<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

 -------------------------------------------------------------------------------
                                 FORM 10-QSB-A

   
                               AMENDMENT # 2
    
               QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE

                        SECURITIES EXCHANGE ACT OF 1934

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


                  For the Second Quarter Ended March 29, 1997
                         Commission File Number: 0-2675

                            United Magazine Company
                              An Ohio Corporation
                           I.R.S. Number: 31-0681050

                                 5131 Post Road
                               Dublin, Ohio 43017
                 Registrant's Telephone Number: (614) 792-0777

         Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.

                     Yes:   X                     No:
                          -----                       -----
         Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.

         The Registrant's number of common shares, without par value,
outstanding as of May 30, 1997 was 26,760,334. After adjustment for the
anticipated one for ten reverse split to be effective after the 1997 Annual
Meeting of Shareholders, the adjusted number of common shares is 2,676,034.

           Traditional Small Business Disclosure Format (check one):

                     Yes:   X                     No:
                          -----                       -----

<PAGE>   2

                            UNITED MAGAZINE COMPANY

                                  FORM 10-QSB

                  FOR THE SECOND QUARTER ENDED MARCH 29, 1997

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                    <C>
PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements:

           Condensed Consolidated Balance Sheets                                                        3
                    March 29, 1997 and September 28, 1996

           Condensed Consolidated Statements of Operations (Unaudited)                                  5
                    For the Three Months and Six Months Ended March 29, 1997
                    and March 30, 1996

           Condensed Consolidated Statements of Cash Flow (Unaudited)                                   6
                    For the Six Months Ended March 29, 1997 and March 30, 1996

           Notes to Condensed Consolidated Financial Statements                                         7

Item 2.    Management's Discussion and Analysis of Financial                                           11
           Condition and Results of Operations

PART II - OTHER INFORMATION AND SIGNATURES

Item 1.    Legal Proceedings                                                                           20

Item 2.    Change in Securities                                                                        20

Item 3.    Default Upon Senior Securities                                                              20

Item 4.    Submission of Matters to a Vote of Security Holders                                         20

Item 5.    Other Information                                                                           20

Item 6.    Exhibits and Reports on Form 8-K                                                            20

Signatures                                                                                             21
</TABLE>


<PAGE>   3

                            UNITED MAGAZINE COMPANY
                                  FORM 10-QSB
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                  AS OF MARCH 29, 1997 AND SEPTEMBER 28, 1996

<TABLE>
<CAPTION>
                                                                               March 29,         September 28,
                              ASSETS                                             1997                 1996    
                                                                             -------------       -------------
                                                                              (Unaudited)          (Audited)
<S>                                                                          <C>                  <C>
   
CURRENT ASSETS:
   Cash                                                                       $    714,166        $  2,546,785
   Accounts receivable, net                                                     40,795,550          29,835,357
   Inventories                                                                  29,214,740          35,746,922
   Marketable securities                                                           278,563             473,556
   Notes receivable from related parties                                         1,352,646           1,352,646
   Prepaids and other                                                            1,262,019           1,335,458
                                                                             -------------       -------------
              Total current assets                                              73,617,684          71,290,724
                                                                                 -------------       -------------

PROPERTY AND EQUIPMENT, at cost:
   Land                                                                            290,706             290,706
   Building and improvements                                                     2,260,740           2,260,740
   Furniture and equipment                                                       6,521,120           6,174,452
   Vehicles                                                                      5,117,802           4,789,336
   Leasehold improvements                                                          526,816             522,336
                                                                             -------------       -------------
                                                                                14,717,184          14,037,570
   Less - accumulated depreciation and amortization                             (3,297,732)         (1,585,503)
                                                                             -------------       ------------- 

              Total property and equipment, net                                 11,419,452          12,452,067
                                                                             -------------       -------------

ASSETS HELD FOR SALE                                                               -                 1,239,605
                                                                             -------------       -------------

   
OTHER ASSETS:
   Sales orders and regulatory records, net                                        296,600             423,720
   Costs in excess of net assets acquired, net                                 152,323,477         154,518,179
   Covenants not to compete, net                                                   443,187             538,777
   Notes receivable from related parties                                         1,786,645           1,788,645
   Prepaids                                                                      4,572,378           5,501,703
   Other assets, net                                                             4,374,941           3,617,107
                                                                             -------------       -------------
              Total other assets                                               163,797,228         166,388,131
                                                                             -------------       -------------

              Total assets                                                    $248,834,364        $251,370,527
                                                                             =============       =============
</TABLE>


  The accompanying notes to consolidated financial statements are an integral
                   part of these consolidated balance sheets.

                                       3

<PAGE>   4

                            UNITED MAGAZINE COMPANY
                                  FORM 10-QSB
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                  AS OF MARCH 29, 1997 AND SEPTEMBER 28, 1996

<TABLE>
<CAPTION>
                                                                               March 29,         September 28,
               LIABILITIES AND SHAREHOLDERS' EQUITY                              1997                 1996    
                                                                             -------------       -------------
                                                                              (Unaudited)          (Audited)
<S>                                                                          <C>                <C>
CURRENT LIABILITIES:
   Current portion of debt obligations                                        $  9,511,486       $  10,822,386
   Current portion of Senior debentures                                          6,658,589           3,329,295
   Short-term borrowings - related parties                                       5,830,960           6,206,853
   Accounts payable                                                             79,842,336          70,302,971
   Accrued expenses                                                             12,761,542          12,762,143
   Accrued interest on debentures                                                3,659,590           1,041,006
   Income taxes payable                                                          1,534,602           1,534,602
   Reserve for gross profit on sales returns                                     7,611,462          10,474,409
                                                                             -------------       -------------
              Total current liabilities                                        127,410,567         116,473,665

LONG-TERM DEBT OBLIGATIONS                                                       7,544,961           9,247,711

DEBENTURES:
   - Senior                                                                     33,261,226          36,590,520
   - Subordinated                                                               18,559,707          18,559,707

DEFERRED COMPENSATION PLAN                                                       1,160,055           1,231,041

ACCRUED PENSION OBLIGATION                                                       2,204,939           2,115,478

POST-RETIREMENT OBLIGATION                                                       1,283,020           1,450,015

DEALER ADVANCE PAYMENTS AND OTHER                                                  135,659             146,938
                                                                             -------------       -------------
              Total liabilities                                                191,560,134         185,815,075
                                                                             -------------       -------------

COMMITMENTS AND CONTINGENCIES

COMMON STOCK SUBJECT TO PUT AGREEMENTS, 482,140 shares
                                                                                 4,622,890           4,329,287
                                                                             -------------       -------------

SHAREHOLDERS' EQUITY:
   Common stock, no par value, 53,250,000 shares authorized, 4,283,506 
     issued and 2,676,034 outstanding (including shares 
     subject to Put Agreements)                                                        250                 250
   Paid-in capital                                                              43,306,872          43,079,563
   Obligation to issue shares (4,349,476)                                       65,242,138          65,242,138
   Treasury stock, at cost                                                         (16,998)            (16,998)
   Unrealized loss                                                                (226,212)            (31,219)
   Minimum pension liability adjustment                                           (108,204)           (108,204)
   Retained deficit                                                            (55,546,506)        (46,939,365)
                                                                             -------------       ------------- 
              Total shareholders' equity                                        52,651,340          61,226,165
                                                                             -------------       -------------

              Total liabilities and shareholders' equity                      $248,834,364        $251,370,527
                                                                             =============       =============
</TABLE>

  The accompanying notes to consolidated financial statements are an integral
                   part of these consolidated balance sheets.

                                       4

<PAGE>   5

                            UNITED MAGAZINE COMPANY
                                  FORM 10-QSB
                  FOR THE SECOND QUARTER ENDED MARCH 29, 1997
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       MARCH 29, 1997 AND MARCH 30, 1996

<TABLE>
<CAPTION>
                                                          3 Months       3 Months      6 Months       6 Months  
                                                         Ended 1997     Ended 1996    Ended 1997     Ended 1996 
                                                        ------------   ------------  -------------  ------------
                                                        (Unaudited)    (Unaudited)    (Unaudited)   (Unaudited)
<S>                                                     <C>
NET SALES                                                $75,675,010    $13,559,708   $150,103,512   $20,029,089

COST OF SALES                                             59,094,651     10,153,582    117,060,226    14,887,022
                                                        ------------   ------------  -------------  ------------

              Gross profit                                16,580,359      3,406,126     33,043,286     5,142,067

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             (16,433,126)    (3,387,163)   (33,808,912)   (4,933,051)

DEPRECIATION AND AMORTIZATION                             (2,209,964)      (384,100)    (4,575,678)     (586,200)

LOSS FROM INVESTMENT IN WILMINGTON                           -              -              -             (90,192)
                                                        ------------   ------------  -------------  ------------ 

LOSS FROM OPERATIONS                                      (2,062,731)      (365,137)    (5,341,304)     (467,376)
                                                        ------------   ------------  -------------  ------------ 

OTHER INCOME (EXPENSES), net:
   Interest expense, net                                  (1,774,086)      (154,525)    (3,420,035)     (277,465)
   Other, net                                                103,985         28,957        154,198        41,949
                                                        ------------   ------------  -------------  ------------

              Total other income (expenses), net          (1,670,101)      (125,568)    (3,265,837)     (235,516)
                                                        ------------   ------------  -------------  ------------ 

LOSS BEFORE TAXES                                         (3,732,832)      (490,705)    (8,607,141)     (702,892)

INCOME TAXES                                                 -              -              -             -      
                                                        ------------   ------------  -------------  ------------

NET LOSS                                                $ (3,732,832)  $   (490,705) $  (8,607,141) $   (702,892)
                                                        ============   ============  =============  ============

WEIGHTED AVERAGE SHARES OUTSTANDING                        7,062,072      2,674,780      7,058,268     2,671,885
                                                        ============   ============  =============  ============

LOSS PER SHARE                                          $       (.53)  $       (.18) $       (1.22) $       (.26)
                                                        ============   ============  =============  ============
</TABLE>

  The accompanying notes to consolidated financial statements are an integral
                     part of these consolidated statements.

                                       5

<PAGE>   6

                            UNITED MAGAZINE COMPANY
                                  FORM 10-QSB
                  FOR THE SECOND QUARTER ENDED MARCH 29, 1997
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                            FOR THE SIX MONTHS ENDED
                       MARCH 29, 1997 AND MARCH 30, 1996

<TABLE>
<CAPTION>
                                                                               6 Months            6 Months    
                                                                                 Ended               Ended
                                                                               March 29,           March 30,
                                                                                 1997                1996     
                                                                             -------------       -------------
                                                                              (Unaudited)         (Unaudited)
<S>                                                                             <C>                   <C>
NET CASH PROVIDED  BY (USED IN) OPERATING ACTIVITIES                         $   2,058,108       $    (112,011)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                            (679,614)           (281,792)
   Additions of long-term assets                                                (1,061,175)            -
   Proceeds from sale of Airplane held for resale                                1,239,605             -      
                                                                             -------------       -------------
              Net cash provided by (used in) investing activities                 (501,184)           (281,792)
                                                                             -------------       ------------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of debt obligations                                                  (3,389,543)           (225,929)
   Other                                                                           -                     8,933
                                                                             -------------       -------------
              Net cash provided by (used in) financing activities               (3,389,543)           (216,996)
                                                                             -------------       ------------- 

NET DECREASE IN CASH AND EQUIVALENTS                                            (1,832,619)            610,799

CASH, beginning of period                                                        2,546,785             755,338
                                                                             -------------       -------------

CASH, end of period                                                          $     714,166       $     144,539
                                                                             =============       =============

Supplemental Disclosure of Cash Flow Information:
   Cash paid during the period for interest                                  $   1,041,644       $      33,054
   Cash paid during the period for taxes                                            17,903              22,150
</TABLE>


Supplemental Schedule of Noncash Investing and Financing Activities:

1997:  None

1996: During the second quarter of 1996, UNIMAG purchased all of the
outstanding stock of Triangle News Company, Inc. See Note 7 to the Financial
Statements.

  The accompanying notes to consolidated financial statements are an integral
                     part of these consolidated statements.

                                       6

<PAGE>   7

                            UNITED MAGAZINE COMPANY
                                  FORM 10-QSB
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE SECOND QUARTER ENDED MARCH 29, 1997
                                  (UNAUDITED)

1. GENERAL

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of United Magazine Company and subsidiaries ("UNIMAG" or the
"Company") as of March 29, 1997 and September 28, 1996, and the results of its
operations and cash flows for the six months ended March 29, 1997 and March 30,
1996. All such adjustments were of a normal recurring nature. The results of
operations in any interim period are not necessarily indicative of results for
the full year.

2. THE BUSINESS

United Magazine Company is an Ohio corporation which was incorporated on April
8, 1964 under the name Citizens Holding Company. UNIMAG (the Parent) is a
holding company. The operations for the quarter ended March 29, 1997 were
conducted through its consolidated subsidiaries and also include the impact of
the business combinations in the fourth quarter of 1996 more fully discussed
below. The operations for the quarters ended March 29, 1997 and March 30, 1996
were conducted through its consolidated subsidiaries as follows: Service News
Company of Connecticut, doing business as Yankee News Company ("Yankee") was
owned since May of 1993. Service News Company of Wilmington, North Carolina
("Wilmington") was operated under a management agreement for the quarter ended
December 30, 1995 and was owned since January of 1996. Triangle News Company,
Inc., a Pennsylvania corporation, ("Triangle") was acquired in January of 1996.
Reader's Choice ("RC") was owned during the first and second fiscal quarters of
1996 and was sold in July of 1996.

Service News Company of Connecticut, (Yankee), is engaged in wholesale
magazine, newspaper and book distribution and owns and operates four newsstands
and one bookstore.

Service News Company of Wilmington, North Carolina (Wilmington) is engaged in
wholesale magazine and book distribution.

Triangle News Company, Inc., (Triangle) is engaged in wholesale magazine,
newspaper and book distribution.

Reader's Choice (RC) was engaged in the business of managing and reporting
information on retail display allowances and collecting these allowances which
are paid by publishers to retailers.

United Magazine Company also is effecting business combinations with Michiana
News Service, Inc., a Michigan corporation ("Michiana"), The Stoll Companies,
an Ohio corporation ("Stoll"), and The George R. Klein News Co., Central News
Co., and Newspaper Sales, Inc., all Ohio corporations (collectively, "The Klein
Companies" or "Klein") , all independent magazine, book, and newspaper
("periodical") distributors.

                                       7

<PAGE>   8



The Company is also effecting business combinations with a number of companies
affiliated with Ronald E. Scherer ("Ronald E. Scherer"), the Company's
chairman, also engaged in wholesale periodical distribution (the "Scherer
Affiliates"): Ohio Periodical Distributors, Inc., an Ohio corporation ("OPD"),
Northern News Company, a Michigan corporation ("Northern"), Wholesalers
Leasing, Corp., a Delaware corporation ("Wholesalers"), Scherer Companies, a
Delaware corporation ("Scherer Companies") and, pursuant to the agreement with
Northern to acquire all of the stock of MacGregor News Services, Inc., a
Michigan corporation ("MacGregor"). The Company also is acquiring the stock of
Read-Mor Bookstores, Inc. ("Read-Mor"), a company managed by Scherer Companies.
Read-Mor owns six retail locations and is an insignificant acquisition.

Michiana, Stoll, Klein, Read-Mor and Scherer Affiliates are collectively known
as the "Acquisition Parties". The Acquisition Parties in combination with the
other entities of UNIMAG are collectively known as the "Combined Company".

Effective July 29, 1996, the Company entered into an Asset Transfer and
Exchange Agreement with Northern, pursuant to which the Company acquired such
of the assets of that company as are related to the wholesale distribution of
periodicals (and, pursuant to the agreement with Northern, to acquire all of
the stock of MacGregor held by Northern) in exchange for Common Stock of the
Company and Senior and Subordinated Debentures of the Company. Effective July
30, 1996, the Company entered into a Stock Transfer and Exchange Agreement with
Michiana and the shareholders of Michiana (the "Michiana Shareholders"),
pursuant to which all of the Michiana Shareholders agreed to contribute their
shares of stock of Michiana to the Company in exchange for Common Stock of the
Company and Senior and Subordinated Debentures of the Company. Effective July
31, 1996, the Company entered into a Stock Transfer and Exchange Agreement with
Stoll and the shareholders of Stoll (the "Stoll Shareholders"), pursuant to
which all of the Stoll Shareholders agreed to contribute their shares of stock
of Stoll to the Company in exchange for Common Stock of the Company and Senior
and Subordinated Debentures of the Company. Effective August 1, 1996, the
Company entered into an Asset Transfer and Exchange Agreement with OPD,
subsequently modified to a Stock Transfer and Exchange Agreement, pursuant to
which all of the OPD Shareholders agreed to contribute their shares of stock of
OPD to the Company in exchange for Common Stock of the Company and Senior and
Subordinated Debentures of the Company. Effective August 2, 1996, the Company
entered into an Asset Transfer and Exchange Agreement with Wholesalers,
pursuant to which the Company agreed to acquire substantially all of the assets
and assume substantially all of the liabilities of that company as are related
to the wholesale distribution of periodicals in exchange for Common Stock of
the Company and Senior and Subordinated Debentures of the Company. Effective
August 2, 1996, the Company entered into a Stock Transfer and Exchange
Agreement with Scherer Companies and the shareholders of Scherer Companies (the
"Scherer Shareholders"), pursuant to which the Scherer Shareholders agreed to
contribute their shares of stock of Scherer Companies to the Company in
exchange for Common Stock of the Company and Senior and Subordinated Debentures
of the Company. Effective August 23, 1996, the Company entered into a Stock
Transfer and Exchange Agreement with Klein and the sole shareholder of Klein
(the "Klein Shareholder"), pursuant to which the Klein Shareholder agreed to
contribute his shares of stock of Klein to the Company in exchange for Common
Stock of the Company and Senior and Subordinated Debentures of the Company.

Each of these transactions has been or is expected to be closed into escrow
pending a favorable vote of the shareholders of the Company on each of these
transactions. Upon the shareholders voting in favor of the acquisitions at the
Annual Meeting of Shareholders, then closing documents will be released from
escrow and the transactions will be consummated. Ronald E. Scherer, chairman of
the Company, OPD, which is controlled by Ronald E. Scherer, and R. David
Thomas, another significant shareholder of the Company, have each agreed to
vote their shares in favor of the transactions with Stoll, Michiana, Klein and
the Scherer Affiliates. Together these shareholders are entitled to vote more
than 50% of the stock of the

                                       8

<PAGE>   9



Company. Since approval of the transactions is assured and UNIMAG had effective
control over the operations of the companies, the Acquisition Parties have been
included in the consolidated financial statements of UNIMAG as discussed in the
footnotes to the financial statements.

UNIMAG also owns three inactive subsidiaries.

3. PENDING SHAREHOLDER ACTIONS

UNIMAG grew significantly during 1996 by the acquisition of six wholesalers
(two in the second quarter and four in the fourth quarter). Consideration for
these acquisitions was in the form of cash, notes payable, debentures and
common stock of the Company. Due to the significant amount of shares to be
issued for the fourth quarter acquisitions, UNIMAG is required to obtain
shareholder approval.  The Company is currently preparing the Proxy Statement
for the shareholder vote at the Annual Meeting of Shareholders. Upon approval
by the shareholders, the exchanges will occur and legal titles will pass.
However, the Company has already received the necessary approvals from two
significant shareholders who have agreed to vote their shares, which represent
a majority of the outstanding shares, in favor of the acquisitions discussed
above, as well as a 1 for 10 reverse stock split. Since the approval is
assured, the Company has reflected the reverse stock split for all periods
presented and the effects of the acquisitions.

4. PROVISION FOR INCOME TAXES

The provision (benefit) for income taxes for the periods ended March 29, 1997
and March 30, 1996 is as follows:

<TABLE>
<CAPTION>
                                          3 Months         3 Months        6 Months         6 Months   
                                         Ended 1997       Ended 1996      Ended 1997       Ended 1996 
                                        ------------     ------------    ------------     ------------
           <S>                          <C>              <C>             <C>              <C>
           Current                      $ (1,493,000)    $   (196,000)   $ (3,443,000)    $   (281,000)
           Deferred                        1,493,000          196,000       3,443,000          281,000
                                        ------------     ------------    ------------     ------------

                    Total               $       -        $       -       $       -        $       -   
                                        ============     ============    ============     ============
</TABLE>

The Company has provided deferred income taxes at a 40% tax rate which
represents a blended statutory federal and state income tax rate. The types of
differences between the tax bases of assets and liabilities and their financial
reporting amounts that give rise to significant portions of deferred income tax
assets and liabilities are: reserve for gross profit on sales returns, property
and equipment asset valuations, deferred compensation, amortization life of
intangibles and certain taxes.

The difference between the statutory tax rate and the effective rate of zero is
due primarily to the benefit of the net operating losses generated that may not
be realized in the future. The Company's net deferred tax assets have been
fully reserved due to the uncertainty of future realization.

                                       9

<PAGE>   10


   
As of March 29, 1997, UNIMAG has approximately $56 million of Federal net
operating loss (NOL) carryforwards for tax purposes. The amount that UNIMAG can
utilize each year is restricted due to multiple changes in ownership. The NOL
carryforwards will expire in the years 2003 through 2011. As a result of the
application of the Section 382 limitation, a significant amount of pre-change
net operating losses of the Combined Company should expire unutilized. UNIMAG
estimates that over $20 million of such net operating losses should expire
unutilized as a result of such limitation (assuming that the limitation is not
increased in respect of any built-in gains).
    

At March 29, 1997, UNIMAG had income taxes payable of $1,534,602. This relates
primarily to Michiana's tax assessment and interest due to the Internal Revenue
Service as a result of unfavorable tax settlements relating to years 1994 and
prior that was assumed by UNIMAG.

5. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following unaudited pro forma financial information presents the revenues,
net income and earnings per share from the combination of operations of the
Company and the significant acquisitions. The pro forma information is provided
as if each acquisition had occurred at the beginning of fiscal 1996. The pro
forma information is provided for information purposes only. It is based on
historical information and does not purport to reflect the results that would
have occurred had the acquisition occurred on October 1, 1995. There were two
significant acquisitions, Wilmington and Triangle, during the three months
ended March 30, 1996.

<TABLE>
<CAPTION>
                                                           6 Months Ended            3 Months Ended
                                                           March 30, 1996            March 30, 1996
                   in 000's, except EPS                      Pro Forma                 Pro Forma      
                ----------------------------             -------------------       -------------------
                <S>                                           <C>                      <C>
                Net Revenue                                    $ 135,998               $  67,040
                Net Income (Loss)                                 (5,333)                 (4,141)
                EPS                                            $    (.76)              $    (.59)
</TABLE>


6. WILMINGTON ACQUISITION

In April of 1995, UNIMAG entered into a Services and Management Agreement with
Service News Company of Wilmington, North Carolina (Wilmington). Included in
the Agreement was an option to purchase all of the outstanding stock of
Wilmington.  As of December 30, 1995, UNIMAG had not exercised its option and,
therefore, treated the option as an investment and accounted for the investment
under the equity method. UNIMAG exercised their option to acquire Wilmington on
January 12, 1996. The shareholders of Wilmington have shares, issued as part of
the consideration for the option to purchase the stock of Wilmington, that are
subject to future Put Agreements commencing in April of 1997. Interest is
accreted each quarter for the increase in value of the putable shares during
each quarter.

7. TRIANGLE (PITTSBURGH) ACQUISITION

On January 23, 1996 UNIMAG purchased all of the outstanding stock of Triangle
News Company, Inc., a Pennsylvania corporation (Triangle). Consideration given
included cash of $1,647,000 and 10,000 shares (post-reverse split) of UNIMAG
stock. In connection with the closing, UNIMAG financed $1,000,000 through its
wholly-owned subsidiary Service News Company of Connecticut, which utilized
part of a line of credit from the Bank of Boston and financed an additional
$700,000, secured by the assets of Triangle, from the Bank of Boston.

                                       10

<PAGE>   11



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

   Results of Operations of UNIMAG for the three months ended March 29, 1997
                               and March 30, 1996

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

Review of Operations

The results of operations for the quarter ended March 29, 1997 are not
indicative of results from prior quarters, nor are the results for the quarter
indicative of the future. 1996 was a unique transition year which featured
industry wide consolidations, declines in gross margin as a percent of revenue,
and increases in payroll costs related to increased levels of service. These
trends have continued into 1997, and the Company has continued its
consolidation and cost reduction efforts to offset the impact of these trends.

The following table provides comparative financial information for the first
two fiscal quarters of 1997 and 1996.

<TABLE>
<CAPTION>
                                                                           Quarter Ended                          
                                                   ---------------------------------------------------------------
                                                   March 29,      December 28,       March 30,      December 30,
                                                      1997            1996              1996            1995      
                                                   -----------    --------------     -----------    --------------
     <S>                                             <C>              <C>              <C>               <C>
     Results of Operations ($000):
        Revenue                                      $75,675          $74,429          $13,560           $6,469
        Gross Margin                                  16,580           16,463            3,406            1,736
        Selling, General and Administrative           16,433           17,376            3,387            1,546
        EBITDA                                           147             (913)              19              100

     Net Loss                                         (3,733)          (4,874)            (491)            (212) 

     As a Percent of Revenue:
        Gross Margin                                    21.9             22.1             25.1             26.8
        Selling, General and Administrative             21.7             23.3             25.0             23.9
        EBITDA                                            .2             (1.2)              .1              1.5
        Net Loss                                        (4.9)            (6.5)            (3.6)            (3.3) 
</TABLE>

   
The following table provides financial information for the period(s) presented
which describes the operating results of the Company for the UNIMAG entities
prior to the acquisitions, for the acquisition companies combined, and the
related cost of goodwill amortization and debenture interest.

<TABLE>
<CAPTION>
                                                                                   Amortization of
                                                                                     Acquisition
                                                                                     Goodwill and
                                                     Prior          Acquisition        Debenture      Combined
                                                     UNIMAG          Companies         Interest         Total      
                                                   -----------    --------------     -----------    --------------
     <S>                                             <C>              <C>              <C>               <C>
     Quarter ended March 29, 1997:
        Results of operations ($000):
           Revenue                                  $ 15,986         $ 59,689          $   --           $ 75,675
           Gross margin                                3,424           13,156              --             16,580
           Selling, general and administrative        (3,887)         (12,546)             --            (16,433)

           Net loss                                   (1,036)            (554)          (2,143)           (3,733) 

        As a percent of revenue:
           Gross margin                                21.42%          (22.04%)             --              21.91%
           Selling, general and administrative        (24.32%)         (21.02%)             --             (21.72%)

           Net Loss                                    (6.48%)          (0.93%)            --              (4.93%) 


     Quarter ended December 28, 1996:
        Results of operations ($000):
           Revenue                                  $ 16,503         $ 57,926          $   --           $ 74,429
           Gross margin                                3,798           12,665              --             16,463
           Selling, general and administrative        (4,031)         (13,345)             --            (17,376)

           Net loss                                     (916)          (1,815)          (2,143)           (4,874) 

        As a percent of revenue:
           Gross margin                                23.01%           21.86%             --              22.12%
           Selling, general and administrative        (24.43%)         (23.04%)            --             (23.35%)

           Net Loss                                    (5.55%)          (3.13%)            --              (6.55%) 

</TABLE>

The revenue for the Combined Company for the quarter ended March 29, 1997 was
$75,675,010, with approximately $59,689,000, or 75%, derived from the
Acquisition Companies. This was an increase of 458% over revenue for the quarter
ended March 30, 1996 and an increase of 1.7% over the previous fiscal quarter
ended December 28, 1996.

The Acquisition Companies grew by 3.0% from the first quarter to the second
quarter while the Prior UNIMAG Companies declined by 3.1%.
 

During 1996 the Company and the industry experienced reductions in gross
margins from existing chain customers because of new discounts, rebates and
amortization of up-front signing bonuses. As a result of these approximate 5%
reductions in revenue, the gross margin, as a percentage of revenue, declined
from 25.1% in the second fiscal quarter of 1996 and 22.1% in the previous
fiscal quarter to 21.9% in the second fiscal quarter of 1997.

The decline in the prior UNIMAG gross margin in the second quarter was
attributable in part on increased chain sales at lower margins in major markets.
    

                                       11

<PAGE>   12


   
Selling, general and administrative expenses, as a per cent of revenue,
decreased to 21.7%, with prior UNIMAG at 24.3% and Acquisition Companies at
21.0%, in 1997 versus 25.0% in 1996 and 23.3% in the previous
fiscal quarter. The in-store service component of payroll expense increased in
1997 over 1996 as a result of increased in-store service for the large retail
customers. This increase in in-store service cost, created by commitments under
contract by the Company to increase the levels of service to the retailers and
to assume certain product management functions previously performed by the
retailer, also was representative of changes occurring in the industry. These
increases were partially offset by the benefit of the reduction of full-time
employees in Michigan, Indiana and Ohio. The Acquisition Parties' percent
declined more rapidly because the synergies from consolidation were in the
Acquisition Parties' markets when warehouses were converted to depots
and personnel reductions were made.

Depreciation and amortization expense increased due to the depreciation of
fixed assets acquired from the Acquisition Parties and due to the
amortization of goodwill relating to the several business combinations in 1996.
The acquisitions of Wilmington, Triangle, Michiana, Stoll, Klein, Read-Mor
and Scherer Affiliates were accounted for using purchase price accounting.
Accordingly, goodwill was created in the amount of approximately
$154,000,000. This goodwill is being amortized over 40 years at an
approximate amount of $962,500 per quarter.

This resulted in a change in the net loss to $3,732,832, or 4.9% of revenue in
the second fiscal quarter of 1997 compared to a loss of $490,705, or 3.6% in
1996 and a loss of $4,874,309, or 6.5% in the preceding quarter. The net loss
for the quarter ended March 29, 1997 included approximately $1,036,000 from
prior UNIMAG versus $916,000 in the previous quarter, $554,027 from Acquisition
Companies versus $1,815,000 in the previous quarter and approximately
$2,143,000 in amortization of goodwill and debenture interest for each quarter
relating to the Acquisition Parties.

    
The acquisition of Michiana, Stoll, Klein, Read-Mor and Scherer Affiliates is
being financed by the issuance of Common Stock of the Company, 8% Senior
Debentures in the aggregate amount of $39,920,000 and 10% Subordinated
Debentures in the aggregate amount of $18,560,000. These debentures accrue
interest for the entire quarter. This increased interest expense for the second
quarter of 1997 by approximately $1,262,000.

   
Because of the loss for the quarter and because of loss carryforwards, UNIMAG
had no federal income tax expense for the second quarter of 1997. The Company
has a net operating loss (NOL) of approximately $56,000,000 at March 29, 1997;
however, the Company has not recognized any benefits from that NOL through
March 29, 1997. As a result of the application of the Section 382 limitation, a
significant amount of pre-change net operating losses of the Combined Company
should expire unutilized. The Company estimates that over $20 million of such
net operating losses should expire unutilized as a result of such limitation
(assuming that the limitation is not increased in respect of any
built-in gains).

    
The calculation of earnings per common share and weighted average number of
shares outstanding includes the shares to be issued for Michiana, Stoll, Klein,
Read-Mor and Scherer Affiliates for the periods determined under the respective
agreements. In addition, the calculation of earnings per share reflects the one
for ten reverse split to be submitted to the Shareholders for approval at the
1997 Annual Meeting of Shareholders. The effects of the one for ten reverse
stock split have been included because two shareholders holding more than 50%
of the shares of Common Stock of the Company have agreed to vote in favor of
the split.

                                       12

<PAGE>   13

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

    Results of Operations of UNIMAG for the six months ended March 29, 1997
                               and March 30, 1996

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

Review of Operations

The results of operations for the six months ended March 29, 1997 are not
indicative of results from prior quarters, nor are the results for the six
months indicative of the future. The following table provides comparative
financial information for the first six months of 1997 and 1996.

<TABLE>
<CAPTION>
                                                             March 29,         March 30,
                                                               1997               1996     
                                                            ------------      -------------
     <S>                                                     <C>               <C>
     Results of Operations ($000):
        Revenue                                              $  150,104        $    20,029
        Gross Margin                                             33,043              5,142
        Selling, General and Administrative                      33,809              4,933
        EBITDA                                                     (766)               119

     Net Income (Loss)                                           (8,607)              (703) 

     As a Percent of Revenue:
        Gross Margin                                               22.0               25.7
        Selling, General and Administrative                        22.5               24.6
        EBITDA                                                      (.5)                .6
        Net Income (Loss)                                          (5.7)              (3.5) 
</TABLE>

   
The following table provides financial information for the six months ended
March 29, 1997 presented and describes the operating results of the Company for
the UNIMAG entities prior to the acquisitions, for the acquisition companies
combined, and the related cost of goodwill amortization and debenture interest.
    


<TABLE>
<CAPTION>
                                                                        Amortization of
                                                                          Acquisition
                                                                         Goodwill and
                                                   Prior   Acquisition     Debenture    Combined
                                                  UNIMAG   Companies       Interest      Total
                                                  ------   -----------  --------------  --------
     <S>                                           <C>        <C>         <C>           <C>          
     Six Months Ended March 29, 1997:
       Results of operations $(000):
         Revenue                                 $32,489    $117,615       $   --       $150,104
         Gross margin                              7,222      25,821           --         33,043
         Selling, general and
           administrative                         (7,918)    (25,891)          --        (33,809)
       Net loss                                   (1,952)     (2,369)       (4,286)       (8,607)
  
       As a percent of revenue:
         Gross margin                              22.23%     21.95%           --         22.01%
       Selling, general and
         administrative                           (24,37%)   (22.01%)          --        (22.52%)
       Net loss                                    (6.01%)    (2.01%)          --         (5.73%)
</TABLE>
   
The revenue for the Combined Company for the six months ended March 29, 1997 was
$150,103,512, with approximately $117,615,000, or 78%, derived from the
Acquisition Companies. This was an increase of 649% over revenue for the six
months ended March 30, 1996. This increase is primarily attributable to the
inclusion of revenue from the acquisition parties' companies during the entire
six months ended March 29, 1997 with Acquisition Companies growing at a faster
rate during the second quarter than did prior UNIMAG Companies.

During 1996, the Company and the industry experienced reductions in gross
margins from existing chain customers because of new discounts, rebates and
amortization of up-front signing bonuses. As a result of these approximate 5%
reductions in revenue, the gross margin, as a percentage of revenue, declined
from 25.7% in the first six months of 1996 to 22.0% in the first six months of
1997 with the Acquisition Companies having a slightly better percent.

Selling, general and administrative expenses, as a per cent of revenue,
decreased to 22.5% with prior UNIMAG at 24.4% and Acquisition Companies at
22.0% in 1997 versus 24.6% in 1996. The in-store service component of payroll
expense increased in 1997 over 1996 as a result of increased in-store service
for the large retail customers. This increase in in-store service cost, created
by commitments under contract by the Company to increase the levels of service
to the retailers and to assume certain product management functions previously
performed by the retailer, also was representative of changes occurring in the
industry. These increases were more that fully offset by the benefit of the
reduction of full-time employees in Michigan, Indiana and Ohio. As a result, the
Acquisition Companies were able to decrease their percents more efficiently.
    
                                       13

<PAGE>   14

   

Depreciation and amortization expense increased due to the depreciation of fixed
assets acquired from Acquisition Parties and due to the amortization of
goodwill relating to the several business combinations in 1996. The
acquisitions of Wilmington, Triangle, Michiana, Stoll, Klein, Read-Mor and
Scherer Affiliates were accounted for using purchase price accounting.
Accordingly, goodwill was created in the amount of approximately $154,000,000.
This goodwill is being amortized over 40 years at approximately $3,850,000
annually.

This resulted in an increase in the net loss to 5.7% of revenue in 1997 compared
to 3.5% in 1996. The net loss for the six months included approximately
$1,952,000 from prior UNIMAG, $2,369,000 from Acquisition Companies, and
$4,286,000 for amortization of goodwill and debenture interest, relating to the
Acquisition Parties. The loss as a percentage of revenue was 6.0% for Prior
Unimag and 2.0% for the Acquisition Parties before the impact of purchase
accounting. This is reflective of the synergies being achieved within the
Acquisition Parties.
    

The acquisition of Michiana, Stoll, Klein, Read-Mor and Scherer Affiliates is
being financed by the issuance of Common Stock of the Company, 8% Senior
Debentures in the aggregate amount of $39,920,000 and 10% Subordinated
Debentures in the aggregate amount of $18,560,000. These debentures accrue
interest for the entire quarter. This increased interest expense for the first
six months of 1997 by approximately $2,524,000.

   
Because of the loss for the quarter and because of loss carryforwards, UNIMAG
had no federal income tax expense for the first six months of 1997. The Company
has a net operating loss (NOL) of approximately $56,000,000 at March 29, 1997;
however, the Company has not recognized any benefits from that NOL through March
29, 1997. As a result of the application of the Section 382 limitation, a
significant amount of pre-change net operating losses of the UNIMAG Group should
expire unutilized. The Company estimates that over $20 million of such net
operating losses should expire unutilized as a result of such limitation
(assuming that the limitation is not increased in respect of any built-in
gains).
    

The calculation of earnings per common share and weighted average number of
shares outstanding includes the shares to be issued for Michiana, Stoll, Klein,
Read-Mor and Scherer Affiliates for the periods determined under the respective
agreements. In addition, the calculation of earnings per share reflects the one
for ten reverse split to be submitted to the Shareholders for approval at the
1997 Annual Meeting of Shareholders. The effects of the one for ten reverse
stock split have been included because two shareholders holding more than 50%
of the shares of Common Stock of the Company have agreed to vote in favor of
the split.

                                       14

<PAGE>   15

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

                                   Liquidity

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

The Company measures its liquidity primarily in Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA). However, EBITDA should not be
considered as an alternative to net income or as an indicator of cash flows
generated by operating, investing or financing activities.

EBITDA for the second quarter of 1997 was $147,000 versus $(913,000) for the
preceding quarter. EBITDA for the first six months of 1997 was $(766,000)
versus $119,000 for the first six months of 1996. The 1997 EBITDA has been
impacted negatively by the gross margin and payroll pressures during UNIMAG's
period of ownership of the acquisition companies, and the Company has not
received the full benefits from implementation of expected consolidation
synergies with the acquisition companies because of the time and complexity
involved in the consolidations.

During the quarter ended March 28, 1996, the working capital deficit increased
by $2,834,000 to $53,514,000 with $3,021,000 of the increase due to increases
in current debenture principal and interest owed. Included in the $53,514,000
is $16,149,000 for related party debt and for debenture principal and interest.

   
The Company anticipates improvements in EBITDA during the remainder of fiscal
1997 due to continued reductions in selling, general and administrative expenses
through consolidation synergies and through some improvement in gross margins.
It is anticipated that the major reductions in selling, general and
administrative expenses will come primarily from the Acquisition Parties. The
Company is closing or converting to delivery depots several warehouse locations
in the states of Michigan, Indiana and Ohio by consolidating the majority of the
office and warehouse functions in three existing locations. The gross margin
improvement plans include the negotiation of more favorable terms with
suppliers, changing the sales mix to higher margin products, and consolidating
book purchases for volume discounts.
    

The acquisition transactions of the Company since June 30, 1996 have added
$140,966,000 of goodwill to the Company's assets and $58,480,000 of Senior and
Subordinated Debentures to the Company's liabilities. On an annual basis the
Company anticipates future amortization of approximately $3,524,000 for this
goodwill and initial annual interest of approximately $5,050,000 related to
these transactions.

Cash Flows - Operating Activities

During the first six months of 1997, the Company experienced an increase in net
cash provided from operations of $2,058,000 compared to a deficit of $(112,000)
in 1996. The 1997 increase is due primarily to a net increase in current
liabilities, primarily vendor payables, of approximately $10,937,000 versus a
net increase in current assets, primarily trade accounts receivable offset by a
reduction in inventory, of approximately $2,605,000. The loss for the six
months of $8,607,000 was partially offset by depreciation and amortization of
$4,576,000. The operating cash flow results for the first six months of fiscal
1996 were due primarily to changes associated with the acquisitions of
Wilmington and Pittsburgh.

Cash Flows - Investing Activities

The Company spent $680,000 in the first six months of 1997 for capital
expenditures and $1,061,000 for other long term assets. During that same period
the Company sold an airplane held for resale for

                                       15

<PAGE>   16

$1,240,000. The investing cash flow results for the first six months of fiscal
1996 included capital expenditures of $282,000.

Cash Flows - Financing Activities

During the first six months of 1997, the Company made net reductions of debt
obligations of $3,389,000 including $1,686,000 of current debt and $1,703,000
of long-term debt. The financing results for the first six months of fiscal
1996 included debt reductions of $226,000.

Capital Resources

Through its acquisitions the Company has banking relationships with several
banks; however, the Company is seeking to consolidate its borrowing and
increase its borrowing capacity with one or more large financial institutions
following the Annual Meeting of Shareholders.

Capital Requirements

During 1997, the Company expects that its requirements for capital expenditures
will not be significant. Through route consolidations and greater use of
in-store service personnel, the Company anticipates minimal increases in its
delivery fleet. The Company does anticipate additional expenditures for store
fixtures; however, these fixture increases have historically generated enough
additional revenue and gross margin to pay for the fixture costs within one 
year.

Operational Measures

The receivables of the Company and its Acquisition Parties increased during the
first six months of 1997 due to an increase in payment time periods by certain
large retailers. This increase in receivables caused a corresponding increase
in trade payables. The Company has centralized and consolidated its chain
collection efforts to improve future cash flow by reducing the number of days
outstanding of receivables.

In addition, through the Company's SMARTS System (which stands for Sales
Magazine Analysis React Transmit System) and related inventory management and
purchasing consolidation efforts, the Company has begun to reduce the amount of
inventory required to maintain and increase sales levels. During the quarter
ended March 29, 1997, the Company accelerated the amount of magazine and book
returns for vendor credit. This caused a decrease in the amount of estimated
reserve for the gross margin on future returns. The Company anticipates a
continuation of this effort during the balance of 1997.

Operating Synergies

The acquisition transactions will enable the Combined Company to leverage 
successfully its investment in its sophisticated and proprietary SMARTS System,
acquired from the Scherer Affiliates, for more efficient product allocation and
higher per store revenue. The SMARTS System develops a Distribution Rate Base
("DRB") which is used by publishers to reach targeted customer growth. The
Company charges for the use of the DRB information, and this offsets the cost
of higher levels of service and the use of improved technology. Management
believes that, as the Combined Company continues to expand, the SMARTS System,
which provides a unique competitive advantage, will improve same store revenue
as it is introduced to new retail locations, and it will provide a critical
competitive advantage over other regional wholesalers in obtaining important
new accounts.

                                       16

<PAGE>   17

In addition to the proprietary SMARTS System, the Combined Company's current
and future high impact marketing programs provide an important competitive
advantage by customizing magazine displays to utilize otherwise wasted space in
retail stores. The implementation of these programs has historically enabled
the Company to improve a specific retail location's sales level by as much as
20-25% when the program is introduced into the retail location. The Company
expects that the introduction of the high impact marketing program to
Acquisition Parties customers locations not currently using it will improve
sales levels of the Combined Company.

Through the consolidation of the contiguous Acquisition Parties, management
expects the Combined Company to achieve considerable cost savings and operating
efficiencies through the elimination of redundant overhead and the
consolidation of overlapping facilities. Duplicate administrative and
distribution functions can be eliminated, and the costs and benefits of
technology can be spread over a larger customer base. Additionally, the
consolidation of the businesses of the Company and the Acquisition Parties
should increase purchasing power and the ability to negotiate favorable
quantity discounts with publishers and national brokers.

Management continues to implement the consolidated staffing plan for the
Combined Company and expects significant employee reductions and labor cost
savings as the operations of the Acquisition Parties are systematically
consolidated in the quarters following the consummation of the proposed
transactions. The Company has terminated or sent notices of pending termination
to approximately 15% of the 1996 total initial full-time work force that was in
place at September 28, 1996. The consolidation process focused on Michigan
during the quarter ended December 28, 1996 and Ohio during the quarter ended
March 29, 1997. The consolidation of Indiana is expected to be completed during
the third fiscal quarter of 1997.

Commitments and Contingencies

The Company has entered into long-term contracts (generally three years) with
its most important customers. These contracts resulted in gross margin
reductions in the latter half of fiscal 1996 and the first six months of 1997.

The Company has been named as a defendant in various litigation matters.
Management intends to vigorously defend these outstanding claims. The Company
believes it has an adequate accrual for these claims and that any current
pending or threatened litigation matters will not have a material adverse
impact on the Company's results of operations or financial conditions.

Financing Arrangements

Each of the Exchange Agreements contemplates that stock or assets of the
various Acquisition Parties will be contributed to the Company in exchange for
Common Stock of the Company, valued at $1.50 per share (pre-split), and for
Senior and Subordinated Debentures. The Company has entered into a Debenture
Agreement (the "Debenture Agreement") with the Stoll Shareholders, the Michiana
Shareholders, the Klein Shareholder, the OPD Shareholders, the Scherer
Shareholders and the Scherer Affiliates pursuant to which the Debentures are
being issued. In addition, the Company will issue a $4,500,000 Subordinated
Debenture and make a cash payment of $500,000 in exchange for a $5,000,000 note
owned by OPD to KDR Limited, an Ohio limited liability company whose owners
include R. David Thomas, a principal shareholder of the Company, and R. L.
Richards, a director nominee.  The Company anticipates the purchase of an
additional $500,000 of common stock by R. David Thomas. The Company also will
issue $242,211 of Senior Debentures and $94,594 of Subordinated Debentures in
connection with the acquisition of Read-Mor. The Company anticipates the
purchase of an additional $500,000 of common stock by R. David Thomas after the
Annual meeting.

                                       17

<PAGE>   18

The Senior Debentures are designated as "8% Senior Debentures Due 2002", mature
on January 1, 2002, and bear interest at the rate of 8% per annum from July 1,
1996, provided, however, that Senior Debentures issued pursuant to the Klein
Exchange Agreement will begin to accrue interest from August 24, 1996. Interest
is payable quarterly on January 1, April 1, July 1 and October 1, commencing on
the date of final closing of a particular acquisition. Principal on the Senior
Debentures will be paid quarterly on each interest payment date in accordance
with the schedule and priority set forth in the Debenture Agreement, commencing
on the date of final closing of a particular acquisition.

The Subordinated Debentures are designated as "10% Subordinated Debentures Due
2004", mature on January 1, 2004 and bear interest at the rate of 10% per annum
from July 1, 1996, provided, however, that Subordinated Debentures issued
pursuant to the Klein Exchange Agreement will begin to accrue interest from
August 24, 1996. Interest is payable quarterly on January 1, April 1, July 1
and October 1, commencing on the date of final closing of a particular
acquisition.  Principal on the Subordinated Debentures is to be paid quarterly
on each interest payment date in accordance with the schedule and priority set
forth in the Debenture Agreement, commencing on April 1, 1999.

The Debenture Agreement pursuant to which the Senior and Subordinated
Debentures are being issued to the Acquisition Parties requires the Company to
use its best efforts to refinance the Senior Debentures, which are expected to
aggregate approximately $39,920,000. In connection with such refinancing, the
Company has engaged Bank of Boston as financial advisor to the Company's Board
of Directors.  Bank of Boston has been requested to provide fee based services
in connection with the development of a financing restructuring for the
transactions and with the related placement of debt and/or equity securities.
The Company has had discussions with several different entities, introduced to
the Company by Bank of Boston, interested in providing such financing. The
Company has received a signed letter of intent from Bain Capital, Inc. to
provide such financing, subject to certain terms and conditions and subject to
due diligence; however, the Company has not received a financing commitment nor
reached agreement regarding such financing.

The Company also plans to restructure existing Company and Acquisition Parties
bank and third party debt and to consolidate banking relationships. The Company
further plans to expand bank lines of credit to support working capital and
other requirements of the Combined Companies. The Company has had discussions
with several different entities interested in providing such financing to the
Combined Companies. At present, the Company has not entered into any new debt
and/or equity placements through the Bank of Boston or through any other
financial adviser in connection with the transactions.

Inflation

The impact of inflation on wholesale and retail operations is difficult to
measure. The Company cannot easily pass magazine costs on to customers unless
the publisher increases the cover price of the periodical, so it must control
inflation at the point of purchase. The Company is engaged in activities to
control these costs. As a result, the Company believes that the effect of
inflation, if any, on the results of operations and financial condition has
been minor and is expected to remain so in the future.

Seasonality

The sale of magazines, books, and newspapers is subject to minimal seasonality.

                                       18

<PAGE>   19

Private Securities Litigation Reform Act of 1995 - Safe Harbor Cautionary
Statement

This report contains forward looking statements as defined by the Private
Securities Litigation Reform Act of 1995 (the Reform Act). These
forward-looking statements express the beliefs and expectations of management
regarding UNIMAG's future results and performance and include, without
limitation, the following: statements concerning the Company's outlook for the
balance of 1997; the Company's plans for acquisition transactions to be voted
on at the next Annual Meeting of Shareholders; the Company's plans for revenue
growth and operational cost reductions; the Company's plans for future
financing and refinancing; the Company's future operational strategies to
improve operating cash flow; and other similar expressions concerning matters
that are not historical facts.

Such statements are based on current expectations and involve a number of known
and unknown uncertainties that could cause the actual results, performance,
and/or achievements of the Company to differ materially from any future
results, performances, and/or achievements of the Company, expresssed or
implied by the forward-looking statements, and any such statement is qualified
by reference to the following cautionary statements. In connection with the
safe harbor provisions of the Reform Act, the Company's management is hereby
identifying important factors that could cause actual results to differ
materially from management's expectations including, without limitation, the
following: delays in the date of the Annual Meeting of Shareholders; the
ability to obtain required levels of product for all geographic markets; the
acquisition or disposition of additional entities; the ability of the Company
to obtain financing and refinancing; the timing of the implementation of
operating synergies; further changes in the industry; and other risks described
from time to time in the Company's Securities and Exchange Commission filings.
The Company undertakes no obligation to release publicly any revisions to these
forward looking statements for events occurring after the date hereof or
reflect any other unanticipated events.

                                       19

<PAGE>   20



PART II. OTHER INFORMATION AND SIGNATURES

Item 1.  LEGAL PROCEEDINGS

          Except as set forth below, there have been no material developments in
legal proceedings involving either the Company or its subsidiaries since the
filing of the Company's Form 10-QSB for the Fiscal Quarter Ended December 28,
1996.

   
          NMDU Claims/WARN Litigation. In June, 1997, the ongoing mediation
between the NMDU and the multiple defendants in the NMDU case resulted in a
settlement recommendation by the mediator which has now been accepted by the
plaintiff and the defendants. Formal settlement documents are now being drafted
by attorneys for the parties. The Company will pay approximately $650,000 in 
three annual payments. As an offset against this liability, the Company retains
the $1,000,000 unsecured offset from the Imperial's bankruptcy estate which it
had previously received in exchange for the release of its five claims against
the estate.
    

Item 2.  CHANGE IN SECURITIES: None

Item 3.  DEFAULT UPON SENIOR SECURITIES: None

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

         None

Item 5.  OTHER INFORMATION:

         None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K:

   
          On June 23, 1997, August 4, 1997 and August 8, 1997, UNIMAG filed Form
8-KA's in connection with the Proxy Statement filed August 11, 1997. These
8-KA's provided supplemental information relating to the acquisitions described
in the Proxy.
 
    
                                       20

<PAGE>   21



SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        UNITED MAGAZINE COMPANY

                                              Registrant

                                        /s/ Ronald E. Scherer
                                        -------------------------------------
                                        Ronald E. Scherer
                                        President and Chief Executive Officer

                                        /s/ Thomas L. Gerlacher
                                        -------------------------------------
                                        Thomas L. Gerlacher
                                        Chief Financial Officer


                                       21