
by Yeager, and recorded on or prior to the Closing Date, in the land
records of Philadelphia County, Pennsylvania, and receipt by the Bank of
an ALTA mortgagee title insurance policy satisfactory to the Bank,
insuring the Bank's first lien position with respect to the Pennsylvania
Real Property;

(l) receipt by the Bank of policies of insurance or certificates
evidencing such policies (with loss payable clauses and mortgagee clauses
satisfactory to the Bank), all as required pursuant to the Security
Agreement and the Mortgages;

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<PAGE> 33

(m) receipt by the Bank of a Quarterly Receivables Certification
dated as of October 31, 1998;

(n) receipt by the Bank of the financial information required in
Section 6.01(b) and (c) of this Agreement with respect to the Fiscal
Quarter ending October 31, 1998;

(o) receipt by the Bank of a satisfactory appraisal of the Illinois
Real Property together with satisfactory surveys of the Real Property
Collateral;

(p) satisfaction of all conditions precedent to closing set forth in
the Bank's commitment letter dated January 29, 1999;

(q) no default or event of default under the Loan and Security
Agreement between Wachovia and the Parent Company dated November 14,
1996, as amended, has occurred and is continuing; and

(r) such other documents or items as the Bank or its counsel may
reasonably request.

SECTION 4.02. Conditions to All Loans or Advances. The obligation of
the Bank to make any Loan or Advance is subject to the satisfaction of the
following conditions:

(a) the fact that no Default shall have occurred and be continuing
(before or after such Loan or Advance);

(b) the fact that the representations and warranties of the
Borrowers contained in Article V shall be true on and as of the date of
such Loan or Advance; and

(c) the fact that, immediately after such Advance, the aggregate
outstanding principal amount of the Advances will not exceed the lesser
of: (i) the Revolving Credit Commitment, or (ii) the Borrowing Base.

Each Loan or Advance hereunder and each Advance under the FMA Agreement shall be
deemed to be a representation and warranty by the Borrowers on the date thereof
as to the facts specified in clauses (a), (b) and (c) of this Section; provided
that, in the case of the Revolving Credit Commitment, no Advance shall be deemed
to be such a representation and warranty to the effect set forth in Section
5.04(b) as to any event, act or condition having a Material Adverse Effect which
has theretofore been disclosed in writing by the Borrowers to the Bank if the
aggregate outstanding principal amount of the Advances immediately after such
Borrowing will not exceed the aggregate outstanding principal amount of Advances
immediately before such Borrowing.

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<PAGE> 34

ARTICLE V. REPRESENTATIONS AND WARRANTIES

The Borrowers represent and warrant that:

SECTION 5.01. Corporate Existence and Power. Each Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, is duly qualified to transact business
in every jurisdiction where, by the nature of its business, such qualification
is necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.

SECTION 5.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrowers of this
Agreement, the Notes and the other Loan Documents (i) are within each Borrower's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of the Borrowers or any of them or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Borrowers or any of them or any of their respective Subsidiaries, and
(v) do not result in the creation or imposition of any Lien on any asset of the
Borrowers or any Subsidiary of a Borrower.

SECTION 5.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrowers enforceable in accordance with its terms, and
the Notes and the other Loan Documents, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrowers enforceable in accordance with their respective terms, provided
that the enforceability hereof and thereof is subject in each case to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally.

SECTION 5.04. Financial Information. (a) The consolidated balance
sheet of the Parent Company and its Consolidated Subsidiaries as of January 31,
1998 and the related consolidated statements of income, shareholders' equity and
cash flows for the Fiscal Year then ended, reported on by BDO Seidman LLP,
copies of which have been delivered to the Bank, and the unaudited consolidated
financial statements of the Parent Company and its Consolidated Subsidiaries for
the interim period ended October 31, 1998, copies of which have been delivered
to the Bank, fairly present, in conformity with generally accepted accounting
principles, the consolidated financial position of the Parent Company and its
Consolidated Subsidiaries as of such dates and their consolidated results of
operations and cash flows for such periods stated.

(b) Since October 31, 1998 there has been no event, act, condition
or occurrence having a Material Adverse Effect.

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<PAGE> 35

(c) The Parent Company's federal taxpayer identification number is
43-1710906.
Myco's federal taxpayer identification number is 43-1836441.
Yeager's federal taxpayer identification number is 43-1836442.
Marketing's federal taxpayer identification number is
43-1836445.
Chestnut's federal taxpayer identification number is 43-1836446.
Canada Corp.'s business number is 89869 6653.
T.C.E. Corp.'s federal taxpayer identification number is
22-2225197.
Brand's federal taxpayer identification number is 11-1850208.
Vail's federal taxpayer identification number is 11-3465089.

SECTION 5.05. Litigation. Except as disclosed in Schedule 5.05,
there is no action, suit or proceeding pending, or to the knowledge of the
Borrowers threatened, against or affecting the Borrowers or any Subsidiary of a
Borrower before any court or arbitrator or any governmental body, agency or
official which could have or cause a Material Adverse Effect, or which in any
manner draws into question the validity of, or could impair the ability of the
Borrowers to perform their obligations under, this Agreement, the Notes or any
of the other Loan Documents.

SECTION 5.06. Compliance with ERISA. (a) The Borrowers do not have
any employee pension benefit plan which is covered by Title IV of ERISA or that
is subject to the minimum funding standards under Section 412 of the Code.

(b) The Borrowers and each member of the Controlled Group have
fulfilled their obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and are in compliance in all material respects
with the presently applicable provisions of ERISA and the Code, and have not
incurred any liability to the PBGC or a Plan under Title IV of ERISA.

(c) No Borrower other than Brand or any member of the Controlled
Group is or ever has been obligated to contribute to any Multiemployer Plan.

(d) Brand has not incurred any withdrawal liability with respect to
any Multiemployer Plan under Title IV of ERISA, and no such liability is
expected to be incurred.

SECTION 5.07. Taxes. Except as disclosed in Schedule 5.07, there
have been filed on behalf of each Borrower and each Subsidiary of a Borrower all
Federal, state and local income, excise, property and other tax returns which
are required to be filed by them (or valid extensions have been received and the
Borrowers are within the extension period(s)) and all taxes due pursuant to such
returns or pursuant to any assessment received by or on behalf of the Borrowers
or any Subsidiary of a Borrower have been paid. The charges, accruals and
reserves on the books of the Borrowers and the Subsidiaries of the Borrowers in
respect of taxes or other governmental charges are, in the opinion of the
Borrowers, adequate.

SECTION 5.08. Subsidiaries. Each of the Subsidiaries of the
Borrowers is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, is duly qualified to
transact business in every jurisdiction where, by the nature of its business,
such qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Borrowers have no

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<PAGE> 36

Subsidiaries except those Subsidiaries listed on Schedule 5.08, which accurately
sets forth each such Subsidiary's complete name and jurisdiction of
incorporation.

SECTION 5.09. Not an Investment Company. No Borrower is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

SECTION 5.10. Public Utility Holding Company Act. No Borrower or any
Subsidiary of a Borrower is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.

SECTION 5.11. Ownership of Property; Liens. Each Borrower and each
Subsidiary of a Borrower has title to or, alternatively, leases, its properties
sufficient for the conduct of its business, and none of such property is subject
to any Lien except as permitted in Section 6.12 or disclosed in Schedule 5.11
hereto. All patents, trademarks, trade names and applications for such owned by
or registered in the name of any Borrower are shown on Schedule 5.11 hereto.

SECTION 5.12. No Default. No Borrower or any Subsidiary of a
Borrower is in default under or with respect to any agreement, instrument or
undertaking to which it is a party or by which it or any of its property is
bound which could have or cause a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.

SECTION 5.13. Full Disclosure. All information heretofore furnished
by the Borrowers to the Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrowers to the Bank will be, true, accurate and
complete in every material respect or based on reasonable estimates on the date
as of which such information is stated or certified. The Borrowers have
disclosed to the Bank in writing any and all facts which could reasonably be
expected to have or cause a Material Adverse Effect.

SECTION 5.14. Environmental Matters. (a) No Borrower or any
Subsidiary of a Borrower is subject to any Environmental Liability which could
have or cause a Material Adverse Effect and no Borrower or any Subsidiary of a
Borrower has been designated as a potentially responsible party under CERCLA or
under any state statute similar to CERCLA. None of the Properties have been
identified on any current or proposed (i) National Priorities List under 40
C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state statute
similar to CERCLA.

(b) No Hazardous Materials have been or are being used, produced,
manufactured, processed, generated, stored, disposed of, managed at, or shipped
or transported to or from the Properties or are otherwise present at, on, in or
under the Properties, or, to the best of the knowledge of the Borrowers, at or
from any adjacent site or facility, except for Hazardous Materials, such as
cleaning solvents, pesticides and other materials used, produced, manufactured,
processed, generated, stored, disposed of, and managed in the ordinary course of
business in compliance with all applicable Environmental Requirements. Myco and
Marketing hereby disclose to the Bank the environmental matters set forth on
Schedule 5.14 hereto.

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<PAGE> 37

(c) The Borrowers, and each of their respective Subsidiaries and
Affiliates, have procured all Environmental Authorizations necessary for the
conduct of their respective businesses, and are in compliance with all
Environmental Requirements in connection with the operation of the Properties
and the Borrowers, and each such Subsidiary's and Affiliate's, respective
businesses.

SECTION 5.15. Compliance with Laws. The Borrowers and each
Subsidiary of a Borrower is in compliance with all applicable laws, including,
without limitation, all Environmental Laws, except where any failure to comply
with any such laws would not, alone or in the aggregate, have a Material Adverse
Effect.

SECTION 5.16. Capital Stock. All Capital Stock, debentures, bonds,
notes and all other securities of the Borrowers and the Subsidiaries of the
Borrowers presently issued and outstanding are validly and properly issued in
accordance with all applicable laws, including, but not limited to, the "Blue
Sky" laws of all applicable states and the federal securities laws. The issued
shares of Capital Stock of the Wholly Owned Subsidiaries of the Borrowers are
owned by the Borrowers free and clear of any Lien or adverse claim. At least a
majority of the issued shares of capital stock of each of the other Subsidiaries
(other than Wholly Owned Subsidiaries) of the Borrowers is owned by the
Borrowers free and clear of any Lien or adverse claim.

SECTION 5.17. Margin Stock. No Borrower or any Subsidiary of a
Borrower is engaged principally, or as one of its important activities, in the
business of purchasing or carrying any Margin Stock, and no part of the proceeds
of any Advance or the Term Loan will be used to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation X.

SECTION 5.18. Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of the Term Loan and Advances
under this Agreement and the FMA Agreement, no Borrower or any Subsidiary will
be "insolvent," within the meaning of such term as used in N.C. Gen. Stat. ss.
39-23, et. seq. or as defined in ss. 101 of Title 11 of the United States Code
or Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable
state law pertaining to fraudulent transfers, as each may be amended from time
to time, or be unable to pay its debts generally as such debts become due, or
have an unreasonably small capital to engage in any business or transaction,
whether current or contemplated.

SECTION 5.19. Insurance. Each Borrower and each Subsidiary of a
Borrower maintains (either in the name of such Borrower or in such Subsidiary's
own name), with financially sound and reputable insurance companies, insurance
on all of its Properties, Equipment, Fixtures, and Inventory, in at least such
amounts and against at least such risks as are usually insured against in the
same general area by companies of established repute engaged in the same or
similar business.

SECTION 5.20. Year 2000. The Borrowers have developed and delivered
to the Bank a comprehensive plan (the "Y2K Plan") for insuring that the
Borrowers' and their Subsidiaries' software and hardware systems which impact or
affect in any material way the business operations of the Borrowers and their
Subsidiaries will be Year 2000 Compliant and Ready. The Borrowers and their

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<PAGE> 38

Subsidiaries have met or will meet the Y2K Plan milestones such that all
hardware and software systems will be Year 2000 Compliant and Ready in
accordance with the Y2K Plan on or before June 30, 1999.

ARTICLE VI. COVENANTS

The Borrowers agree that, so long as the Commitment is in effect
hereunder or any amount payable under this Agreement or the FMA Agreement or any
Note remains unpaid:

SECTION 6.01. Information. The Borrowers will deliver to the Bank:

(a) as soon as available and in any event within 90 days after the
end of each Fiscal Year, a consolidated balance sheet of the Parent Company
and its Consolidated Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of income, shareholders' equity and cash
flows for such Fiscal Year, setting forth in each case in comparative form
the figures for the previous fiscal year, all certified by BDO Seidman LLP
or other independent public accountants of nationally recognized standing,
with such certification to be free of exceptions and qualifications not
acceptable to Bank;

(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each Fiscal Year, a consolidated
balance sheet of the Parent Company and its Consolidated Subsidiaries as of
the end of such quarter and the related statement of income and statement
of cash flows for such quarter and for the portion of the Fiscal Year ended
at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of
the previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer or the chief
accounting officer of each Borrower;

(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate
substantially in the form of Exhibit I attached hereto (the "Compliance
Certificate"), of the chief financial officer or the chief accounting
officer of each Borrower (i) setting forth in reasonable detail the
calculations required to establish whether the Borrowers were in compliance
with the requirements of Sections 6.03 through 6.08, inclusive on the date
of such financial statements and (ii) stating whether any Default exists on
the date of such certificate and, if any Default then exists, setting forth
the details thereof and the action which the Borrowers are taking or
propose to take with respect thereto;

(d) simultaneously with the delivery of each set of annual financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements to the
effect that nothing has come to their attention to cause them to believe
that any Default existed on the date of such financial statements;

(e) within five Domestic Business Days after any Borrower becomes
aware of the occurrence of any Default, a certificate of the chief
financial officer or the chief accounting

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<PAGE> 39

officer of such Borrower setting forth the details thereof and the action
which the Borrowers are taking or propose to take with respect thereto;

(f) promptly upon the mailing thereof to the shareholders of the
Borrowers generally, copies of all financial statements, reports and proxy
statements so mailed;

(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and annual, quarterly or monthly reports
which the Borrowers shall have filed with the Securities and Exchange
Commission;

(h) if and when the Borrowers or any member of the Controlled Group
(i) gives or is required to give notice to the PBGC of any Reportable Event
with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator
of any Plan has given or is required to give notice of any such Reportable
Event, a copy of the notice of such Reportable Event given or required to
be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA, a copy of such notice; or
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, a copy of such
notice;

(i) promptly after any Borrower knows of the commencement thereof,
notice of any litigation, dispute or proceeding involving a claim against
any Borrower or any Subsidiary of a Borrower for $100,000.00 or more in
excess of amounts covered in full by applicable insurance; and

(j) as soon as available and in any event within forty-five (45)
days after the end of each Fiscal Quarter of each Fiscal Year, a Quarterly
Receivables Certification, dated as of the last day of the applicable
Fiscal Quarter; and

(k) from time to time such additional information regarding the
financial position or business of the Borrowers and the Subsidiaries of the
Borrowers as the Bank may reasonably request.

SECTION 6.02. Inspection of Property, Books and Records. The
Borrowers will keep proper books of record and account which fairly state the
financial position of the Borrowers and their respective Subsidiaries in all
material respects in conformity with generally accepted accounting principles
with respect to all dealings and transactions in relation to their respective
businesses and activities; and will permit representatives of the Bank at the
Bank's expense prior to the occurrence of an Event of Default and at the
Borrowers' expense after the occurrence of an Event of Default to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Borrowers agree to cooperate and assist in
such visits and inspections, in each case at such reasonable times and as often
as may reasonably be desired.

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<PAGE> 40

SECTION 6.03. Consolidated Fixed Charges Coverage Ratio. The
Borrowers shall maintain a Consolidated Fixed Charge Coverage Ratio of not less
than 2.00 to 1.00, at all times, to be determined as of the last day of each
Fiscal Quarter hereafter for the four (4) Fiscal Quarters then ending.

SECTION 6.04. Ratio Funded Debt to Consolidated EBITDA. As of
April 30, 1999 and as of the end of each Fiscal Quarter thereafter, the ratio of
Funded Debt for the Fiscal Quarter then ending to Consolidated EBITDA for such
Fiscal Quarter and for the immediately preceding three Fiscal Quarters, will not
be more than 3.50 to 1.00.

SECTION 6.05. Ratio of Funded Debt to Consolidated Total
Capitalization. As of April 30, 1999 and as of the end of each Fiscal Quarter
thereafter, the ratio of Funded Debt to Consolidated Total Capitalization shall
not exceed 50%.

SECTION 6.06. Minimum Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth will at no time be less than $20,000,000.00 plus
the sum of 50% of the cumulative Reported Net Income during any period after
January 31, 1999 (taken as one accounting period), calculated quarterly but
excluding from such calculations any quarter in which the Net Income of the
Parent Company and its Consolidated Subsidiaries is negative.

SECTION 6.07. Accounts Receivable. Tier I Eligible Receivables
shall at all times comprise more than fifty percent (50%) of the Borrowers'
Receivables. At no time shall total Receivables to foreign Persons located in
Canada exceed in the aggregate ten percent (10%) of Eligible Receivables.

SECTION 6.08. Capital Expenditures. Capital Expenditures will
not exceed in the aggregate in any Fiscal Year the sum of $1,500,000.00;
provided that after giving effect to the incurrence of any Capital Expenditures
permitted by this Section, the Borrowers will be in full compliance with all the
provisions of this Agreement.

SECTION 6.09. Restricted Payments. No Borrower will declare or
make any Restricted Payment during any Fiscal Year except from Net Income and
then only after providing for payment of all current principal payments on
Long-Term Debt; provided that after giving effect to the payment of any such
Restricted Payments, such Borrower will be in full compliance with all of the
provisions of this Agreement.

SECTION 6.10. Loans or Advances. None of the Borrowers nor any
of their respective Subsidiaries shall make loans or advances to any Person
except: (i) the existing loans to officers of the Borrowers as reflected on the
financial information submitted by the Borrowers to the Bank under Section
6.01(b) and (c) of this Agreement for the Fiscal Quarter ending October 31,
1998; (ii) other loans not exceeding $7,500.00 in the aggregate plus two loans
to Richard A. Jacobsen not to exceed in the aggregate $975,000.00 and meeting
the criteria set out in Schedule 6.10 attached hereto; and (iii) deposits
required by government agencies or public utilities; provided that after giving
effect to the making of any loans, advances or deposits permitted by clause (i),
(ii) or (iii) of this Section, the Borrowers will be in full compliance with all
the provisions of this Agreement.

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<PAGE> 41

SECTION 6.11. Investments. The Borrowers shall not make
Investments in any Person except investments in (i) direct obligations of the
United States Government maturing within one year, (ii) certificates of deposit
issued by a commercial bank whose credit is satisfactory to the Bank, (iii)
commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
and in either case maturing within 6 months after the date of acquisition and/or
(iv) tender bonds the payment of the principal of and interest on which is fully
supported by a letter of credit issued by a United States bank whose long-term
certificates of deposit are rated at least AA or the equivalent thereof by
Standard & Poor's Corporation and Aa or the equivalent thereof by Moody's
Investors Service, Inc.

SECTION 6.12. Negative Pledge. No Borrower or any Subsidiary
of a Borrower will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except for Permitted Encumbrances.

SECTION 6.13. Maintenance of Existence. The Borrowers shall,
and shall cause each Subsidiary to, maintain its corporate existence and carry
on its business in substantially the same manner and in substantially the same
fields as such business is now carried on and maintained.

SECTION 6.14. Dissolution. No Borrower or any Subsidiary of a
Borrower shall suffer or permit dissolution or liquidation either in whole or in
part or redeem or retire any shares of its own stock.

SECTION 6.15. Consolidations, Mergers and Sales of Assets. The
Borrowers will not, nor will they permit any Subsidiary to, consolidate or merge
with or into, or sell, lease or otherwise transfer all or any substantial part
of their respective assets to, any other Person, or create or acquire any
Subsidiary, or discontinue or eliminate any business line or segment, provided
that

(a) a Borrower may merge with another Person if (i) such
Person was organized under the laws of the United States of America or
one of its states, (ii) such Borrower is the corporation surviving such
merger and (iii) immediately after giving effect to such merger, no
Default shall have occurred and be continuing, and

(b) the foregoing limitation on the sale, lease or other
transfer of assets and on the discontinuation or elimination of a
business line or segment shall not prohibit, during any Fiscal Quarter,
a transfer of assets or the discontinuance or elimination of a business
line or segment (in a single transaction or in a series of related
transactions) unless the aggregate assets to be so transferred or
utilized in a business line or segment to be so discontinued, when
combined with all other assets transferred, and all other assets
utilized in all other business lines or segments discontinued, during
such Fiscal Quarter and the immediately preceding seven Fiscal
Quarters, either (x) constituted more than 10% of Consolidated Total
Assets at the end of the eighth Fiscal Quarter immediately preceding
such Fiscal Quarter, or (y) contributed more than 10% of Consolidated
Operating Profits during the eight Fiscal Quarters immediately
preceding such Fiscal Quarter.

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SECTION 6.16. Use of Proceeds. The proceeds of the Loans will
be used to fund asset acquisitions and for working capital purposes. No portion
of the proceeds of the Loans will be used by the Borrowers (i) in connection
with any tender offer for, or other acquisition of, stock of any corporation
with a view towards obtaining control of such other corporation, (ii) directly
or indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any Margin Stock, or (iii) for any purpose in violation
of any applicable law or regulation.

SECTION 6.17. Compliance with Laws; Payment of Taxes. The
Borrowers will, and will cause each of their respective Subsidiaries and each
member of the Controlled Group to, comply with applicable laws (including but
not limited to ERISA), regulations and similar requirements of governmental
authorities (including but not limited to PBGC), except where the necessity of
such compliance is being contested in good faith through appropriate
proceedings. The Borrowers will, and will cause each of their respective
Subsidiaries to, pay promptly when due all taxes, assessments, governmental
charges, claims for labor, supplies, rent and other obligations which, if
unpaid, might become a lien against the property of the Borrowers or any
Subsidiary, except liabilities being contested in good faith by appropriate
proceedings diligently pursued and against which, if requested by the Bank, the
Borrowers will set up reserves satisfactory to the Bank.

SECTION 6.18. Insurance. The Borrowers will maintain, or cause
to be maintained, public liability insurance and fire and extended coverage
insurance on all assets owned by the Borrowers, all in such form and amounts as
are consistent with industry practices and satisfactory to the Bank and with
such insurers as may be satisfactory to the Bank. The Borrowers will maintain,
or cause to be maintained, business interruption insurance in such form and
amounts as are satisfactory to the Bank and with insurers as may be satisfactory
to the Bank. Such policies of insurance or certificates evidencing such policies
shall be deposited with the Bank, or the Borrowers will furnish to the Bank such
evidence of insurance as the Bank may require. All such policies insuring
Collateral shall contain a loss payable clause and standard mortgagee clause, in
form satisfactory to the Bank, in its sole discretion, naming the Bank as loss
payee and mortgagee, as its interests may appear. Each such policy of insurance
or endorsement shall contain a clause requiring the insurer to give the Bank not
less than thirty (30) days written notice before any such policy shall be
altered or cancelled or the coverage thereunder reduced or restricted. Unless
written consent to the contrary is first obtained from the Bank, all proceeds
payable under any such policy shall be payable in any event to the Bank
(regardless of whether an Event of Default has occurred hereunder), and the
insurer named therein is hereby authorized and directed by the Borrowers to make
payment for any loss under any such policy of insurance to the Bank as its
interests may appear, rather than to the Borrowers, or any one or more of them,
and the Bank jointly. The Bank may act as any Borrower's agent in adjusting or
compromising any loss under any such insurance policy and in collecting and
receiving the proceeds from any such policy, and the Bank is hereby appointed
each Borrower's attorney-in-fact (without requiring the Bank to act as such) to
endorse any check which may be payable to such Borrower and to collect such
returned or unearned premiums or the proceeds of such insurance, and any amount
so collected may be applied toward satisfaction of any of the liabilities,
indebtedness or obligations of the Borrowers evidenced by the Notes or arising
from or in connection with this Agreement or any other Loan Document. The
Borrowers hereby agree that, if any Borrower shall default in its obligation
hereunder to insure the Collateral in a manner satisfactory to the Bank, or in
the event any Borrower fails to pay or cause to be paid the premium on any
insurance required hereunder, then the Bank shall have the right (but not the
obligation), in its sole discretion, to procure such insurance and/or pay any
premium on such insurance,

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<PAGE> 43

and to charge the costs of same to the Borrowers, and the Bank may, at its
option, demand reimbursement by the Borrowers for such amounts so paid with
interest thereon at the Default Rate, or the Bank may, at its option, add all
such costs and expenses incurred by the Bank to the unpaid principal amount of
the liabilities, indebtedness and obligations of the Borrowers evidenced by the
Notes and arising from or in connection with this Agreement (which costs and
expenses shall become a part thereof and shall bear interest at the Default Rate
or the highest contract rate permitted by applicable law whichever is less); and
all of the foregoing shall be secured by the Collateral.

SECTION 6.19. Change in Fiscal Year. The Borrowers will not
change their Fiscal Year without the consent of the Bank.

SECTION 6.20. Maintenance of Property. The Borrowers shall
maintain all of their respective Properties and assets in good condition, repair
and working order, ordinary wear and tear excepted, and will pay and discharge
or cause to be paid and discharged when due, the cost of repairs to or
maintenance of the same, and will pay or cause to be paid all rental or mortgage
payments due on such real estate. The Borrowers hereby agree that, in the event
any Borrower fails to pay or to cause to be paid any such payment which failure
continues for five (5) days (unless the validity or amount of such payment is
being contested in good faith, by appropriate proceedings diligently pursued and
the amount thereof is adequately reserved), the Bank may (but shall have no
obligation to) do so and shall be reimbursed by the Borrowers therefor on demand
with interest thereon at the Default Rate. Each Borrower will comply with all
obligations under the leases to which such Borrower is a party with regard to
the Properties.

SECTION 6.21. Environmental Notices. The Borrowers shall
furnish to the Bank prompt written notice of all Environmental Liabilities,
pending, threatened or anticipated Environmental Proceedings, Environmental
Notices, Environmental Judgments and Orders, and Environmental Releases at, on,
in, under or in any way affecting the Properties or any adjacent property, and
all facts, events, or conditions that could lead to any of the foregoing.

SECTION 6.22. Environmental Matters. The Borrowers will not,
and will not permit any Third Party to, use, produce, manufacture, process,
generate, store, dispose of, manage at, or ship or transport to or from the
Properties any Hazardous Materials except for Hazardous Materials such as
cleaning solvents, pesticides and other similar materials used, produced,
manufactured, processed, generated, stored, disposed or managed in the ordinary
course of business in compliance with all applicable Environmental Requirements.

SECTION 6.23. Environmental Release. The Borrowers agree that
upon the occurrence of an Environmental Release they will act immediately to
investigate the extent of, and to take appropriate remedial action to eliminate,
such Environmental Release, whether or not ordered or otherwise directed to do
so by any Environmental Authority.

SECTION 6.24. Transactions with Affiliates. The only
transactions with Affiliates of a Borrower to which any Borrower is a party are
those transactions with Affiliates disclosed in the Parent Company's Form 10-K
annual report for the Fiscal Year ending January 31, 1998 and the Parent
Company's Form 10-Q quarterly report for October 31, 1998, copies of which have
been provided to the Bank; and otherwise, no Borrower shall enter into, or be a
party to, any transaction with any Affiliate

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of a Borrower (which Affiliate is not a Borrower under this Agreement), except
as permitted by law and in the ordinary course of business and pursuant to
reasonable terms which are disclosed to the Bank, consented to in writing by the
Bank, and are no less favorable to such Borrower than would be obtained in a
comparable arm's length transaction with a Person which is not an Affiliate.

SECTION 6.25. Collateral. (a) The Borrowers will collect their
Accounts and sell their Inventory only in the ordinary course of business.

(b) The Borrowers will keep accurate and complete records of
their Accounts, Inventory and Equipment, consistent with sound business
practices.

(c) The Borrowers will notify the Bank ten (10) days in
advance of any change in the location of any place of business of a Borrower or
of the establishment of any new, or the discontinuance of any existing, place of
business or location at which any of the Collateral is kept; and all locations
of the Borrowers' places of business and all locations at which any of the
Collateral is kept are listed on Exhibit H attached hereto.

(d) If requested by the Bank in writing, the Borrowers will
furnish to the Bank written reports, in addition to the other reports and
certificates required of the Borrowers under this Agreement, detailing the aging
of the Receivables and collections thereof, and containing such information with
respect thereto as the Bank may specify. Such reports shall be furnished by the
Borrowers daily, if required by the Bank.

(e) If requested by the Bank in writing from time to time and
at intervals designated by the Bank, the Borrowers shall provide the Bank with
schedules, in addition to the other reports and certificates required of the
Borrowers under this Agreement, of all of Borrowers' Inventory, itemizing and
describing the kind, type, quality and quantity of such Inventory, Borrowers'
cost therefor and selling price thereof, together with such support documents as
the Bank may request, including, without limitation, invoices relating to
Borrowers' purchase of goods listed in said schedule; and the Borrowers shall
not sell Inventory on consignment.

SECTION 6.26. Interest Rate Protection. The Borrowers will
obtain and maintain interest rate protection (for example, without limitation,
an interest rate swap, cap, floor or collar), satisfactory to the Bank on at
least fifty percent (50%) of the Commitment. The Borrowers agree that they will,
from time to time, execute and deliver to the Bank, or cause to be executed and
delivered, such further instruments, documents, contracts and agreement as may
reasonably be required by the Bank for carrying out the requirements for
interest rate protection or facilitating the performance by the Borrowers of
their obligations under this Section 6.26.

SECTION 6.27. Creation, Formation or Acquisition of a
Subsidiary. The Borrowers shall provide the Bank prompt written notice of any
Borrower's desire to create, form or acquire a Subsidiary and shall obtain the
Bank's consent thereto. As soon as practicable and in any event within thirty
(30) days after the creation, formation or acquisition of such Subsidiary, the
Borrowers shall (i) cause such Subsidiary to (A) become a Borrower under this
Agreement, (B) execute in favor of the Bank a security agreement, deed of trust,
security deed, mortgage or other collateral assignment document satisfactory to
the Bank, pledging to the Bank and granting to the Bank a first priority lien on
and

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<PAGE> 45

security interest in all of the Subsidiary's assets, tangible and intangible
personal property and real property interests, and (C) execute in favor of the
Bank a Joinder Agreement in the form of Exhibit "L" attached hereto; and (ii)
deliver to the Bank all resolutions, certifications, security agreements, deeds
of trust, security deeds, mortgages, assignments, Uniform Commercial Code
financing statements, opinions of legal counsel and other documents that the
Bank may reasonably request relating to the existence of such Subsidiary, the
corporate authority for and validity of the Joinder Agreement and this
Agreement, the collateral and any other matters relevant thereto.

SECTION 6.28. Y2K. The Borrowers will meet the milestones
contained in the Y2K Plan and will have all hardware and software systems Year
2000 Compliant and Ready (including all internal and external testing) on or
before June 30, 1999.

SECTION 6.29. New Mortgages. If any Borrower shall acquire at
any time or times hereafter any fee or ground leasehold interest in any real
property, such Borrower agrees promptly to notify the Bank thereof in writing
and, if requested by the Bank, to execute and deliver to the Bank, as additional
security and collateral for the Obligations, deeds of trust, security deeds,
mortgages or other collateral assignments satisfactory in form and substance to
the Bank and its counsel (herein collectively referred to as "New Mortgages")
covering such real property. Each New Mortgage shall be duly recorded in each
office where such recording is required to constitute a valid lien on the real
property covered thereby. The Borrowers shall deliver to the Bank, if requested
by the Bank, at the Borrowers' expense, a satisfactory mortgagee title insurance
policy with respect to each New Mortgage, issued by a title insurance company
satisfactory to the Bank, insuring a valid first lien in favor of the Bank on
the real property covered thereby. The Borrowers shall deliver to the Bank such
other items and documents, as the Bank and its counsel may reasonably request,
relating to the real property subject to any New Mortgage.

SECTION 6.30. Inactive Subsidiaries. No Borrower will create,
acquire or form any inactive Subsidiary or cause any inactive Subsidiary to
become active (for example, by acquiring assets, incurring liabilities,
commencing operations, generating revenues, doing business, etc.) without the
Bank's prior written consent. The only inactive Subsidiaries of a Borrower are
listed on Schedule 6.30 attached hereto and incorporated herein by reference.
The Borrowers agree that if at any time an inactive Subsidiary becomes, with the
Bank's consent, an active Subsidiary, such Subsidiary shall immediately be
subject to the provisions of Section 6.27 of this Agreement.

ARTICLE VII. DEFAULTS

SECTION 7.01. Events of Default. The occurrence of any one or
more of the following events shall constitute an Event of Default by the
Borrowers under this Agreement:

(a) any of the Borrowers shall fail to pay when due any
principal of any Loan, or shall fail to pay any interest on any Loan within five
(5) Domestic Business Days after such interest shall become due, or shall fail
to pay any fee or other amounts payable hereunder within five (5) Domestic
Business Days after such fee or other amount becomes due; or

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<PAGE> 46

(b) any of the Borrowers shall fail to observe or perform any
covenant contained in Sections 6.03 through 6.17, inclusive and Sections 6.18,
6.25 and 6.27; or

(c) any of the Borrowers shall fail to observe or perform any
covenant or agreement contained in this Agreement (other than those covered by
clause (a) or (b) above) for thirty days after the earlier of (i) the first day
on which a responsible officer of any Borrower has knowledge of such failure, or
(ii) written notice thereof has been given to any Borrower by the Bank; or

(d) any representation, warranty, certification or statement
made or deemed made by any of the Borrowers in Article V or in any certificate,
financial statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect or misleading in any material respect when made (or
deemed made); or

(e) any of the Borrowers or any Subsidiary of a Borrower shall
fail to make any payment when due or within any applicable grace period in
respect of Debt outstanding (other than the Notes), which Debt in the aggregate
exceeds $100,000.00; or

(f) any event or condition shall occur which results in the
acceleration of the maturity of Debt outstanding of any Borrower or any
Subsidiary of a Borrower which in the aggregate exceeds $100,000.00 or the
mandatory prepayment or purchase of such Debt by any Borrower (or its designee)
or such Subsidiary (or its designee) prior to the scheduled maturity thereof or
enables (or, with the giving of notice or lapse of time or both, would enable)
the holders of such Debt or any Person acting on such holders' behalf to
accelerate the maturity thereof or require the mandatory prepayment or purchase
thereof prior to the scheduled maturity thereof, without regard to whether such
holders or other Person shall have exercised or waived their right to do so;

(g) any Borrower or any Subsidiary of a Borrower shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or

(h) an involuntary case or other proceeding shall be commenced
against any Borrower or any Subsidiary of a Borrower seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against any Borrower
or any Subsidiary of a Borrower under the federal bankruptcy laws as now or
hereafter in effect; or

(i) any Borrower or any member of the Controlled Group shall
fail to pay when due any material amount which it shall have become liable to
pay to the PBGC or to any Plan under Title IV of ERISA; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause

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<PAGE> 47

a trustee to be appointed to administer any such Plan or Plans or a proceeding
shall be instituted by a fiduciary of any such Plan or Plans to enforce Section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within 30 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any such Plan or
Plans must be terminated; or any Borrower or any other member of the Controlled
Group shall enter into, contribute or be obligated to contribute to, terminate
or incur any withdrawal liability with respect to, a Multiemployer Plan; or

(j) one or more judgments or orders for the payment of money
in an aggregate amount in excess of $100,000.00 shall be rendered against any
Borrower or any Subsidiary of a Borrower and such judgment or order shall
continue unsatisfied and unstayed for a period of 30 days; or

(k) a federal tax lien shall be filed against any Borrower or
any Subsidiary of a Borrower under Section 6323 of the Code or a lien of the
PBGC shall be filed against a Borrower or any Subsidiary of a Borrower under
Section 4068 of ERISA and in any case such lien shall remain undischarged for a
period of 25 days after the date of filing; or

(l) (i) any Person or two or more Persons (other than S.
Leslie Flegel and William H. Lee, Jr. with respect to the Parent Company) acting
in concert shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of the voting stock of any
Borrower; or (ii) as of any date a majority of the Board of Directors of a
Borrower consists of individuals who were not either (A) directors of such
Borrower as of the corresponding date of the previous year, (B) selected or
nominated to become directors by the Board of Directors of such Borrower of
which a majority consisted of individuals described in clause (A), or (C)
selected or nominated to become directors by the Board of Directors of such
Borrower of which a majority consisted of individuals described in clause (A)
and individuals described in clause (B); or

(m) a judgment creditor of any Borrower shall lawfully obtain
and retain for at least five (5) days possession of any material portion of the
Collateral by any lawful means, including, but without limitation, levy,
distraint, replevin or self-help; or

(n) the occurrence of an Event of Default under the
Reimbursement Agreement; or

(o) a default or an event of default under the Security
Agreement or any one or more of the Mortgages shall occur and be continuing; or

(p) the occurrence of any event, act or condition which the
Bank determines either does or has a reasonable probability of causing a
Material Adverse Effect; or

(q) a breach, violation, failure of performance, default or
event of default shall occur and be continuing under the FMA Agreement or the
FMA Agreement is terminated; or

(r) a breach, violation, failure of performance, default or
event of default shall occur and be continuing under any International Swap
Dealers Association, Inc. Master Agreement now or

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<PAGE> 48

hereafter executed by and between the Bank and the Parent Company or any other
Borrower (herein referred to as a "Master Agreement"); or

(s) a breach, violation, failure of performance, default or
event of default shall occur and be continuing under the Guaranty or the
Guaranty is terminated.

SECTION 7.02. Remedies on Default. Upon the occurrence of an
Event of Default, the Bank may, by notice to the Borrowers, terminate the
Revolving Credit Commitment which shall thereupon terminate, and by notice to
the Borrowers declare the Notes (together with accrued interest thereon) to be,
and the Notes and all outstanding Loans shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; provided that if any Event of
Default specified in clause (g) or (h) above occurs with respect to any
Borrower, without any notice to the Borrowers or any other act by the Bank, the
Revolving Credit Commitment shall thereupon terminate and the Notes and all
outstanding Loans (together with accrued interest thereon) and fees shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers. In addition and
upon the occurrence of an Event of Default, the Bank may exercise any rights,
powers or remedies under any of the Loan Documents. Notwithstanding the
foregoing, the Bank shall have available to it all rights and remedies provided
under the Loan Documents (including, without limitation, the Collateral
Documents) and in addition thereto, all other remedies at law or in equity, and
may exercise any one or all of them.

SECTION 7.03. Security Interest; Offset. In addition to, and
not in limitation of, all rights of offset that the Bank or other holder of the
Notes may have under applicable law, the Borrowers hereby grant to the Bank, and
to each Participant, Assignee or other Transferee, as security for the full and
punctual payment and performance of the obligations to pay to the Bank the
principal of and interest on the Loans and other amounts due hereunder, a
continuing lien on and security interest in all deposits and other sums credited
by or due from the Bank (or such Participant, Assignee or other Transferee) to
the Borrowers or subject to withdrawal by the Borrowers; and regardless of the
adequacy of any collateral or other means of obtaining repayment of the
Obligations, the Bank (and each such Assignee and, to the extent permitted by
applicable law, each such Participant and other Transferee) may, at any time
after the occurrence of an Event of Default and without notice to the Borrowers,
set off the whole or any portion or portions of any or all such deposits and
other sums against the amounts owing under this Agreement and the Notes, whether
or not any other Person or Persons could also withdraw money therefrom.

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<PAGE> 49

ARTICLE VIII. MISCELLANEOUS

SECTION 8.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission or similar writing) and shall be given to such party at its address
or facsimile number set forth below or such other address or facsimile number as
such party may hereafter specify for the purpose by notice to the other party:

(a) If to the Borrowers:

The Source Information Management Company
11644 Lilburn Park Road
St. Louis, Missouri 63146
Attention: Mr. S. Leslie Flegel
Fax number: (314) 995-9022

(b) If to the Bank:

Wachovia Bank, N.A.
Post Office Box 21048
Greensboro, North Carolina 27420-1048
[230 North Elm Street - 27401-2429]
Attention: John K. Stephens, Jr.
Fax number: 336-412-7100

Each such notice, request or other communication shall be effective (i) if given
by facsimile transmission, when such facsimile is transmitted to the fax number
specified in this Section and the facsimile machine used by the sender provides
a written confirmation that such facsimile has been so transmitted or receipt of
such facsimile transmission is otherwise confirmed, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
to the Bank under Article IIA, Article IIB, Article IIC or Article III shall not
be effective until received.

SECTION 8.02. No Waivers. No failure or delay by the Bank in
exercising any right, power or privilege hereunder or under the Notes or any
other Loan Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

SECTION 8.03. Expenses; Documentary Taxes; Indemnification.
(a) The Borrowers shall pay (i) all out-of-pocket expenses of the Bank,
including without limitation, reasonable attorneys' fees and all disbursements
of attorneys for the Bank, in connection with the preparation of this Agreement
and the other Loan Documents, any waiver or consent hereunder or any amendment
hereof or any actual or alleged Default hereunder and (ii) if an Event of
Default occurs, all out-of-pocket expenses incurred by the Bank, including fees
and disbursements of counsel, in connection with such

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<PAGE> 50

Event of Default and collection and other enforcement proceedings resulting
therefrom, including out-of-pocket expenses incurred in enforcing this Agreement
and the other Loan Documents.

(b) The Borrowers shall indemnify the Bank against any
transfer taxes, documentary taxes, assessments or charges made by any Authority
by reason of the execution and delivery of this Agreement or the other Loan
Documents.

(c) The Borrowers shall indemnify the Bank and each Affiliate
thereof and their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims or
damages to which any of them may become subject, insofar as such losses,
liabilities, claims or damages arise out of or result from any actual or
proposed use by the Borrowers of the proceeds of any extension of credit by the
Bank hereunder or breach by the Borrowers of this Agreement or any other Loan
Document or from investigation, litigation (including, without limitation, any
actions taken by the Bank to enforce this Agreement or any of the other Loan
Documents) or other proceeding (including, without limitation, any threatened
investigation or proceeding) relating to the foregoing, and the Borrowers shall
reimburse the Bank, and each Affiliate thereof and their respective directors,
officers, employees and agents, upon demand for any expenses (including, without
limitation, reasonable attorneys' fees and all disbursements of attorneys for
the Bank, any Affiliate thereof, or any such other Person) incurred in
connection with any such investigation or proceeding; but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.

SECTION 8.04. Amendments and Waivers. Any provision of this
Agreement, the Notes or any other Loan Document may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrowers
and the Bank.

SECTION 8.05. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided that no Borrower
may assign or otherwise transfer any of its rights under this Agreement.

(b) The Bank may at any time sell to one or more Persons (each
a "Participant") participating interests in any Loan, Advance, Note, the
Revolving Credit Commitment or any other interest of the Bank hereunder. In the
event of any such sale by the Bank of a participating interest to a Participant,
the Bank's obligations under this Agreement shall remain unchanged, the Bank
shall remain solely responsible for the performance thereof, the Bank shall
remain the holder of the Notes for all purposes under this Agreement, and the
Borrowers shall continue to deal solely and directly with the Bank in connection
with the Bank's rights and obligations under this Agreement. In no event shall
the Bank be obligated to the Participant to take or refrain from taking any
action hereunder except that the Bank may agree that it will not (except as
provided below), without the consent of the Participant, agree to (i) the change
of any date fixed for the payment of principal of or interest on the related
Loan or Loans, (ii) the change of the amount of any principal, interest or fees
due on any date fixed for the payment thereof with respect to the related Loan
or Loans, (iii) the change of the principal of the related Loan or Loans, (iv)
any change in the rate at which either interest is payable thereon or (if the
Participant is entitled to any part thereof) commitment fee is payable hereunder
from the rate at which the Participant is entitled to receive interest or
commitment fee (as the case may be) in respect of such participation, (v) the
release or substitution of all or any substantial part of the Collateral held as
security

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<PAGE> 51

for the Loans. The Bank shall, within ten Domestic Business Days after selling a
participating interest in any Loan, any Note, the Revolving Credit Commitment or
other interest under this Agreement, provide the Borrowers with written
notification stating that such sale has occurred and identifying the Participant
and the interest purchased by such Participant. The Borrowers agree that each
Participant shall be entitled to the benefits of Article III and Section 7.03
with respect to its participation in Loans outstanding from time to time.

(c) The Bank may at any time assign to one or more banks or
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume all such rights and obligations, pursuant to an Assignment
and Acceptance in the form attached hereto as Exhibit D executed by such
Assignee, the Bank and the Borrowers; provided that (i) no interest may be sold
by the Bank pursuant to this paragraph (c) unless the Assignee shall agree to
assume ratably equivalent portions of the Commitment, and (ii) no interest may
be sold by the Bank pursuant to this paragraph (c) to any Assignee which is not
an Affiliate of the Bank without the consent of the Borrowers, which consent
shall not be unreasonably withheld or delayed, provided that the Borrowers'
consent shall not be necessary with respect to any assignment made during the
existence of a Default or Event of Default. Upon (A) execution of the Assignment
and Acceptance by the Bank, such Assignee, and the Borrowers, (B) delivery of an
executed copy of the Assignment and Acceptance to the Borrowers, and (C) payment
by such Assignee to the Bank of an amount equal to the purchase price agreed
between the Bank and such Assignee, such Assignee shall for all purposes be a
Bank party to this Agreement and shall have all the rights and obligations of a
Bank under this Agreement to the same extent as if it were an original party
hereto with a Commitment as set forth in such instrument of assumption, and the
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by the Borrowers or the Bank shall be required.
Upon the consummation of any transfer to an Assignee pursuant to this paragraph
(c), the Bank and the Borrowers shall make appropriate arrangements so that, if
required, a new Note is issued to such Assignee.

(d) Subject to the provisions of Section 8.06, the Borrowers
authorize the Bank to disclose to any Participant, Assignee or other transferee
(each a "Transferee") and any prospective Transferee any and all financial
information in the Bank's possession concerning the Borrowers which has been
delivered to the Bank by the Borrowers pursuant to this Agreement or which has
been delivered to the Bank by the Borrowers in connection with the Bank's credit
evaluation prior to entering into this Agreement.

(e) No Transferee shall be entitled to receive any greater
payment under Section 3.03 than the transferor Bank would have been entitled to
receive with respect to the rights transferred, unless such transfer is made
with the Borrowers' prior written consent or by reason of the provisions of
Section 3.03 requiring the Bank to designate a different Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.

(f) Anything in this Section 8.05 to the contrary
notwithstanding, the Bank may assign and pledge all or any Loans and/or
obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and Operating Circular issued by such
Federal Reserve Bank, provided that any payment in respect of such assigned
Loans and/or obligations made by the Borrowers to the Bank in

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accordance with the terms of this Agreement shall satisfy the Borrowers'
obligations hereunder in respect of such assigned Loans and/or obligations to
the extent of such payment. No such assignment shall release the Bank from its
obligations hereunder.

SECTION 8.06. Confidentiality. The Bank agrees to exercise its
best efforts to keep any information delivered or made available by the
Borrowers to it which is clearly indicated to be confidential information,
confidential from any one other than persons employed or retained by the Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided, however, that nothing herein shall prevent
the Bank from disclosing such information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of any regulatory agency
or authority having jurisdiction over the Bank, (iii) which has been publicly
disclosed, (iv) to the extent reasonably required in connection with any
litigation to which the Bank or their respective Affiliates may be a party, (v)
to the extent reasonably required in connection with the exercise of any remedy
hereunder, (vi) to the Bank's legal counsel and independent auditors and (vii)
to any actual or proposed Participant, Assignee or other Transferee of all or
part of its rights hereunder which has agreed in writing to be bound by the
provisions of this Section.

SECTION 8.07. Interest Limitation. Notwithstanding any other
term of this Agreement, the Notes or any other Loan Document, the maximum amount
of interest which may be charged to or collected from any person liable
hereunder or under the Notes by the Bank shall be absolutely limited to, and
shall in no event exceed, the maximum amount or interest which could lawfully be
charged or collected under applicable law (including, to the extent applicable,
the provisions of section 5197 of the Revised Statutes of the United States of
America, as amended, 12 U.S.C. ss.85, as amended), so that the maximum of all
amounts constituting interest under applicable law, howsoever computed, shall
never exceed as to any Person liable therefor such lawful maximum, and any term
of this Agreement, the Notes or any other Loan Document which could be construed
as providing for interest in excess of such lawful maximum shall be and hereby
is made expressly subject to and modified by the provisions of this paragraph.

SECTION 8.08. Survival of Certain Obligations. Article III and
the obligations of the Borrowers thereunder, and Section 8.03 and the
obligations of the Borrowers thereunder, shall survive, and shall continue to be
enforceable notwithstanding, the termination of this Agreement and the
Commitment and the payment in full of the principal of and interest on the
Loans.

SECTION 8.09. Governing Law. This Agreement and the Notes
shall be construed in accordance with and governed by the law of the State of
North Carolina. This Agreement and the Notes are intended to be effective as
instruments executed under seal.

SECTION 8.10. Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 8.11. Consent to Jurisdiction. The Borrowers (a)
submit to personal jurisdiction in the State of North Carolina, the courts
thereof and the United States District Courts sitting therein, for the
enforcement of this Agreement, the Notes and the other Loan Documents, (b) waive
any and all personal rights under the law of any jurisdiction to object on any
basis (including, without

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<PAGE> 53

limitation, inconvenience of forum) to jurisdiction or venue within the State of
North Carolina for the purpose of litigation to enforce this Agreement, the
Notes or the other Loan Documents, and (c) agree that service of process may be
made upon them in the manner prescribed in Section 8.01 for the giving of notice
to the Borrowers. Nothing herein contained, however, shall prevent the Bank from
bringing any action or exercising any rights against any security and against a
Borrower personally, and against any assets of a Borrower, within any other
state or jurisdiction.

SECTION 8.12. Joint and Several Liability.

(a) The Borrowers are accepting the joint and several
liability provided for hereunder in consideration of the financial
accommodations provided and to be provided by the Bank under this Agreement for
the mutual benefit, directly and indirectly, of the Borrowers and in
consideration of each of the undertakings of each Borrower herein to accept
joint and several liability, for their mutual benefit, for the obligations of
each of the other of them.

(b) The Borrowers, jointly and severally as hereinafter
described, hereby irrevocably and unconditionally accept, not merely as surety
but also as co-debtors, joint and several liability with respect to the payment
and performance of all of the indebtedness, liabilities and obligations under
this Agreement, the Notes and the other Loan Documents, it being the intention
of the parties hereto that all the indebtedness, liabilities and obligations
under this Agreement, the Notes and the other Loan Documents shall be the joint
and several obligations of all the Borrowers without preference or distinction
among them.

(c) If and to the extent that any Borrower shall fail to make
any payment with respect to any of the indebtedness, liabilities and obligations
under this Agreement, the Notes and the other Loan Documents, as and when due or
to perform any of the indebtedness, liabilities and obligations under this
Agreement, the Notes and the other Loan Documents in accordance with the terms
thereof, then in each such event each of the other Borrowers will, forthwith
upon demand by the Bank, make such payment with respect to, or perform, such
indebtedness, liabilities and obligations under this Agreement, the Notes and
the other Loan Documents pursuant to the terms hereof.

(d) Each Borrower hereby acknowledges and consents to all
provisions of this Agreement. In connection with its obligations under this
Section, except to the extent that notice is expressly required by this
Agreement, each Borrower hereby waives notice of acceptance of the joint and
several liability contained in this Section, notice of any loan or advance to
any Borrower under this Agreement, notice of the occurrence of any Default or
any Event of Default or of any demand upon any Borrower for any payment under
this Agreement, notice of any action at any time taken or omitted by the Bank
under or in respect of this Agreement, any Note or any other Loan Document and,
generally, all demands, notices, protests and other formalities of every kind in
connection with the joint and several liability contained in this Section and
the other provisions of this Agreement. In connection with its obligations under
this Section, each Borrower hereby assents to, and waives notice of, any
extension or postponement of the time for the payment of any of the
indebtedness, liabilities and obligations under this Agreement, the Notes and
the other Loan Documents, the acceptance of any partial payment thereon, any
waiver, consent or other action or acquiescence by the Bank at any time or times
in respect of any Default by any Borrower in the performance or satisfaction of
any term, covenant, condition or provision of this Agreement, the Notes or any
other Loan Document, any and all other indulgences

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<PAGE> 54

whatsoever by the Bank in respect of any of the indebtedness, liabilities and
obligations under this Agreement, the Notes and the other Loan Documents, and
the taking, addition, substitution or release, in whole or in part, at any time
or times, of any security for any of the indebtedness, liabilities and
obligations under this Agreement, the Notes and the other Loan Documents or the
addition, substitution or release, in whole or in part, of any Person or Persons
primarily or secondarily liable in respect of any of the indebtedness, liability
and obligations under this Agreement, the Notes and the other Loan Documents.
Each of the Borrowers also waives: (i) any right to require the Bank to (A)
proceed against any other Person, including any other Borrower, or (B) pursue
any other remedy; and (ii) any defense arising by reason of (A) any disability
or other defense of any Borrower or any other Person, (B) the cessation from any
cause whatsoever, other than payment or performance in full, of any of the
indebtedness, liabilities and obligations under this Agreement, the Notes and
the other Loan Documents of the Borrowers or any other Person, or (C) any act or
omission by the Bank which directly or indirectly results in or aids the
discharge of any Borrower or any indebtedness, liabilities and obligations under
this Agreement, the Notes and the other Loan Documents by operation of law or
otherwise. The obligations of each Borrower under this Section shall not be
diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, reconstruction or similar proceeding with respect to
any Borrower or the Bank. The joint and several liability of each Borrower in
this Section shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
charter, membership, constitution or place of formation of any Borrower or the
Bank. Each of the Borrowers agrees that each of the waivers set forth above are
made with such Borrower's full knowledge of their significance and consequences,
and such Borrower agrees that, under the circumstances, the waivers are
reasonable and not contrary to public policy or law. If any of said waivers are
determined to be contrary to any applicable law or public policy, such waivers
shall be effective only to the extent permitted by law.

(e) The provisions of this Section 8.12 are made for the
benefit of the Bank and its successors and assigns, and may be enforced by the
Bank from time to time against any of the Borrowers as often as occasion
therefore may arise and without requirement on the Bank's part first to marshal
any claims or to exercise any rights against any other Borrower or to exhaust
any remedies available to the Bank against another Borrower or to resort to any
other source or means of obtaining payment of any of the indebtedness,
liabilities and obligations evidenced by or arising under this Agreement, the
Notes and the Loan Documents or to elect any other remedy. The provisions of
this Section 8.12 shall remain in effect until all the indebtedness, liabilities
and obligations evidenced by or arising under this Agreement, the Notes and the
Loan Documents shall have been paid in full or otherwise fully satisfied. If at
any time, any payment, or any part thereof, made in respect of any of the
indebtedness, liabilities and obligations evidenced by or arising under this
Agreement, the Notes and the Loan Documents, is rescinded or must otherwise be
restored or returned by the Bank upon the insolvency, bankruptcy or
reorganization of any of the Borrowers, or otherwise, the provisions of this
Section 8.12 will forthwith be reinstated in effect, as though such payment had
not been made.

(f) Notwithstanding any provision to the contrary contained
herein, in the Notes or in any other of the Loan Documents, to the extent the
joint obligations of any Borrower shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of

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<PAGE> 55

each Borrower hereunder shall be limited to the maximum amount that is
permissible under applicable law (whether federal or state and including,
without limitation, the federal Bankruptcy Code).

SECTION 8.13. Severability. If any provisions of this
Agreement shall be held invalid under any applicable laws, such invalidity shall
not affect any other provision of this Agreement that can be given effect
without the invalid provision, and, to this end, the provisions hereof are
severable.

SECTION 8.14. Captions. Captions in this Agreement are for the
convenience of reference only and shall not affect the meaning or interpretation
of the provisions hereof.

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<PAGE> 56

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the year and day first above written.

BORROWERS:

THE SOURCE INFORMATION MANAGEMENT COMPANY
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

SOURCE-MYCO, INC.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

SOURCE-YEAGER INDUSTRIES, INC.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: President
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

SOURCE-U.S. MARKETING SERVICES, INC.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: President
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]
SOURCE-CHESTNUT DISPLAY SYSTEMS, INC.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: President
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

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<PAGE> 57

THE SOURCE-CANADA CORP.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

T.C.E. CORPORATION
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

BRAND MANUFACTURING CORP.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]

VAIL COMPANIES, INC.
ATTEST:
By: S. Leslie Flegel
---------------------------------------------
W. Brian Rodgers Title: CEO
- ---------------------------- ------------------------------------------
Secretary

[CORPORATE SEAL]
BANK:

WACHOVIA BANK, NATIONAL ASSOCIATION

By:
----------------------------------------
Title:
-------------------------------------

Lending Office

Wachovia Bank, N.A.
230 North Elm Street
Greensboro, North Carolina 27401-2729

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<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Source Information Management Company
St. Louis, Missouri

We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement of our report dated March 27, 1998, relating to the
consolidated financial statements of The Source Information Management Company.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

St. Louis, Missouri
April 23, 1999

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Source Information Management Company
St. Louis, Missouri

We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement of our report dated March 9, 1999, relating to the
consolidated financial statements of U.S. Marketing Services, Inc.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

New York, New York
April 23, 1999

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Source Information Management Company
St. Louis, Missouri

We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement of our report dated March 9, 1999, relating to the
combined financial statements of Brand Manufacturing Corp. and TCE Corporation.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

New York, New York
April 23, 1999

<PAGE> 1
EXHIBIT 23.4

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated April 17, 1998 with respect to the financial
statements of Brand Manufacturing Corp., included in the Registration Statement
(Form S-2 to be filed on or about April 23, 1999) and related Prospectus of The
Source Information Management Company for the registration of 4,600,000 shares
of its Common Stock.

/s/ ERNST & YOUNG LLP

Vienna, Virginia
April 22, 1999

<PAGE> 1
EXHIBIT 23.5

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated April 17, 1998 with respect to the financial
statements of T.C.E. Corporation included in the Registration Statements (Form
S-2 to be filed on or about April 23, 1999) and related Prospectus of The
Source Information Management Company for the registration of 4,600,000 shares
of its Common Stock.

/s/ ERNST & YOUNG LLP

Vienna, Virginia
April 22, 1999