<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

--------------------------------------------------------------------------------
  X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----    EXCHANGE ACT OF 1934

                  For the fiscal year ended September 28, 1996

                                       or

-----    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         Common Stock, Without Par Value
                         -------------------------------

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

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 1, 1997, was $19,220,166. There is no active
trading market in the Registrant's shares, and this value is based upon an
agreed upon valuation for the Registrant's shares in a recent acquisition
agreement.

         The Registrant's revenues for the fiscal year ended September 28, 1996
are $80,232,472.

         The Registrant's number of common shares, without par value,
outstanding as of February 1, 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.

                       Documents Incorporated By Reference
                       -----------------------------------

         Portions of the Registrant's Preliminary Proxy Statement dated February
1997 for the 1997 Annual Meeting of Shareholders are filed as Exhibit 99 to this
Form 10K-SB.


<PAGE>   2


                             UNITED MAGAZINE COMPANY

                                   FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1996
                                      INDEX

                                                                    PAGE NUMBER
                                                                    -----------
PART I.
-------

ITEM 1.  - BUSINESS                                                         1

ITEM 2.  - PROPERTIES                                                       5

ITEM 3.  - LEGAL PROCEEDINGS                                                5

ITEM 4.  - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              5

PART II.
--------

ITEM 5.  - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED                6
           STOCKHOLDER MATTERS

ITEM 6.  - SELECTED FINANCIAL DATA                                          7

ITEM 7.  - MANAGEMENT'S DISCUSSION AND ANALYSIS OF                          8
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 8.  - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                     17

ITEM 9.  - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL                       44
           DISCLOSURE

PART III.
---------

ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT              45

ITEM 11. - EXECUTIVE COMPENSATION                                          45

ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                        45
           OWNERS AND MANAGEMENT

ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                  49

PART IV.
--------

ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND                    50
           REPORTS ON FORM 8-K

SIGNATURES                                                                 54


<PAGE>   3






                                     PART I
                                     ------

ITEM 1. BUSINESS
----------------

United Magazine Company (UNIMAG or the 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 year ended September
28, 1996 were conducted through its consolidated subsidiaries and also include
the partial-year impact of the five business combinations in the fourth quarter
of 1996 more fully discussed below. The operations for the year ended September
28, 1996 were conducted through its consolidated subsidiaries as follows:
Service News Company of Connecticut, doing business as Yankee News Company
(Yankee) was owned for 12 months. Service News Company of Wilmington, North
Carolina ("Wilmington") was operated under a management agreement for three
months and was owned for nine months. Triangle News Company, Inc., a
Pennsylvania corporation, (Triangle) was owned for nine months. Reader's Choice
(RC) was owned for nine months and 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.

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".



                                       1
<PAGE>   4



Effective July 29, 1996, the Company entered into an Asset Transfer and Exchange
Agreement with Northern, pursuant to which the Company is to acquire 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 will 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 will 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
will 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 is to
acquire substantially all of the assets and assume substantially all of the
liabilities of that company that 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 will 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 September 14, 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 will 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. If the shareholders vote 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 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. Sportstuff Marketing, Inc. (SSM)
was a wholesale distributor of sports apparel products and operated one sports
apparel retail outlet. Team Logos Sportstuff, Inc. (TLSI) previously owned and
operated sports apparel retail stores. UNIMAG I, Inc. (UNIMAG I), a wholly-owned
subsidiary of TLSI, previously held certain intangible assets related to the
franchise operations of TLSI. Imperial News Co., Inc. (Imperial), previously
engaged in the wholesale magazine and book distribution business, has been in
bankruptcy since 1991, and has no material assets.



                                       2
<PAGE>   5



1. BUSINESS OF SERVICE NEWS COMPANY OF CONNECTICUT (YANKEE)

UNIMAG's wholly-owned subsidiary, Service News Company of Connecticut (Yankee)
acquired the operating net assets of Yankee from MDI, L.P. on May 24, 1993.
Yankee is headquartered in a 34,000 square foot facility leased for
approximately $96,000 per year, located in Waterbury, Connecticut. From this
facility Yankee distributes magazines, books, newspapers and various sundry
items to retailers who sell to customers in the Connecticut market. Yankee also
operates four retail "Newsrack" outlets which sell magazines, newspapers, and
related products and operates one retail bookstore. During fiscal 1995 Yankee
generated approximately 99% of UNIMAG's net sales, and during fiscal 1996 Yankee
generated approximately 33% of net sales during twelve months of operations.

2. BUSINESS OF SERVICE NEWS COMPANY OF WILMINGTON

Service News Company of Wilmington (Wilmington), acquired on January 13, 1996,
is headquartered in a 20,000 square foot facility located in Wilmington, North
Carolina. From this location, Wilmington distributes magazines, books and
various sundry items to retailers who sell to customers primarily in eastern
North Carolina. During fiscal 1996 Wilmington generated approximately 7% of
UNIMAG's net sales during nine months of operations.

3. BUSINESS OF TRIANGLE NEWS COMPANY, INC.

Triangle News Company, Inc. (Triangle), acquired on January 23, 1996, is
headquartered in a 62,400 square foot facility located in Pittsburgh,
Pennsylvania. From this location, Triangle distributes magazines, newspapers,
books and various sundry items to retailers who sell to customers in western
Pennsylvania, West Virginia, and eastern Ohio. During fiscal 1996 Triangle
generated approximately 22% of UNIMAG's net sales during nine months of
operations.

4. BUSINESS OF MICHIANA, STOLL, KLEIN, READ-MOR AND SCHERER AFFILIATES

The business of Michiana, Stoll, Klein, Read-Mor and Scherer Affiliates is the
wholesale distribution of magazines, books, newspapers and various sundry items
and the operation of related retail locations throughout the Midwest and
predominately in Ohio, Michigan, and Indiana. This business is described in
greater detail in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders. During fiscal 1996 these companies generated approximately 37% of
UNIMAG's net sales during the periods of their ownership.

5. BUSINESS OF READER'S CHOICE, INC. (RC)

Reader's Choice, Inc. (RC), established in October, 1984, was acquired on April
11, 1995 and sold during July of 1996 . RC was engaged in the business of
managing and reporting information on retail display allowances and collecting
these allowances which were paid by publishers to retailers. For these
management services RC received a percentage of the allowances collected on
behalf of the retailers. The operations of RC were not significant, and the sale
did not have a material effect on the Company.

6. BUSINESS OF SPORTSTUFF MARKETING, INC.

Sportstuff Marketing, Inc., established in March, 1993, was engaged in the
wholesale distribution of sports apparel merchandise and services, primarily to
major grocery and pharmaceutical chains. In March, 1995, SSM ceased all
wholesaling of sports apparel merchandise. SSM is currently inactive.

                                       3
<PAGE>   6

7. BUSINESS OF TEAM LOGOS SPORTSTUFF, INC. AND UNIMAG I

Team Logos Sportstuff, Inc. (TLSI) and its subsidiary UNIMAG I, both established
in July, 1992, were engaged in the business of owning and franchising retail
sports apparel stores throughout the country. During the fiscal year ended
October 2, 1993 TLSI closed all remaining retail locations, and UNIMAG I
deactivated its franchising operations. The closing of the TLSI-owned retail
stores resulted in TLSI owing vendors approximately $1,400,000 in trade
payables. Since that time, TLSI has reached settlement terms with most vendors
and is currently inactive except for the winding down of final business
activities.

8. ADDITIONAL INFORMATION

Additional information is incorporated by reference from the sections entitled
"The Company and the Combined Company -- Business, Combined Revenues, Employees,
Products, Suppliers and Pricing, Distribution Systems, Marketing and Sales, the
SMARTS System, Customers and Competition" contained in the Company's Preliminary
Proxy Statement filed in February 1997 for its 1997 Annual Meeting of
Shareholders which is filed as Exhibit 99 to this Form 10-KSB.



                                       4
<PAGE>   7



ITEM 2.  PROPERTIES
-------------------

Additional information on the Company's properties is incorporated by reference
from the section entitled "The Company and the Combined Company -- Facilities"
contained in the Company's Preliminary Proxy Statement filed in February 1997
for its 1997 Annual Meeting of Shareholders which is filed as Exhibit 99 to this
Form 10-KSB.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

See Note 13 of the United Magazine Company consolidated financial statements as
of September 28, 1996 included in Item 8 of this report which is incorporated
herein by reference.

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

There were no matters submitted to a vote of security holders during the fourth
quarter of the 1996 fiscal year covered by this report.



                                       5
<PAGE>   8



                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS
----------------------------------------------------------

A.  PRICE RANGE OF COMMON SHARES OF UNIMAG

The common shares of UNIMAG were previously traded in a very limited local
over-the-counter market. However, there is currently no established public
trading market for this class of common equity, which is the only class of
equity securities of the Company. During the fiscal year 1996 the Company had
transactions at the following prices, all at values before the anticipated one
for ten reverse split to be effective after the 1997 Annual Meeting of
Shareholders. The 100,000 shares issued in connection with the Pittsburgh
(Triangle) transaction in January of 1996 were valued for accounting purposes at
$.91 per share. All of the shares to be issued in connection with the
acquisition of Michiana, Stoll, Scherer Affiliates and Klein were valued in the
acquisition agreements at $1.50 per share. This value was determined through the
fairness opinion issued by Bank of Boston. The shares to be issued to MDI, L. P.
under terms of the Company's agreement were valued in the agreement at $1.00 per
share through June 28, 1996 and were valued at $1.50 per share after June 28,
1996. The foregoing should not be taken as an indication of the value of the
shares or the price at which the Company's shares may be purchased or sold
should a trading market develop or should a holder desire to sell shares through
other means

B.  SHAREHOLDERS

As of February 1, 1997, UNIMAG had 2,887 shareholders of record.

C.  DIVIDENDS

There were no dividends declared or paid by UNIMAG during fiscal years 1996 or
1995. The Company does not anticipate declaring or paying a dividend in the
foreseeable future, and it expects to use future available funds for the growth
and development of the business.



                                       6
<PAGE>   9



ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

The following selected historical financial data of UNIMAG should be read in
conjunction with UNIMAG's consolidated financial statements and notes thereto
(see Item 8). All per share data reflects the anticipated one for ten reverse
split effective at the Annual Meeting of Shareholders.
<TABLE>
<CAPTION>

                                                                 UNIMAG Fiscal Year Ended
                                        ----------------------------------------------------------------------------

(in 000's except gain (loss) per
share)                                     1996 (1)       1995 (2)         1994 (3)       1993 (4)         1992 (5)
--------------------------------------- ------------ -------------- ---------------- -------------- ----------------
<S>                                       <C>            <C>              <C>            <C>               <C>   
Consolidated income statement data:
  Net sales                                $ 80,232        $24,562          $24,687        $10,857          $ 2,315
  Income(loss)from
    continuing operations
    before taxes and extra-
    ordinary items                         $ (6,388)       $ 1,864          $  (892)       $(6,511)         $(3,678)
  Weighted average
    shares outstanding                        3,226          2,390            2,151          2,064            1,738
  Net income (loss) per
    share from continuing
    operations before extra-
    ordinary items                         $  (1.98)       $   .78          $  (.41)       $ (3.15)         $ (2.12)
Consolidated balance sheet data:                   
  Total assets                             $251,371        $12,334          $ 8,502        $ 9,753          $10,436
  Long-term debt obligations               $ 64,401        $   138          $   688        $   400          $ 1,211
Stockholder's Equity per share
including putable shares                   $   9.33        $  2.25          $   .02        $   .19          $  3.17
<FN>

(1) Includes Yankee for a full year, Readers Choice from September 29, 1995
through June 30, 1996, UNIMAG's investment in Wilmington from September 29, 1995
through December 30, 1995, Wilmington's operations from December 31, 1995
through September 28, 1996, Pittsburgh's operations from December 31, 1995
through September 28, 1996, the operations of Michiana, Stoll, Read-Mor and
Scherer Affiliates from July 28, 1996 through September 28, 1996 and Klein
operations from September 14, 1996 through September 28, 1996.

(2) Includes Reader's Choice, Inc. from April 11, 1995 through September 30,
1995, UNIMAG's investment in Wilmington from April 5, 1995 through September 30,
1995, and other subsidiaries for a full year.

(3) Includes all then-existing subsidiaries for a full year.

(4) Includes TLSI for a full year; SNC doing business as Yankee News Company
from May 24, 1993 to October 2, 1993; SSM from March, 1993 to October 2, 1993;
CRI through March 12, 1993; and SNC's investment in MDI L.P.
through May 24, 1993.

(5) Includes a full-year of CRI and SNC's Investment in MDI L.P. and two months
of TLSI.
</TABLE>



                                       7
<PAGE>   10



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


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

RESULTS OF OPERATIONS OF UNIMAG FOR THE YEARS ENDED SEPTEMBER 28, 1996 AND
                               SEPTEMBER 30, 1995

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

INTRODUCTION

The Company, through its subsidiaries, currently operates wholesale periodical
distribution operations primarily in central Connecticut, eastern North
Carolina, and western Pennsylvania. Additionally, through the recent
acquisitions, the Company has added to its current operations the wholesale
periodical distribution operations of Stoll, which distributes primarily in
central Indiana, northwestern Ohio and southern Michigan, the wholesale
periodical distribution operations of Michiana, which distributes primarily in
southern Michigan, northern Indiana and western Ohio, the wholesale periodical
distribution operations of Klein, which distributes primarily in northern Ohio,
and the wholesale periodical distribution operations of OPD, MacGregor,
Northern, Wholesalers and Scherer Companies, which distribute in central and
southern Ohio and northern Michigan. The Company also acquired and operates
retail bookstores in connection with these operations.

Following the proposed transactions, the Combined Company will emerge as the
dominant wholesale periodical distribution company in Ohio, Indiana, Michigan
and western Pennsylvania, with an estimated market share for that region of
greater than 50%. This market dominance is expected to strengthen the
Acquisition Parties' existing relationships with customers and suppliers and to
enable the Combined Company to successfully compete with other regional
wholesalers for major retail accounts.

BACKGROUND

The periodical wholesale distribution industry has undergone significant
consolidation during the past year. Prior to this period of consolidation,
wholesale periodical distributors historically operated in defined geographic
territories without much competition from other wholesalers due to the
difficulty and cost of distributing in another wholesaler's territory. Within
the past year, large retailers have begun to consolidate vendor relationships
with larger suppliers so that the retailers are acquiring periodicals from one
or a few wholesalers for all of their retail locations rather than from separate
wholesalers in each geographic area where a retail location is based. As a
result, the industry has rapidly evolved from a supplier based push distribution
system to a consumer based pull allocation system. This has resulted in a
smaller number of wholesalers distributing within many geographic locations and
in more direct competition for retail business. As a result, a number of small
wholesalers have been unable to remain in business. Gross margins have decreased
as more price competition has occurred, and a number of wholesalers are
affiliating or otherwise consolidating their operations to reduce duplicative
operating expenses to compete effectively for large retail accounts while
providing additional value-added services to the retailers.

The wholesale periodical distribution industry is poised for additional
significant consolidation over the next few years. Management believes that the
consolidation of the Company and the Acquisition Parties will significantly
reduce both fixed and variable costs once the consolidation of operations is
complete. It is anticipated that these cost reductions will act to offset
decreasing margins and greater pricing pressures and will increase the ability
of the enterprises comprising the Combined Company to compete more effectively.

                                       8
<PAGE>   11

Although there are currently approximately 60 wholesalers who are marketing
periodicals in the United States, management believes that, within five years,
the wholesale periodical distribution industry may be dominated by fewer than
ten companies across the United States as smaller, local wholesalers continue
consolidating with larger and financially stronger regional wholesalers. As a
result of these continued consolidation trends, management believes that some
additional acquisition opportunities will become available over the next 12 to
24 months. Management believes that the anticipated size of the Combined Company
will permit it to take advantage of these acquisition opportunities better than
the Company alone would otherwise be able to accomplish.

INDUSTRY OVERVIEW

The $4 billion wholesale periodical distribution industry in North America is
comprised of approximately 60 regional and local wholesalers operating out of
approximately 300 distribution locations. Management believes that these 60
wholesalers account for approximately 97.5% of all magazines purchased by
consumers in retail outlets such as newsstands, drug stores, convenience stores,
discount variety stores and grocery stores. The wholesale periodical
distribution industry is highly fragmented and regionalized. However, there has
been significant consolidation activity driven by major retailers' desire to
consolidate their vendor relationships and by the desire of many local
wholesalers to take advantage of the favorable economics available to larger
regional wholesale organizations by consolidating with neighboring wholesalers.

It is estimated that the five largest wholesaler groups in the country account
for approximately 60% of magazine sales and the ten largest account for
approximately 80%. In addition to these ten large wholesalers, there are
approximately 50 small and mid-size independent wholesalers making up the
balance of the markets served in the United States.

Based upon industry information, management of the Company believes that the
wholesale periodical distribution industry has grown approximately five percent
(5%) per year for the last several years. Management believes that the continued
growth of the industry depends upon the following factors:

1. The magazine publisher's ability to continue to provide newsworthy or
entertaining publications to consumers; 

2. The publishers' and wholesalers' ability to maintain a profit structure 
appealing to the retailers; 

3. Improvement in the efficiency and accuracy of product allocation to 
capitalize on the impulse nature of the purchase decision and to optimize 
sales; and

INDUSTRY TRENDS

Historically, the wholesale periodical distribution industry has not been
characterized by significant competition. Because publishers and retailers have
recognized the favorable economics of local distribution, they have supported
the exclusive territories that have evolved over time, minimizing competition
from neighboring local or regional wholesalers. Recently, however, these
barriers have begun to break down leading to a more competitive environment as a
result of the following trends:

-    Vendor Consolidation Efforts of Large Retailers. Many national
retailers such as Wal-Mart have begun consolidating the number of suppliers from
which they purchase in an effort to streamline their purchasing process. This
change in purchasing behavior has been driven, among other reasons, by the
retailers' demands for chain-wide or divisional billing to minimize their
administrative costs, by



                                       9
<PAGE>   12



standardization of improved service levels, and by an opportunity to improve
profitability. This trend has begun to eliminate the traditional regional
barriers that have existed in the industry for decades and has shifted the
emphasis of the wholesaler/retailer relationship from the local level to the
corporate or regional level. Although a regional wholesaler can, in the short
run, increase sales by establishing a relationship with a large retailer, it
becomes more difficult for that wholesaler to service far reaching locations of
the large retailers in a profitable manner. Consequently, the regional
wholesaler must unite with the local or other regional wholesalers serving those
far reaching territories either through joint ventures or consolidations in
order to optimize delivery efficiency and long term profitability.

-    Industry Consolidation. The industry recently has undergone
considerable consolidation for several reasons. Because they must operate under
the constraints of a price ceiling established by the publishers, successful
wholesalers have concentrated on cost cutting measures in order to remain
competitive. Through mergers and consolidations with competitors in neighboring
regions, local wholesalers have been able to achieve significant cost savings
and economies of scale in their distribution operations by consolidating
distribution plants and eliminating redundant overhead.

-    Marketing Initiatives with Retailers. As "direct store delivery" vendors,
periodical wholesalers are responsible for determining the most effective way to
market their products in a particular retail location. Wholesalers'
merchandising decisions typically rely upon information derived from knowledge
of buying habits of consumers, distribution and return records by title and
issue of each magazine, and other related information for each retail location.
This historical information is kept in a database known as "Order & Regulation
Records" which is owned and maintained by the wholesaler. It enables the
wholesaler to electronically monitor and evaluate the historic distribution
information for greater efficiency and profit.

-    Technology Initiatives with Retailers. In addition to maintaining Order &
Regulation Records, the most successful wholesalers, including the Company, have
used other tools to work with retailers to increase sales and profitability of
periodicals. These include "Electronic Data Interchange" and "Efficient Consumer
Response". Electronic Data Interchange uses bar codes and UPC codes in
conjunction with sophisticated scanning systems to track the movement of
periodicals between the wholesaler and retailer as well as control the billing
process throughout the distribution chain. Efficient Consumer Response is a real
time analysis tool that assists the wholesaler in tracking the retailers'
periodical sales within a given month. It enables the wholesaler to manage the
allocation of products within a given month and replenish or re-deploy in store
inventory where needed.

-     Process Automation. The periodical distribution process involves a 
significant amount of labor for activities such as sorting, scanning, loading
and unloading trucks and shredding returned periodicals. Consistent with such a
business model, labor costs represent one of the largest operating expenses of
most wholesalers. In an effort to reduce overhead expenses, wholesalers have
increasingly sought to automate the handling of the magazines they distribute
through the acquisition and development of more sophisticated and integrated
machinery and equipment.

-    Department of Justice. There has been an investigation of the
magazine distribution industry by the Antitrust Division of the U.S. Department
of Justice. The investigation originated in the Northwest Office of the U. S.
Department of Justice in Cleveland, Ohio. The complete nature, target, and focus
of the investigation is unclear. To the knowledge of management, none of the
Acquisition Parties has been identified as a target of the investigation. Each
of the wholesaler Acquisition Parties has provided documents, and some of them
have provided deposition testimony. The current status of the investigation is
not known.



                                       10
<PAGE>   13



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 anticipates issuing a $4,500,000 Subordinated Debenture
and 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. In connection with this transaction the Company anticipates the
purchase of an additional $500,000 of common stock by R. David Thomas. The
Company also intends to issue $242,211 of Senior Debentures and $94,594 of
Subordinated Debentures in connection with the acquisition of Read-Mor.

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 April 1, 1997.

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 final financing commitment nor reached a final
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.

                                       11
<PAGE>   14

REVIEW OF OPERATIONS

The results of operations for 1996 are not indicative of results from prior
years, nor are the results for 1996 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. In addition, UNIMAG had only one operating entity,
Yankee, reporting for the entire 12 months of fiscal 1996. In addition, UNIMAG
reported operations for nine months for Wilmington, Pittsburgh and Readers
Choice, two months for Michiana, Stoll, Read-Mor and Scherer Affiliates, and two
weeks for Klein.

The revenue for the Combined Company for the various periods of operations
reported for each of the entities in 1996 was $80,232,472, an increase of 227%
over 1995 revenue. This increase is primarily attributable to the inclusion of
revenues from the acquisition parties' companies during 1996 for the periods
included in the preceding paragraph.

In markets serviced by the Combined Company, the business of certain large
retail chains such as WalMart and K Mart was lost early in calendar 1996.
However, the Company obtained increases in new business from chains previously
serviced by other wholesalers not part of the Combined Company. Other increases
in new business came from the increased use of high impact marketing programs in
large retail customer locations. On a pro forma basis the revenues of UNIMAG
increased by 1.4% from 1995 to 1996.

The most significant development during 1996 was the reduction in revenue from
existing chain customers where new discounts, rebates and amortization of
signing bonuses caused a reduction in revenue without a corresponding reduction
in the related cost of the products for equivalent numbers of magazines sold. As
a result the Company realized less revenue per comparable magazine sold in 1996
versus 1995.

As a result of these reductions in revenue, the gross margin, as a percentage of
revenue, declined from 27.0 % in 1995 to 24.9% in 1996. This trend was not
unique to UNIMAG, as it was representative of changes throughout the entire
industry in 1996. The 2.1% decline in gross margin was attributable almost
totally to the discounting and rebating changes during 1996. The cost of product
to UNIMAG, as a percentage of the retail price to the customer, remained
relatively constant.

Selling, general and administrative expenses, as a percent of revenue, increased
by 1.5% to 27.7% in 1996 versus 26.2% in 1995. Included in this increase was
administrative cost increases in 1996 over 1995 of $1,049,000 for professional
fees. Payroll expenses, the largest operating expense component, increased in
1996 over 1995 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. The
reduction in revenue from discounts, rebates and amortization during 1996
reduced the comparative revenue base. Without this reduction in revenue, the
selling, general and administrative percent would have been 26.9% instead
of the 27.7% amount.

Depreciation and amortization expense increased due to the depreciation of fixed
assets acquired and to the amortization of goodwill relating to the several
business combinations in 1996. The acquisition of Triangle, Wilmington, 
Michiana, Stoll, Klein, Read-Mor and Scherer Affiliates was accounted for 
using purchase price



                                       12
<PAGE>   15



accounting. Accordingly, goodwill was created in the amount of $153,935,000. 
This goodwill is being amortized over 40 years.

All of these changes resulted in an increase in the net loss from operations to
6.1% of revenue in 1996 compared to 3.4% in 1995.

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 from July 1, 1996 for Michiana, Stoll, Read-Mor and Scherer Affiliates
and from August 24, 1996 for Klein. This increased interest expense for 1996 by
approximately $664,000. In addition, the Company incurred a noncash interest
charge of $525,000 for the accretion of shares subject to put agreements.

Because of the loss for the year and because of loss carryforwards, UNIMAG had
no federal income tax expense for 1996. The Company has a net operating loss
(NOL) of approximately $47,000,000 at September 28, 1996; however, the Company
has not recognized any benefits from that NOL through 1996.

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 as two shareholders holding more than 50% of the
shares of Common Stock of the Company have agreed to vote in favor of the split.

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 1996 was $(2,277,000) versus $2,741,000 for 1995. The 1996 EBITDA was
impacted negatively by the gross margin and payroll pressures during the period
of ownership, and the Company delayed the implementation of expected
consolidation synergies with the acquisition companies during the initial
periods of ownership until final consolidation plans could be made. The 1995
EBITDA was increased by $3,017,000 for non recurring favorable lawsuit
settlements and for other favorable debt settlements related to a now inactive
subsidiary.

The Company anticipates improvements in EBITDA in fiscal 1997 versus 1996 due to
reductions in selling, general and administrative expenses through consolidation
synergies.



                                       13
<PAGE>   16



The acquisition transactions of the Company since June 30, 1996 have added $142
million of goodwill to the Company's assets and $58.5 million of Senior and
Subordinated Debentures to the Company's liabilities. On an annual basis the
Company anticipates future amortization of approximately $3,550,000 for this
goodwill and initial annual interest of approximately $5,050,000 related to
these transactions.

CASH FLOWS - OPERATING ACTIVITIES

During 1996 the Company experienced a decline in net cash provided from
operations of $(3,402,000) from $2,084,000 in 1995 to a deficit of $(1,318,000)
in 1996. The 1996 deficit is due primarily to the net loss of $6,388,000 for
1996; however, the Company also paid $2,002,000 to retailers in net long term
prepaid signing bonuses to be amortized over the lives of the contracts.
Both accounts receivable and accounts payable increased by approximately
$2,000,000. Other significant increases in cash flow from operations included
depreciation and amortization of $2,513,000 and an increase in accrued
liabilities, primarily related to payroll and professional fees, of $3,034,000.
During 1995 the cash provided from operations was attributable primarily to the
Prudential settlement. As discussed above, the Company is seeking financing to
address its working capital deficiencies.

CASH FLOWS - INVESTING ACTIVITIES

The Company spent $1,066,000 in 1996 for capital expenditures, primarily for
vehicles and retail display fixtures. The acquisition transactions did not
require the spending of any significant amounts for additional capital
expenditures since the acquired companies had adequate investments in capital
assets. During 1995 the Company spent $153,000 for capital expenditures,
purchased Readers Choice, Inc. for $495,000 and loaned Wilmington $500,000 in
connection with a purchase option.

CASH FLOWS - FINANCING ACTIVITIES

During 1996 the Company borrowed $4,352,000 under debt obligations. The Company
made payments of $1,724,000 under debt obligations for a net cash provided of
$2,628,000. During 1995 the Company issued common stock subject to put
agreements for $482,000, borrowed $125,000 and repaid $1,393,000 of debt
obligations.

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. See the discussions of "Financing
Arrangements" and "Liquidity" above.

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 capital expenditures for
store fixtures; however, these fixture increases have historically generated
enough additional revenue and gross margin to pay for the fixture costs with one
year.



                                       14
<PAGE>   17



OPERATIONAL MEASURES

The receivables of the Company and its Acquisition Parties increased during 1996
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 is engaged in collection efforts to reduce the number of days
outstanding of receivables. In addition, through the Company's SMARTS system and
related inventory management and purchasing consolidation efforts, the Company
anticipates reducing the amount of inventory and the related vendor payables for
a given level of revenue.

OPERATING SYNERGIES

The acquisition transactions will enable the Combined Company to successfully
leverage its investment in its sophisticated and proprietary SMARTS System
(which stands for Sales Magazine Analysis React Transmit 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 will provide a critical competitive advantage over
other regional wholesalers in obtaining important new accounts.

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 sales levels by as much as 20-25% when the programs are
introduced into a given retail location. The Company expects that the
introduction of the high impact marketing program to Acquisition Parties 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 is currently implementing 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 consolidated over the
next 12 months following the consummation of the proposed transactions. The
Company has terminated or sent notices of pending termination to approximately
15% of the total full-time work force at September 28, 1996.

COMMITMENTS AND CONTINGENCIES

The Company has entered into long-term contracts (generally three years) with
its most important customers. These contracts resulted in the gross margin
reductions of 1996.

                                       15
<PAGE>   18

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. (See Note 13 to
the Consolidated Financial Statements.)

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.

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 1997; the Company's plans for
the 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 acquisitions (as discussed in
"Background" above); the Company's plans for future consolidations and changes
in properties (as discussed in "Operating Synergies" above); the Company's plans
for future financing and refinancing (as discussed in "Financing Arrangements"
above); the Company's future operational strategies to improve operating cash
flow; statements incorporated by reference from the Company's Preliminary proxy
Statement 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, performances,
and/or achievements of the Company to differ materially from any future results,
performances, and/or achievements of the Company to differ materially from any
future results, performances, or achievements, expressed 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; the factors discussed in paragraph
four of the Opinion in the Report of Independent Public Accountants and the
related Note 2 to the financial statements; and other risks described from time
to time in the Company's Securities and Exchange Commission filings. The Company
undertakes no obligation to publicly release any revisions to these forward
looking statements for events occurring after the date hereof or reflect any
other unanticipated events.



                                       16
<PAGE>   19




ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------





                             UNITED MAGAZINE COMPANY
                             =======================


                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------

                 AS OF SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
                 -----------------------------------------------

                         TOGETHER WITH AUDITORS' REPORT
                         ------------------------------



                                       17
<PAGE>   20




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
     United Magazine Company:

We have audited the accompanying consolidated balance sheets of United Magazine
Company (an Ohio corporation) and Subsidiaries as of September 28, 1996 and
September 30, 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 United Magazine
Company and Subsidiaries as of September 28, 1996 and September 30, 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring operating losses, is
currently in default under certain of its acquired debt agreements, acquired
certain unpaid taxes due the Internal Revenue Service and has current
liabilities in excess of current assets of approximately $45 million. These
matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

                                                     ARTHUR ANDERSEN LLP

Columbus, Ohio,
   January 13, 1997.



                                       18
<PAGE>   21

<TABLE>
<CAPTION>



                             UNITED MAGAZINE COMPANY
                             -----------------------

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                 AS OF SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
                 -----------------------------------------------

                              ASSETS                                               1996                    1995
                              ------                                          --------------          -------------
<S>                                                                          <C>                      <C>         
CURRENT ASSETS:
   Cash                                                                       $   2,546,785           $    755,338
   Accounts receivable, net of allowance for doubtful accounts of
     $2,985,000 in 1996 and $63,000 in 1995                                      29,835,357              2,869,762
   Inventories                                                                   35,746,922              3,096,982
   Marketable securities                                                            473,556                   --
   Notes receivable from related parties                                          1,352,646                   --
   Prepaids and other                                                             1,335,458                 58,007
                                                                              -------------           ------------
              Total current assets                                               71,290,724              6,780,089
                                                                              -------------           ------------

PROPERTY AND EQUIPMENT, at cost:
   Land                                                                             290,706                   --
   Building and improvements                                                      2,260,740                   --
   Furniture and equipment                                                        6,174,452                590,068
   Vehicles                                                                       4,789,336                479,628
   Leasehold improvements                                                           522,336                101,616
                                                                              -------------           ------------
                                                                                 14,037,570              1,171,312
   Less - accumulated depreciation and amortization                              (1,585,503)              (475,501)
                                                                              -------------           ------------

              Total property and equipment, net                                  12,452,067                695,811
                                                                              -------------           ------------

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

INVESTMENT IN WILMINGTON:
   Business option                                                                     --                3,202,672
   Note and interest receivable from Wilmington                                        --                  524,375
                                                                              -------------           ------------
              Total investment in Wilmington                                           --                3,727,047
                                                                              -------------           ------------

OTHER ASSETS:
   Sales orders and regulatory records, net of accumulated
     amortization of $847,475 in 1996 and $593,236 in 1995                          423,720                677,959
   Costs in excess of net assets acquired, net of accumulated
     amortization of $911,143 in 1996 and $153,965 in 1995                      154,518,179                452,616
   Covenants not to compete, net of amortization of $105,362
     in 1996                                                                        538,777                   --
   Notes receivable from related parties                                          1,788,645                   --
   Prepaids                                                                       5,501,703                   --
   Other assets, net                                                              3,617,107                   --
                                                                              -------------           ------------
              Total other assets                                                166,388,131              1,130,575
                                                                              -------------           ------------

              Total assets                                                    $ 251,370,527           $ 12,333,522
                                                                              =============           ============
</TABLE>

(Continued on next page)



                                       19
<PAGE>   22
<TABLE>
<CAPTION>
1



                             UNITED MAGAZINE COMPANY
                             -----------------------


                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                 AS OF SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
                 -----------------------------------------------

               LIABILITIES AND SHAREHOLDERS' EQUITY                              1996                1995
               ------------------------------------                          --------------      --------------
<S>                                                                              <C>                 <C>          
CURRENT LIABILITIES:
   Current portion of debt obligations                                      $  10,822,386           $    113,076
   Current portion of Senior debentures                                         3,329,295                   --
   Short-term borrowings - related parties                                      6,206,853                   --
   Accounts payable                                                            70,302,971              4,763,693
   Accrued expenses                                                            12,762,143                801,291
   Accrued interest on debentures                                               1,041,006                   --
   Income taxes payable                                                         1,534,602                   --
   Reserve for gross profit on sales returns                                   10,474,409                541,499
                                                                            -------------           ------------
              Total current liabilities                                       116,473,665              6,219,559

LONG-TERM DEBT OBLIGATIONS                                                      9,247,711                137,500

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

DEFERRED COMPENSATION PLAN                                                      1,231,041                   --

ACCRUED PENSION OBLIGATION                                                      2,115,478                   --

POST-RETIREMENT OBLIGATION                                                      1,450,015                   --

DEALER ADVANCE PAYMENTS AND OTHER                                                 146,938                 38,750
                                                                             ------------           ------------
              Total liabilities                                               185,815,074              6,395,809
                                                                            -------------           ------------

COMMITMENTS AND CONTINGENCIES

COMMON STOCK SUBJECT TO PUT AGREEMENTS, 482,140 shares

                                                                                4,329,287              3,804,185
                                                                            -------------           ------------

SHAREHOLDERS' EQUITY:
   Common stock, no par value, 53,250,000 shares authorized,
     4,283,506 and 4,250,056 issued, and 2,676,034 and 2,642,585
     outstanding (including shares subject to Put Agreements), in
     1996 and 1995, respectively                                                      250                    250
   Paid-in capital                                                             43,079,563             42,701,846
   Obligation to issue shares (4,349,476)                                      65,242,138                   --
   Treasury stock, at cost                                                        (16,998)               (16,998)
   Unrealized loss                                                                (31,219)                  --
   Minimum pension liability adjustment                                          (108,204)                  --
   Retained deficit                                                           (46,939,365)           (40,551,570)
                                                                            -------------           ------------
              Total shareholders' equity                                       61,226,165              2,133,528
                                                                            -------------           ------------

              Total liabilities and shareholders' equity                    $ 251,370,527           $ 12,333,522
                                                                            =============           ============
</TABLE>

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




                                       20
<PAGE>   23

<TABLE>
<CAPTION>

                             UNITED MAGAZINE COMPANY
                             -----------------------


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------

          FOR THE YEARS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
          -------------------------------------------------------------

                                                                                      1996                        1995
                                                                                  -------------               ------------
<S>                                                                            <C>                          <C>        
NET SALES                                                                         $   80,232,472              $ 24,561,801

COST OF SALES                                                                        (60,277,303)              (17,918,114)
                                                                                  --------------              ------------

              Gross profit                                                            19,955,169                 6,643,687

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                         (22,203,107)               (6,426,601)

DEPRECIATION AND AMORTIZATION                                                         (2,511,654)                 (553,971)

INCOME (LOSS) FROM INVESTMENT IN WILMINGTON                                             (163,192)                   32,405

WRITE-OFF OF ASSETS                                                                         --                    (534,102
                                                                                  --------------              ------------

LOSS FROM OPERATIONS                                                                  (4,922,784)                 (838,582)
                                                                                  --------------              ------------

OTHER INCOME (EXPENSES), net:
   Interest expense                                                                   (1,781,141)                 (347,809)
   Interest income                                                                       182,123                    25,103
   Prudential settlement, net (Note 13.a.)                                                  --                   2,352,170
   Accounts payable settlement gain                                                         --                     665,135
   Other, net                                                                            134,007                     8,163
                                                                                  --------------              ------------

              Total other income (expenses), net                                      (1,465,011)                2,702,762
                                                                                  --------------              ------------

INCOME (LOSS) BEFORE TAXES                                                            (6,387,795)                1,864,180

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

NET INCOME (LOSS)                                                                 $   (6,387,795)             $  1,864,180
                                                                                  ==============              ============

WEIGHTED AVERAGE SHARES OUTSTANDING                                                    3,225,729                 2,390,318
                                                                                  ==============              ============

EARNINGS (LOSS) PER SHARE                                                         $       (1.98)              $        .78
                                                                                  ==============              ============
</TABLE>




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



                                       21
<PAGE>   24
<TABLE>
<CAPTION>
 
                                                                  UNITED MAGAZINE COMPANY
                                                                  -----------------------
                                         
                                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                      -----------------------------------------------
                                               FOR THE YEARS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
                                               -------------------------------------------------------------


                                            Number of                                          Obligation  
                                             Shares      Treasury                              to Issue    
                                           Outstanding   Shares        Common      Paid-in      Common     
                                           (post-split)  (post-split)  Stock       Capital       Stock     
                                           ------------  ----------   ---------   ----------   ----------  

<S>                                         <C>           <C>        <C>         <C>          <C>         <C>    
BALANCE, October 1, 1994                    2,139,199     1,606,413    $250    $ 42,467,355     $      --   

   Issuance of common stock                    22,305          --       --          223,046            --   
   Purchase of shares previously issued        (1,059)        1,059     --             --              --   
   Shares earned under consulting
     agreement:
     - 22,315 shares previously issued
       issued in 1995                            --            --       --         (223,046)           --   
     - 23,449 shares earned but not issued
       issued in 1995                            --            --       --          234,491            --   
   Net income                                    --            --       --             --              --   
                                           ----------     ---------    ----    ------------     -----------

BALANCE, September 30, 1995                 2,160,445     1,607,472     250      42,701,846            --   

   Issuance of common stock                    33,449          --       --          325,491            --   
   Obligation to issue 4,349,476 shares
     of common stock                             --            --       --             --        65,242,138
   Shares earned under consulting
     agreement:
     - 23 shares earned in 1995 issued
       issued in 1996                            --            --       --         (234,491)           --   
     - 25,096 shares earned but not issued
       issued in 1995                            --            --       --          286,717            --   
   Unrealized loss on investments held
     for sale                                    --            --       --             --              --   
   Minimum pension liability adjustment          --            --       --             --              --   
   Net loss                                      --            --       --             --              --   
                                           ----------     ---------    ----    ------------     -----------

BALANCE, September 28, 1996                 2,193,894     1,607,472    $250    $ 43,079,563     $65,242,138
                                           ==========     =========    ====    ============     ===========



                                                                Minimum                                       
                                                                Pension                                       
                                         Treasury    Unrealized  Liability     Retained                       
                                         Stock        Loss      Adjustment     Deficit              Total        
                                        ---------   ----------  -----------  ------------          ----------    
                                                                                                              

BALANCE, October 1, 1994                   $  --      $               --      $(42,415,750)       $ 51,855

   Issuance of common stock                   --          --          --              --           223,046
   Purchase of shares previously issued    (16,998)       --          --              --           (16,998)
   Shares earned under consulting
     agreement:
     - 22,315 shares earned in 1994
       issued in 1995                         --          --          --              --          (223,046)
     - 23,449 shares earned but not
       issued in 1995                         --          --          --              --           234,491
   Net income                                 --          --          --         1,864,180       1,864,180
                                           -------    --------    --------     -----------     -----------

BALANCE, September 30, 1995                (16,998)       --          --       (40,551,570)      2,133,528

   Issuance of common stock                   --          --          --              --           325,491
   Obligation to issue 4,349,476 shares
     of common stock                          --          --          --              --        65,242,138
   Shares earned under consulting
     agreement:
     -23,449 shares earned in 1995
       issued in 1996                         --          --          --              --          (234,491)
     -25,096 shares earned but not
       issued in 1995                         --          --          --              --           286,717
   Unrealized loss on investments held
     for sale                                 --       (31,219)       --              --           (31,219)
   Minimum pension liability adjustment       --          --      (108,204)           --          (108,204)
   Net loss                                               --          --        (6,387,795)
                                           -------    --------    --------     -----------     -----------

BALANCE, September 28, 1996               $(16,998)  $ (31,219) $ (108,204)   $(46,939,365)    $61,226,165
                                           =======    ========    ========     ===========     ===========




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

</TABLE>


                                       22
<PAGE>   25
                                         


                             UNITED MAGAZINE COMPANY
                             -----------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
          FOR THE YEARS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
          -------------------------------------------------------------
                           INCREASE (DECREASE) IN CASH
                           ---------------------------
<TABLE>
<CAPTION>

                                                                                 1996               1995
                                                                             -------------      -------------

<S>                                                                         <C>                <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:

 Net income (loss)                                                          $(6,387,795)       $ 1,864,180
 Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities -
   (Income) loss on investment in Wilmington                                    163,192            (32,405)
   Consulting fee paid with common stock                                        286,717            234,491
   Gain from settlement of accounts payable                                     -                 (665,134)
   Accretion of interest on common stock subject to put
     agreements                                                                 525,102            238,161
   Depreciation and amortization                                              2,512,574            553,971
   Loss due to write-off of certain assets                                      -                  534,102
 Changes in certain assets and liabilities, net of the effect of acquisitions
   and investments- (Increase) decrease in certain assets:
     Accounts receivable                                                     (2,017,379)          (394,760)
     Inventories                                                               (464,131)            (7,146)
     Prepaids and other current assets                                          496,841           (242,557)
     Other assets                                                              (191,532)           -
     Long-term prepaids                                                      (2,002,379)           -
   Increase (decrease) in certain liabilities:                                                    
                                                                                                  
     Accounts payable                                                         2,053,805              6,912
     Accrued expenses                                                         2,924,386           (135,536)
     Reserve for gross profit on sales returns                                  892,598            123,728
     Dealer advance payments                                                    108,188              5,525
     Other liabilities                                                          (73,289)           -
     Deferred compensation                                                     (109,181)           -
     Accrued pension obligation                                                 (95,526)           -
     Post-retirement obligation                                                  59,611            -
                                                                           -------------      -------------
            Net cash provided by operating activities                        (1,318,198)         2,083,532
                                                                           -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                                         (1,066,245)         (153,480)
  Cash (used) for acquisitions, net of cash acquired                           1,200,069          (495,167)
  (Issuance) of receipt of payment on notes receivable from
    related parties                                                              347,941          (500,000)
                                                                            -------------     ------------
             Net cash used in investing activities                               481,765        (1,148,647)
                                                                            -------------     ------------
</TABLE>


(Continued on next page)

                                      23
<PAGE>   26


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

          FOR THE YEARS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
          -------------------------------------------------------------

                           INCREASE (DECREASE) IN CASH
                           ---------------------------

                                   (Continued)
<TABLE>
<CAPTION>

                                                                                 1996               1995
                                                                             -------------      -------------

<S>                                                                           <C>               <C>         
CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings under debt obligations                                          $ 4,352,266       $    125,000
   Payments on debt obligations                                                (1,724,386)        (1,392,753)
   Proceeds from issuance of common stock subject to put
     agreements                                                                   -                  482,140
   Buy-back of common stock                                                       -                  (16,998)
                                                                             -------------      -------------
              Net cash provided by (used in) financing activities               2,627,880           (802,611)
                                                                             -------------      -------------
NET INCREASE IN CASH                                                            1,791,447            132,274

CASH, beginning of year                                                           755,338            623,064
                                                                             -------------      -------------

CASH, end of year                                                             $ 2,546,785       $    755,338
                                                                             =============      =============



Supplemental Disclosure of Cash Flow Information
------------------------------------------------

   Cash paid during the year for interest                                    $    532,000       $    133,000
   Cash paid during the year for taxes                                       $     49,000       $     20,000
</TABLE>


Supplemental Schedule of Noncash Investing and Financing Activities
-------------------------------------------------------------------

1996 
---- 

The company made six significant acquisitions in 1996. In addition,
they disposed of an insignificant subsidiary. See Note 4 for additional
discussion.

1995
----

See Note 12 for discussion on common shares issued for the investment in
Wilmington.

The Company acquired approximately $545,500 of assets and assumed $45,500 of
liabilities through the acquisition of Reader's Choice, Inc.

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




                                       24
<PAGE>   27




                             UNITED MAGAZINE COMPANY
                             -----------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                 AS OF SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
                 -----------------------------------------------

 (1)   ORGANIZATION
       ------------

       United Magazine Company (UNIMAG or the Company) is an Ohio corporation
       which was incorporated on April 8, 1964. UNIMAG (the Parent) is a holding
       company. All operations for the year were conducted through its
       wholly-owned subsidiaries. UNIMAG also has three inactive subsidiaries.

       Business of UNIMAG
       ------------------

       UNIMAG operates wholesale operations primarily in the northern midwest
       (Ohio, Michigan, Northern Indiana and Western Pennsylvania), Connecticut
       and North Carolina. From various distribution facilities UNIMAG
       distributes approximately 3,500 different titles of magazines to its
       customers on a weekly basis. UNIMAG also distributes books and various
       other sundry items. In addition to the wholesaling business, UNIMAG has
       31 retail bookstores. These retail operations generated approximately $3
       million in revenue during fiscal 1996.

       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 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 effect of the acquisitions.

 (2)   MANAGEMENT PLAN
       ---------------

       Certain recent developments have had an adverse effect on the Company's
       short-term liquidity. At September 28, 1996 the Company has current
       liabilities in excess of current assets of approximately $45 million.
       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.
       Because of the delays in the




                                       25
<PAGE>   28




       final closing of the acquisition transactions, certain of the acquisition
       companies are in default with their loans, and one of the acquisition
       companies has an outstanding obligation to the Internal Revenue Service
       of approximately $1.2 million. It is anticipated that the bank defaults
       will not be cured until after the expected refinancing following the
       Annual Meeting of Shareholders. Obligations in default have been
       classified as current liabilities in the accompanying financial
       statements.

       The Company is pursuing several alternative forms of additional
       financing. This additional financing includes approximately $40 million
       to refinance the Senior Debentures and an approximate $25 million line of
       credit to consolidate present bank borrowings and to provide additional
       working capital. This financing alternative cannot be finalized until
       after the Company's Annual Meeting of Shareholders scheduled for late
       March, 1997 and there is no assurance that the Company will be able to
       secure this financing.

       The Company has a history of operating losses; however, the losses in
       1992 through 1994 were from operations unrelated to the periodical
       wholesale distribution industry. The Company's Connecticut wholesale
       operations have operated profitably since 1993. The prior annual
       financial statements of Michiana, Stoll, Scherer Affiliates and Klein
       (the fourth quarter acquisitions) indicates profitable operations as
       family businesses through 1995. During 1996 with the increased levels of
       competition the entire industry experienced reductions in profitability
       due to margin reduction and increased costs of providing higher levels of
       customer service.

       The Company plans to return to historical industry profit levels by the
       end of 1998. Through the consolidation of the geographically contiguous
       acquisitions, management expects the combined company to achieve
       considerable cost savings and operating efficiencies through the
       elimination of redundant overhead and the consolidation of overlapping
       markets and facilities. Duplicate administrative and distribution
       functions are being eliminated, and the costs and benefits of technology
       are being spread over a larger customer base. Additionally, management
       expects that 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. UNIMAG's pro forma annual sales for 1996 are $281 million which
       management believes makes UNIMAG the fifth largest periodical wholesaler
       in the country based on published sales volumes.

       During the latter part of 1996 the Company began to consolidate its
       distribution operations with a corresponding reduction in general and
       administrative expenses. The Company will continue these consolidation
       efforts in 1997 with further expense reductions from operating synergies.
       During 1997 the Company plans to increase revenue per customer by the
       implementation of proven high impact marketing in all newly acquired
       locations and by utilization of the Company's proprietary SMARTS system
       for more efficient and targeted distribution of product. The Company also
       is engaged in negotiations with the publisher for better pricing.




                                       26
<PAGE>   29




       During 1997 the Company anticipates improved cash flow. In 1996, signing
       bonuses were paid to certain customers to secure multi-year contracts. In
       many cases, these contracts covered a period of three years. Hence, cash
       outflows will be substantially less in 1997. In addition, 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 capital
       expenditures for store fixtures; however, these increases in fixtures
       have historically generated enough additional revenue and gross margin to
       pay for the fixtures cost within one year.

       The Company also is engaged in an effort to reduce the average days
       outstanding of current accounts receivable and has negotiated with
       suppliers for more favorable payment terms on vendor payables.

       In summary, the Company believes that its current strategic plan will
       produce a new financial partner and positive cash flow. There can be no
       assurance that this plan will succeed. The financial statements do not
       include any adjustments that might result from the outcome of this
       uncertainty. The financial statements do not include any adjustments
       relating to the recoverability and classification of asset carrying
       amounts or the amount and classification of liabilities that might result
       should the Company be unable to continue as a going concern.

 (3)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       ------------------------------------------

       (a)   FISCAL YEAR - UNIMAG follows the practice of a 52/53 week fiscal
             year which ends on the Saturday nearest to September 30.

       (b)   PRINCIPLES OF CONSOLIDATION - All intercompany balances and
             transactions have been eliminated in the consolidated financial
             statements.

       (c)   ESTIMATES - The preparation of financial statements in conformity
             with generally accepted accounting principles requires management
             to make estimates and assumptions, such as allowance for doubtful
             accounts and the reserve for gross profit on sales returns, 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 their estimates.

       (d)   INVENTORIES - Inventories are valued at the lower of cost or market
             as determined by the first-in, first-out (FIFO) cost method.





                                       27
<PAGE>   30




       (e)   PROPERTY AND EQUIPMENT - Property and equipment are stated at cost
             or acquired cost (fair value) after acquisition. Depreciation is
             provided on the straight-line method over the estimated useful
             lives of the related assets as follows:

                                                               Years
                                                              --------

                    Building                                    31
                    Building improvements                       10
                    Furniture and equipment                     5-7
                    Vehicles                                    3-5

             Leasehold improvements are being amortized on a straight-line basis
             over the life of the lease.

             The cost and accumulated depreciation and amortization applicable
             to assets retired are removed from the accounts and any resulting
             gain or loss on disposition is recognized in income. Betterments,
             renewals and extraordinary repairs that extend the life of the
             asset are capitalized; other maintenance and repair costs are
             expensed as incurred.

       (f)   ASSET HELD FOR SALE - The Company has an airplane that was part of
             the fourth quarter acquisition. The value assigned represents its
             estimated fair value.

       (g)  PREPAID SIGNING BONUSES - The Company has entered into supplier
            contracts with many of their large chain customers. As part of the
            contract UNIMAG paid the customer an up-front payment (signing
            bonus) for obtaining a multi-year contract. These payments are being
            amortized straight-line against revenue over the life of the
            contract.

       (h)  EXCESS OF COST OVER NET ASSETS ACQUIRED - Excess of cost over net
            assets acquired (goodwill) consists of the excess of the cost to
            acquire an entity over the estimated fair market value of the net
            assets acquired. Goodwill is amortized on a straight-line basis over
            40 years. The Company continually evaluates whether events and
            circumstances have occurred that indicate the remaining estimated
            useful life of goodwill may warrant revision or that the remaining
            balance of goodwill may not be recoverable. In evaluating whether
            goodwill is recoverable, the Company estimates the sum of the
            expected future cash flows, undiscounted and without interest
            charges, derived from such goodwill over its remaining life. The
            Company believes that no such impairment existed at September 28,
            1996.

       (i)  REVENUE RECOGNITION - Revenues and cost of sales from the sale of
            periodical inventories are recognized upon shipment to the
            customers. However, due to the significant volume of merchandise
            returns that are typical in the periodical industry, the Company
            records a reserve for merchandise returned. This reserve is based on
            the gross profit margin on merchandise sold in the current period
            that is estimated to be returned by the customers in the subsequent
            period. The Company receives credit for the cost of such returns
            from the publisher.




                                       28
<PAGE>   31




       (j)  INCOME TAXES - The Company follows SFAS No. 109 "Accounting for
            Income Taxes" (SFAS 109). (See Note 8).

       (k)  FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of
            current assets and liabilities approximate their fair market value
            because of the short-term maturity of these financial instruments.
            The fair market value of long-term debt is discussed further in Note
            5.

       (l)  WEIGHTED AVERAGE SHARES OUTSTANDING - The weighted average number of
            shares outstanding for earnings per share purposes is calculated
            using common shares issued, shares earned but not issued under a
            consulting agreement, shares obligated to be issued as well as
            common shares subject to put agreements. All years presented have
            been restated to reflect the 1 for 10 reverse split. The shares to
            be issued upon shareholders approval at the Annual Shareholders
            Meeting have been included in the weighted average shares
            outstanding from the respective acquisition dates as discussed in
            Note 4.c.

      (m)   CONCENTRATION OF CREDIT RISK - Financial instruments that
            potentially subject the Company to concentrations of credit risk
            consist principally of trade accounts receivable. The majority of
            the Company's revenues are derived from chain and independent
            grocery stores through the territories discussed in Note 1. No one
            chain represents a significant portion of the Company's revenue.

       (n)  RECLASSIFICATIONS - Certain reclassifications have been made to the
            consolidated financial statements for 1995 to conform with the 1996
            presentation.


 (4)   ACQUISITIONS AND DISPOSITIONS
       -----------------------------

       The Company has made significant acquisitions through three different
       transactions as described below.

       a.   In January 1996, the Company exercised its option for a nominal
            amount to acquire the outstanding stock of Service News Company of
            Wilmington, North Carolina. See Note 12 for additional discussion.

       b.   Also in January 1996, the Company acquired the operations of
            Triangle News Company (Triangle) in Pittsburgh Pennsylvania. UNIMAG
            acquired Triangle for approximately $2.7 million in a transaction
            accounted for as a purchase. The consideration given was in the form
            of cash, seller financing and 10,000 shares of UNIMAG stock
            (estimated fair value of $9.10 per share). The amount of goodwill
            recorded from this transaction was approximately $6.9 million. The
            results of operations for Triangle were included in the consolidated
            statement of operations from January 1996 forward. Triangle
            generated revenue of $18 million during the nine month period ended
            September 28, 1996.



                                       29
<PAGE>   32


       c.   As part of a regional rollup, at the end of July 1996 the Company
            acquired the periodical and management operations of Northern News
            Company, Ohio Periodical Distributors, Inc., MacGregor News Agency,
            Inc., Wholesalers Leasing Corp. and Scherer Companies (collectively
            referred to as the Scherer Affiliates), Michiana News Services, Inc.
            (Michiana) and The Stoll Company. In the middle of September the
            rollup was completed by the addition of Klein News Company and
            affiliates. UNIMAG also acquired a small retail bookstore chain
            (Read-Mor Books, Inc.). This bookstore chain acquisition was not
            considered significant for financial reporting purposes.

            UNIMAG acquired the various companies with UNIMAG common stock of
            $65.2 million (estimated fair value of $15 per share) and
            subordinated debentures of $58.5 million in a transaction accounted
            for as a purchase. In the Company's preliminary allocation of the
            purchase price to the fair value of net assets acquired, goodwill of
            approximately $142 million was recorded. The results of operations
            for these entities were included in the consolidated results of
            UNIMAG from their respective acquisition dates forward (July 31,
            1996 and September 14, 1996), and represented approximately $30
            million of the consolidated revenues for the year ended September
            28, 1996.

       d.   In July 1996, UNIMAG sold the operations of Readers Choice for
            approximately $500,000 which approximated book value. This
            disposition was not considered significant for financial reporting
            purposes.

       The following unaudited pro forma summary 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
       1995. 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, 1994.

<TABLE>
<CAPTION>

              in 000's, except EPS               1996              1995
           ----------------------------       -----------       -----------

<S>                                             <C>               <C>     
           Net Revenue                          $280,751          $276,756
           Net Income (Loss)                      (4,678)           10,406
           EPS                                  $   (.67)         $   1.55

</TABLE>




                                       30
<PAGE>   33


 (5)   DEBT OBLIGATIONS
       ----------------

       The components of the Company's debt obligations at September 28, 1996
       and September 30, 1995 are as follows:

           Short Term Borrowings
           ---------------------

           The Company has short term demand notes as of September 28, 1996 as
           follows:

<TABLE>
<CAPTION>

                                                                 1996

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

<S>                                                            <C>       
            (a)  Note from shareholder                         $5,000,000
            (b)  Other related parties                          1,206,853
                                                             ============
                                                               $6,206,853
                                                             ============
</TABLE>

            (a)   The Company has a $5 million note from a company affiliated
                  with a shareholder. This loan was assumed as part of the
                  acquisitions made during the fourth quarter. The note accrues
                  interest at 11.75% and is collateralized by 5 million shares
                  of UNIMAG stock. This note is anticipated to be converted to a
                  subordinated debenture in 1997.

            (b)   The other related party loans are primarily with employees of
                  Michiana. These notes are unsecured and accrue interest at a
                  rate of 8%.

           Long term Debt Obligations
           --------------------------
<TABLE>
<CAPTION>

                                                                           1996                 1995
                                                                       -------------       ----------

<S>                                                                     <C>                 <C>       
            (a)  Lines of Credit                                        $  7,778,192        $   63,076
            (b)  Term Loans with financial institutions                    1,973,453           -
            (c)  Seller Financing                                          8,998,622           -
            (d)  Loans from Related Parties                                  320,132           187,500
            (e)  Notes with Publishers                                       999,698           -
                                                                       --------------       -----------

            Total                                                         20,070,097           250,576
            Less:  current portion                                       (10,822,386)         (113,076)
                                                                       --------------       -----------
            Long-term portion of debt obligations                       $  9,247,711        $  137,500
                                                                       ==============       ===========
</TABLE>

            (a)  At September 28, 1996, the Company has five lines of credit
                 with banks. The lines of credit bear interest at rates ranging
                 from prime (8.25% at September 28, 1996) to 9.25%. The balance
                 outstanding at September 28, 1996 and September 30, 1995 was
                 $7,778,192 and $63,076, respectively. Maturities of the lines
                 vary from February 1997 through December 31, 1998. The weighted
                 average interest rates on the outstanding borrowings under the
                 lines of credit as of September 28, 1996 and September 30, 1995
                 were approximately 8.3% and 9.75%, respectively.




                                       31
<PAGE>   34




            (b)  The Company has various term loans with financial institutions.
                 These loans accrue interest at rates ranging from 6.75% to
                 9.5%. Principal payments are made on a monthly basis. These
                 loans expire at various times during 1997 through April 1999.

            (c)  Seller financing represents the portion of the consideration
                 associated with an acquisition that was funded by the seller.
                 These obligations relate primarily to prior acquisitions made
                 by the companies that were acquired by UNIMAG during the fourth
                 quarter of 1996. These loans bear interest at rates ranging
                 from 5.8% to 11.0%. Principal payments are made primarily on a
                 monthly basis. These loans expire at various times during 1999
                 through August 2007.

            (d)  The loans from related parties are from the former shareholders
                 of Michiana. These notes were assumed as part of the
                 acquisition. These notes accrue interest at rates ranging from
                 8% to 10% and principal and interest payments are made monthly.
                 The notes expire at various times during April 1997 through
                 April 1998.

            (e)  The Company has entered into agreements with two significant
                 vendors which converted certain publisher payables balances
                 into secured term loans. These loans accrue interest at 10%.
                 Principal and interest payments are made monthly with the loans
                 expiring at various times during 1997 through 1999.

            The above loans are collateralized by substantially all of the
            assets of the Company. These debt obligations contain various
            financial covenants, among them being maintenance of minimum net
            worth and working capital. The Company was in compliance with its
            debt covenants prior to the fourth quarter acquisitions. However,
            certain of the debt acquired contain financial covenants that were
            violated as a result of the acquisitions, operating losses and
            pre-acquisition dividends. Debt in default of approximately $6.3
            million has been included in current portion of debt in the
            accompanying financial statements. The Company anticipates
            curing the defaults in 1997.

            Michiana, acquired by the Company in the fourth quarter of 1996, has
            guaranteed debt of one of its affiliated companies. The outstanding
            balance of this guaranteed debt was approximately $882,000 at
            September 28, 1996. The bank has agreed to terminate this guarantee
            upon the closing of the acquisition transactions and the repayment
            by UNIMAG of outstanding Michiana debt totalling approximately $1.6
            million. The $1.6 million of debt is guaranteed by two former
            shareowners of Michiana.

            The George R. Klein News Company, acquired by the Company in the
            fourth quarter of 1996, has guaranteed approximately $320,000 of
            debt of another company that is 50% owned by George R. Klein.





                                       32
<PAGE>   35




           Shareholder Debentures
           ----------------------

            As part of the acquisitions described in Note 4, the Company issued
            Senior and Subordinated debentures. The components of these
            debentures are as follows:

<TABLE>
<CAPTION>

                           Shareholder Group                        Senior             Subordinated
                 ---------------------------------------         --------------       ----------------

<S>                                                                <C>                  <C>        
                 Stoll Company                                     $16,800,000          $ 9,105,267
                 Michiana                                            3,500,000            2,334,256
                 Scherer Affiliates                                  9,197,604            1,527,309
                 Klein                                              10,180,000            5,498,281
                 Read-Mor                                              242,211               94,594
                                                                 -------------        -------------
                                                                    39,919,815           18,559,707
                 Total

                 Less:  current portion                             (3,329,295)              -
                                                                 -------------        -------------
                 Long-term portion of debentures                   $36,590,520          $18,559,707
                                                                 =============        =============
</TABLE>

            The senior debentures began to accrue interest on July 1, 1996
            (August 24, 1996 for Klein) at 8% payable quarterly commencing on
            the closing date of the acquisitions (Annual Shareholders Meeting).
            Quarterly principal payments are scheduled from April 1, 1997
            through January 1, 2002 in accordance with the schedule and priority
            set forth in the Debenture Agreement. The senior debentures are
            secured by all of the assets of the Company, however, these
            debentures are subordinated to substantially all of the long-term
            debt obligations discussed above. The entire $16,800,000 of Stoll
            Senior debentures must be paid before any other debentures may be
            paid.

            The subordinated debentures began to accrue interest on July 1, 1996
            (August 24, 1996 for Klein) at 10% payable quarterly commencing on
            the closing date of the acquisitions (Annual Shareholders Meeting).
            Quarterly principal payments are scheduled from April 1, 1999
            through January 1, 2004. The subordinated debentures are secured by
            all the assets of the Company, however, these subordinated
            debentures are subordinated to the senior debentures.

       Maturities of all debt obligations at September 28, 1996, are as follows:

<TABLE>
<CAPTION>

                                             Long-Term
                                               Debt
                     Fiscal Year            Obligations         Debentures              Total
                    ---------------        --------------      --------------       --------------

<S>                                          <C>                 <C>                  <C>        
                         1997                $10,822,386        $  3,329,295          $14,151,681
                         1998                  2,408,000           7,489,000            9,897,000
                         1999                  2,271,000          10,171,000           12,442,000
                         2000                  1,193,000          12,027,000           13,220,000
                         2001                    485,000          12,027,000           12,512,000
                      Thereafter               2,890,711          13,436,227           16,326,938
                                           --------------      --------------       --------------
                        Total                $20,070,097         $58,479,522          $78,549,619
                                           ==============      ==============       ==============
</TABLE>

                                       33
<PAGE>   36

       The carrying value of the long-term debt obligations described above
       approximates its fair value because of the significant portion that is
       either short-term or has been recently priced or is variable rate based
       that is repriced frequently.

 (6)   LEASE COMMITMENTS
       -----------------

       UNIMAG or its subsidiaries have entered into operating lease agreements
       for facilities and certain vehicles and equipment. Expenses related to
       these leases were as follows:

                     1996                            $1,344,000
                     1995                            $  384,000

       As of September 28, 1996, the future minimum annual rental commitments of
       lease agreements are as follows:

<TABLE>
<CAPTION>

                           Fiscal Year
                       --------------------

<S>                           <C>                           <C>        
                              1997                          $ 2,329,000
                              1998                            1,681,000
                              1999                            1,062,000
                              2000                              647,000
                              2001                              411,000
                           Thereafter                           201,000
                                                           -------------
                              Total                         $ 6,331,000
                                                           =============
</TABLE>


 (7)   COMMON STOCK
       ------------

       As discussed in Note 1, the shareholders will vote on a proposal at the
       annual shareholders meeting for a 1 for 10 reverse split. Since a
       favorable outcome of the proxy vote is assured, all share information has
       been reported post split.

       The Company is obligated to issue 4,349,476 shares valued at $15 per
       share pursuant to the acquisition agreements entered into during the
       fourth quarter of 1996. These shares will be issued after the annual
       shareholders meeting scheduled for March, 1997.

       The Company also issued 10,000 shares valued at $9.10 per share as part
       of the Triangle News Company acquisition discussed in Note 4.

       The Company issued 23,449 shares under a consulting agreement, see Note
       11.a.

       In determining tangible net worth for use in the purchase price
       calculation for the fourth quarter acquisitions certain reserves for
       asset realization were established. To the extent that these reserves are
       not needed in the future, additional shares and debentures will be
       issued.




                                       34
<PAGE>   37




 (8)   INCOME TAXES
       ------------

       The provision (benefit) for income taxes for the years ended September
       28, 1996 and September 30, 1995 is as follows:

<TABLE>
<CAPTION>

                                                                     1996                1995
                                                                 -------------       --------------

<S>                                                              <C>                 <C>      
       Current tax expense:
          Federal                                                $       -            $      6,000
          State                                                          -                    -

       Deferred tax expense (benefit):
          (Increase) decrease In deferred tax assets               (2,555,000)             497,000
          Increase (decrease) in valuation allowance                2,555,000             (503,000)
                                                                 -------------       --------------

                     Income tax provision                        $       -           $       -
                                                                 =============       ==============
</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 valuation, deferred
       compensation, amortization life of intangibles and certain taxes.

       The Company's net deferred tax assets have been fully reserved due to the
       uncertainty of future realization.

       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.

       As of September 28, 1996, UNIMAG has approximately $47 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.

       At September 28, 1996, 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. See Note 2
       for discussion of payment strategy.




                                       35
<PAGE>   38




 (9)   BENEFIT PLANS
       -------------

       The Company's Connecticut subsidiary participates in a union sponsored,
       collectively bargained, multi-employer pension and welfare plan.
       Contributions are determined in accordance with the provisions of
       negotiated labor contracts and generally are based on the number of
       labor-hours worked. The Company made contributions of approximately
       $30,000 in fiscal year 1996 and $28,000 in fiscal year 1995.

       Under the provisions of the Multi-Employer Pension Plan Amendments Act of
       1980 covering such pension plans, certain events, such as withdrawal or
       plan termination, may cause the Company to be obligated to fund its share
       of any unfunded vested benefits in this plan. Data concerning the funded
       status or this multi-employer plan is not available.

       Union Pension Plan
       ------------------

       As a result of the acquisition of Triangle and Klein, the Company has
       defined benefit pension plans covering various employees whose retirement
       benefits are subject to collective bargaining. The benefits are based on
       years of service multiplied by the yearly amount of basic retirement
       income. The Company's funding policy for the plan is to make the minimum
       annual contribution required by applicable regulations.

       The following table sets forth the plan's funding status and amounts
       recognized in the Company's financial statements at September 28, 1996:

<TABLE>
<CAPTION>

<S>                                                                                <C>       
              Actuarial present value of benefit obligations:
                 Vested benefit obligations                                        $3,429,833
                 Non-vested benefit obligations                                       177,718
                                                                                 -------------

              Accumulated benefit obligation (ABO)                                 $3,607,551
                                                                                 =============

              Projected benefit obligation(PBO)                                    $3,607,551
              Plan assets at fair value                                            (1,793,548)
                                                                                 -------------
              Projected benefit obligation in excess of plan assets                 1,814,003
              Unrecognized net loss                                                  (108,204)
                                                                                 -------------
              Accrued pension cost                                                  1,705,799
              Additional minimum pension liability                                    108,204
                                                                                 -------------
              Accrued pension and minimum liability                                $1,814,003
                                                                                 =============
</TABLE>

       The key assumption used in determining the projected benefit obligation
       in 1996 were as follows:

               Discount rate                                  7%
               Expected long-term rate of 
                  return on assets                            8%




                                       36
<PAGE>   39




       Net pension cost for 1996 included the following components:


<TABLE>
<CAPTION>

<S>                                                              <C>         
           Asset loss                                            $    (89,027)
           Service cost                                                56,961
           Interest cost on projected benefit obligation              179,674
           Actual return on plan assets                                (9,125)
                                                                 -------------
                         Net pension cost                        $    138,483
                                                                 =============
</TABLE>

       Funding of the plan was approximately $200,000 in 1996.

       Other Pension Plan
       ------------------

       The former Stoll Company has certain non-collective bargaining employees
       who are covered by a noncontributory defined benefit pension plan. The
       benefits are based on years of service and the employee's compensation.
       The Company's policy is to make the minimum annual contribution required
       by applicable regulations. In connection with the acquisition of The
       Stoll Company by UNIMAG, The Stoll Company elected to terminate the plan.
       The following table sets forth the plan's funding status at September 28,
       1996.
<TABLE>
<CAPTION>

<S>                                                                                    <C>       
         Actuarial present value of benefit obligations:
            Vested benefit obligations                                                 $2,747,977
            Non-vested benefit obligations                                                240,453
                                                                                     ------------

         Accumulated benefit obligation (ABO)                                          $2,988,430
                                                                                     ============
              Projected benefit obligation (PBO)                                      $ 2,988,430
              Plan assets at fair value                                                (2,686,955)
                                                                                     ============
              Accrued pension liability                                               $   301,475
                                                                                     ============
</TABLE>

       The key assumptions used in determining the projected benefit obligation
       at September 28, 1996 were as follows:

              Discount rate                                  8%
              Expected long-term rate of return on
                 assets                                      8%

       Other Postretirement Benefit Plans
       ----------------------------------

       In addition to the Company's defined benefit pension plan, certain of the
       Company's subsidiaries sponsor defined benefit postretirement health care
       and life insurance plans that provides postretirement health care and
       life insurance benefits to full-time collective bargaining employees who
       have met required service periods with the Company and have attained age
       requirements as defined in the plan. The plans contains certain
       cost-sharing features such as deductibles and coinsurance.




                                       37
<PAGE>   40




       The following table presents the plan's funded status reconciled with
       amounts recognized in the Company's balance sheets:

<TABLE>
<CAPTION>

                                                                              September 28,
                                                                                  1996
                                                                            ------------------

<S>                                                                             <C>        
          Accumulated postretirement benefit obligations:
             Current retirees                                                   $   685,176
             Other fully eligible participants                                      242,825
             Other active plan participants                                         515,613
                                                                              --------------

          Accumulated postretirement benefit obligations in excess of
             plan assets                                                          1,443,614
          Unrecognized net gain                                                       6,401
                                                                              ==============
          Accrued postretirement benefit cost                                   $ 1,450,015
                                                                              ==============
       Net periodic postretirement benefit cost includes the following
       components:

                                                                                  1996
                                                                              --------------

              Service cost                                                      $    27,610
              Interest cost                                                          66,455
                                                                              --------------
              Net periodic postretirement benefit cost                          $    94,065
                                                                              ==============
</TABLE>

       The weighted-average annual assumed rate of increase in the per capita
       cost of covered benefits (i.e., health care cost trend rate) for 1996 is
       11% for participants less than age 65 and 8.5% for participants 65 and
       older. The rate is assumed to decrease over 10 years to 6% and remain at
       that level thereafter. The health care cost trend rate assumption has a
       significant effect on the amounts reported. For example, increasing
       assumed health care cost trend rates by one percentage point in each year
       would increase the accumulated postretirement benefit obligation as of
       September 28, 1996 by approximately $163,000 and the aggregate of the
       service and interest cost components of net periodic postretirement
       benefit cost for 1996 by approximately $15,000.

       The weighted-average discount rate used in determining the accumulated
       postretirement benefit obligation was 7.5% at September 28, 1996.

       Retirement Savings Plan
       -----------------------

       Effective April 1994, the Company adopted a defined contribution
       retirement savings plan for substantially all nonbargaining employees.
       The provisions of the plan allow employees to contribute 15% of their
       salary with a maximum of $9,240 for pre-tax contributions. The plan
       provides for a matching contribution at the discretion of the Company.
       Employees are fully vested in the Company's contributions after 3 years.
       The Company has not made any significant contributions to the Plan.




                                       38
<PAGE>   41




       Deferred Compensation Plan
       --------------------------

       An officer and former owner of The Stoll Company is entitled to receive
       deferred compensation pursuant to an agreement in effect prior to the
       acquisition. The agreement provides for the payment of $250,000 a year
       for a five year period beginning in 1997 and $100,000 a year for a period
       of seven years thereafter. The present value of this obligation of
       approximately $1.4 million has been reflected in the accompanying
       financial statements.

(10)   SIGNIFICANT VENDORS AND CUSTOMERS
       ---------------------------------

       The Company purchased approximately 75% of its product from four
       publishers. These publishers represent approximately 70% of accounts
       payable.


(11)   RELATED PARTY TRANSACTIONS
       --------------------------

       The Company had the following related party transactions:

       (a)  In 1993, the Company's Connecticut subsidiary entered into a
            consulting agreement with MDI (a Northeast wholesaler) and its
            majority shareholder for a period of 10 years. During the first five
            years of the agreement, the consulting fee is calculated as 2% of
            the subsidiaries agency net sales and is payable 1% in cash and 1%
            in UNIMAG stock (valued at $10 per share). During the last five
            years of the agreement, the consulting fee is calculated as 1% of
            Yankee's agency net sales, payable in cash.

            The expense was $537,677 and $468,982 in 1996 and 1995,
            respectively. The $537,677 is to be paid in cash of $250,960 and
            through the issuance of 25,096 of UNIMAG stock within 90 days after
            year-end.

       (b)  The Company has a consulting agreement with a former officer of the
            Connecticut subsidiary for eight years commencing June 27, 1994.
            During years one and two, the consultant will be paid $4,000 per
            month. During years three through five, the consultant will be paid
            $5,000 per month. During years six through eight, the consultant
            will be paid $8,500 per month. The Company expensed $51,000 in 1996
            and $48,000 in 1995.

       (c)  At September 28, 1996, the Company had notes receivable from related
            parties of approximately $3,100,000. Approximately $3,000,000 of
            this amount is due from Hall of Cards and Books, Inc., which is
            owned by the former shareholders of Michiana, and which operates
            retail stores that are supplied by the Michiana division of UNIMAG.
            The interest rate on the note is 9.25% and the repayment of the note
            is secured by a pledge of the stock of Hall of Cards and Books, Inc.
            and the UNIMAG stock received by the Michiana shareholders as part
            of UNIMAG's acquisition of Michiana. The remaining notes receivable
            are due from former shareowners of Michiana. Amounts due in 1997
            pursuant to these agreements is approximately $1,353,000, with the
            remaining amounts due in equal installments over the subsequent four
            years.

                                       39
<PAGE>   42

       (d)  The Company has lease agreements for facilities from the former
            owners of the fourth quarter acquisitions. These lease payments 
            were approximately $187,000 in 1996.

(12)   INVESTMENT IN WILMINGTON
       ------------------------ 

       On April 5, 1995, UNIMAG entered into a Services and Management Agreement
       with Service News Company of Wilmington, North Carolina ("Wilmington")
       and SNPC, Inc. ("SNPC"), both North Carolina corporations, and with Doris
       R. Marshall, the individual shareholder of the Companies residing in
       Martinsville, Virginia, ("Shareholder") pursuant to which UNIMAG managed
       the operations commencing April 1, 1995. In consideration, UNIMAG was
       entitled to receive a management fee.

       Also, on April 5, 1995, the Shareholder and other family members of the
       Shareholder purchased 482,140 (post-split) shares of UNIMAG stock at $1
       per share for a total cost of $482,140. These shares are subject to
       future Put Agreements by the Shareholder and Shareholder family members
       commencing 24 months after the date of the Agreement, see Note 13.b. At
       April 1, 1995, the present value of the putable shares was $3,566,024.
       The Put Agreements are guaranteed by UNIMAG and by one of its
       subsidiaries and are part of the consideration for the option to purchase
       the stock of Wilmington. The Company accretes the put value of these
       shares with the offset to interest expense. The charge to interest
       expense for the accretion was $525,102 in 1996 and $238,161 in 1995.

       The Agreement granted UNIMAG an option to purchase all of the outstanding
       stock of Wilmington through the life of the Agreement. The option price
       was originally estimated at $482,140 but was subject to additional
       adjustment upon resolution of contingent provisions of the agreement.
       UNIMAG had no legal right to these shares until they exercised their
       option. As of September 30, 1995, the Company had not exercised its
       option and treated the option as an investment and accounted for the
       investment under the equity method.

       In conjunction with the Agreement, UNIMAG loaned Wilmington $500,000.
       This was a demand loan bearing interest at prime plus 1% (9.75% at
       September 30, 1995) and was payable quarterly.

       On January 12, 1996 UNIMAG exercised the business option for $1. The
       exercise price, after adjustments pursuant to the Agreement was $10. With
       the exercising of the business option on January 12, 1996, the
       transaction was accounted for as a business combination and has been
       consolidated with UNIMAG prospectively.




                                       40
<PAGE>   43




(13)   CONTINGENCIES AND COMMITMENTS
       -----------------------------

       (a)  Prudential Settlement
            ---------------------

            On January 26, 1995, the Company reached final settlement of its
            lawsuit against Prudential Insurance Company of America and two of
            its affiliates. As part of the settlement, the Company received $3
            million, less related professional fees of $647,798.

       (b)  Common Stock Subject to Put Agreements
            --------------------------------------

            In conjunction with the Company's investment in Wilmington, 482,140
            shares of common stock are subject to Put Agreements. In the event
            the put options are exercised as they become exercisable, the
            related payments would be $167,916, $335,832, $3,599,534, $335,832
            and $335,832 in 1997, 1998, 1999, 2000 and 2001, respectively and
            $3,161,380 in total over the succeeding 12 years.

       (c)  Union Claims
            ------------

            A demand has been made on the Company by the Newspaper and Mail
            Deliverers'-Publishers' Pension Fund (Fund) for withdrawal liability
            payments arising from the January 23, 1991 cessation of covered
            operations under that plan by Imperial News Company (an inactive
            subsidiary). The principal amount of the liability was assessed by
            the Pension Fund in August, 1991, to be $729,053 (payable in 16
            quarterly installments) with interest totaling $811,290 based on the
            Fund's actuarial valuation of its fiscal year ended May 31, 1989,
            plus any additional amounts (or credits) that may be due with
            respect to the Fund's fiscal years ended May 31, 1990 and 1991,
            pending completion of actuarial valuations as of those dates. The
            original withdrawal liability assessment of $811,290 plus interest
            has been reduced by escrow payments to $573,349 plus interest from
            August 7, 1991, paid to the Fund from an escrow fund established
            pursuant to ERISA.

            Imperial is in the process of liquidation under Chapter 7 of the
            U.S. Bankruptcy Code, and is unable to make the required payments.
            However, under Title IV of ERISA, the Fund may proceed against
            Imperial's predecessors-in-interest (Brooklyn News Company and Dale
            News Company) or, possibly, against the Company and/or other
            entities alleged to be members of Imperial's "control group" within
            the meaning of Internal Revenue Code Section 1563(a), to collect the
            $573,349 remaining unpaid as of December 7, 1992. As required by
            ERISA, the Company has requested review and has initiated
            arbitration proceedings contesting, inter alia, the accuracy, amount
            and calculation of the Fund's assessment. The Company intends to
            defend its position vigorously.

            The Company had filed five (5) proofs of claim in the Imperial
            bankruptcy case for contingent claims that might be assessed
            pursuant to the above demand and the WARN suits, discussed
            hereinafter. The Company entered into an agreement with the
            Bankruptcy Trustee in the Imperial bankruptcy estate. In exchange
            for the release by the Company of its previously filed claims
            against the estate, the Trustee provided




                                       41
<PAGE>   44




            the Company with dollar for dollar offsets of $1,500,000 against
            claims by the Union in its lawsuit. This case has not yet been set
            for trial. The ultimate outcome of the case is uncertain and no
            provision has been made in the accompanying consolidated financial
            statements.

       (d)  WARN Suit
            ---------

            On February 3, 1992, the Newspaper and Mail Deliverers' Union of New
            York and Vicinity (NMDU) and certain trustees of a related Welfare
            Fund and Pension Fund filed a complaint against UNIMAG and its
            Connecticut subsidiary, MDI, MDI L.P. and two related parties
            alleging damages, in an unspecified amount, had been suffered by
            approximately 100 NMDU members formerly employed by Imperial. The
            suit, which was filed in the United States District Court for the
            Eastern District of New York, alleges that the employees were
            damaged because:

               (i) the employees were not given a 60 day advance notice of the
                   permanent closing of Imperial's operation at its Melville,
                   New York facility as allegedly required by the Worker's
                   Adjustment and Retraining Notification Act (WARN);

              (ii) Imperial failed to make certain contributions alleged to be
                   due under its NMDU labor contract to certain benefit plans;
                   and

             (iii) Imperial failed to make certain severance and other fringe
                   benefit payments alleged to be due under its NMDU labor
                   contract to such employees.

            Management believes the claims to be without merit. The Company has
            been dismissed from all claims except the WARN claim. On November
            27, 1992, the District Court dismissed the first causes of action
            under WARN as time-barred by the six month statute of limitations
            contained in the National Labor Relations Act, 29 U.S.C. Sec.
            160(b), however, that decision was overturned on appeal. On October
            20, 1995, the earlier dismissal of the Company from the second and
            third causes of actions was overturned.

            The Company has filed an answer denying the material allegations of
            the complaint and interposing a number of affirmative defenses. The
            Company intends to defend its position vigorously. The parties to
            the litigation have scheduled mediation in efforts to resolve this
            litigation without trial. The ultimate outcome of this case is
            uncertain and no provision has been made in the accompanying
            financial statements.

       (e)  Taubman Suit
            ------------
 
            The Company and its inactive subsidiary Team Logos Sportstuff, Inc.
            ("TLSI") have been named as defendants, along with several unrelated
            parties, in a suit by the Taubman Company in United States District
            Court, Eastern District of Michigan, Southern Division. The suit
            claims approximately $2 million in damages based on an assertion
            that the Company and TLSI assumed certain retail leases associated
            with companies who were part of an asset purchase by the Company in
            July, 1992. Trial is




                                       42
<PAGE>   45




            scheduled for early 1997. A summary judgment was recently granted to
            the plaintiff on one count of the 14 contained in the complaint.
            While this is not yet a final appealable order, and is subject to
            revision through the date of trial, the Company has instructed
            counsel to seek reconsideration. In the event it should become a
            final judgment, the Company expects to appeal such judgment and
            intends to vigorously pursue at the appellate level. The Company
            believes that the actual liability, if any, is substantially less
            than the amount of the claim. The ultimate outcome of the case is
            uncertain.

       (f)  San's Suit
            ----------

            The Company has been named as defendant in a suit by two prior
            employees for breach of employment contracts, promissory estoppel
            and misrepresentation. On September 19, 1996, a jury returned a
            verdict in favor of plaintiffs in the amount of $338,500. Plaintiffs
            filed a motion seeking attorneys fees, which was granted by the
            court and then reversed upon defendants' motion for judgment
            notwithstanding the verdict. The judgment in this matter is now
            appealable. Management has instructed counsel for the Company to
            appeal the judgment when entered. Management believes that
            defendants have meritorious defenses and have instructed counsel to
            defend the litigation vigorously on appeal. The ultimate outcome of
            the case is uncertain.

       (g)  Other Legal Matters
            -------------------

            The Company has been named as a defendant in various other
            litigation matters. Management intends to vigorously defend these
            outstanding claims. In management's judgment, the outstanding claims
            discussed in this note are unlikely to result in a material adverse
            effect on the Company's financial position and results of
            operations.




                                       43
<PAGE>   46





ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
-------------------------------------------------------------

None.




                                       44
<PAGE>   47




                                    PART III
                                    --------

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE 
----------------------------------------------------------------------------- 
REGISTRANT; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
--------------------------------------------------------------


Directors, Executive Officers, Promoters and Control Persons
------------------------------------------------------------

The information concerning the directors, executive officers, promoters and
control persons of the Registrant are incorporated by reference from the
sections of the Company's Preliminary Proxy Statement filed in February 1997 for
its 1997 Annual Meeting of Shareholders entitled "Election of Directors --
Nominees for Election" which is filed as Exhibit 99 to this Form 10-KSB.

Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors, and beneficial owners of more than 10% of the common stock of the
Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely on its review of copies of such
forms received by it, the Company believes that all filing requirements
applicable to its officers, directors and 10% beneficial owners were complied
with.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

The information regarding executive compensation is incorporated by reference
from the Section of the Company's Preliminary Proxy Statement filed in February
1997 for its 1997 Annual Meeting of Shareholders entitled "Election of Directors
-- Executive Compensation" which is filed as Exhibit 99 to this Form 10-KSB.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------

The following tables set forth, to the knowledge of management, the number of
shares of Common Stock of the Company and the percentage of outstanding shares
of Common Stock of the Company represented thereby, owned directly, indirectly
and beneficially by: (a) each person or entity who is the beneficial owner of
more than 5% of the shares of Common Stock of the Company outstanding as of
February 1, 1997, (b) each person or entity who is expected to become a holder
of more than 5% of the outstanding shares of Common Stock of the Company
following the Acquisitions, (c) each executive officer, director, and director
nominee of the Company, and (d) all executive officers and directors of the
Company as a group. The tables reflect the anticipated one-for-ten reverse stock
split to be presented to the shareholders for approval at the 1997 Annual
Meeting of Shareholders and the estimated number of shares of Common Stock of
the Company owned, and the percentage of outstanding shares of Common Stock of
the Company for each of the foregoing, as adjusted to reflect completion of the
Acquisitions. The tables also have been adjusted to reflect adjustments to net
worth based on the preliminary unaudited balance sheets as of June 30, 1996 for
Michiana, Stoll, Read-Mor and Scherer Affiliates (and August 23, 1996 for
Klein).




                                       45
<PAGE>   48




TABLE FOR FIVE PERCENT (5%) SHAREHOLDERS

<TABLE>
<CAPTION>

                                                                                     After Completion of Acquisitions
                                                                                     --------------------------------


                                      Number of Shares of        Percentage of
Name and Address                     Common Stock               Common Stock        Anticipated
of Beneficial Owner                  Beneficially Owned         Outstanding (2)     # of Shares       Percentage(2)
-------------------                  -------------------        ------------        -----------       ----------   
                                     (1)
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                         <C>          <C>                     <C>  
Ronald E. Scherer                         1,045,600                  39.07%       1,789,778(3)             25.27%
Chairman of the Board                    (3)(5)(6)(7)(10)
of Directors, President
and Chief Executive Officer
5131 Post Road
Dublin, OH 43107

Ohio Periodical                             500,000(6)(7)            18.68%       1,019,077                14.39%
Distributors, Inc.
5131 Post Road
Dublin, OH 43017

R. David Thomas                             300,000 (5)(6)(11)       11.21%         333,333                 4.71%
One Bay Colony
Ft. Lauderdale, FL 33308

Richard H. Stoll, Sr.                             0 (5)                  0%         391,693(11)             5.53%
Director Nominee
6477 Mill Ridge Road
Maumee, Oh. 43537

                                                  0 (5)                  0%       1,087,881                15.36%
George R. Klein
Director Nominee
1771 East 30th Street
Cleveland, Ohio 44114

                                            153,608(8)                5.74%         178,704                 2.52%
MDI, L.P.
Magazine Distributors, Inc.
100 Cantiague Rock Rd.
Hicksville, NY 11801

                                            237,302 (4)               8.87%         237,302                 3.35%
Doris Marshal
P. O. Box 5503
Martinsville, VA 24115

Total                                     1,736,510                  64.89%       4,019,691                56.74%

</TABLE>



                                       46
<PAGE>   49




TABLE FOR OFFICERS, DIRECTORS AND NOMINEES

<TABLE>
<CAPTION>
                                                                                         After Completion
                                                                                          of Acquisitions            
                                      Number of Shares of        Percentage of           ----------------
Name and Address                      Common Stock               Common Stock        Anticipated
of Beneficial Owner                   Beneficially Owned      Outstanding (2)     # of Shares       Percentage(2)
-------------------                   -------------------        ------------        -----------       ----------   
                                      (1)
-------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                          <C>           <C>                    <C>   
Ronald E. Scherer                         1,045,600(3)(5)(6)(7)       39.07%         1,789,778(3)           25.27%
Chairman of the Board
of Directors, President
and Chief Executive Officer
5131 Post Road
Dublin, OH 43107

David B. Thompson                             2,264(3)                    *             2,264(3)                *   
Director, Treasurer                                                                                   
5131 Post Road                                                                                        
Dublin, Ohio 43017                                                                                    
                                                                                                      
Eugene J. Alfonsi                             5,000                       *             5,000                   *
Director                                                                                              
5131 Post Road                                                                                        
Dublin, Ohio 43017                                                                                    
                                                                                                      
Thaddeus A. Majerek                               0(5)(9)                 0%          262,435(9)             3.70%
Director                                                                                              
2232 S. 11th Street                                                                                   
Niles, MI 49120                                                                                       
                                                                                                      
Robert H. Monnaville, Jr.                    39,925                    1.49%           39,925                 .56%
Director                                                                                              
62 Harper Avenue                                                                                      
Waterbury, CT 06705                                                                                   
                                                                                                      
Thomas L. Gerlacher                           1,900                       *             1,900                   *
Chief Financial Officer                                                                               
5131 Post Road                                                                                        
Dublin, Ohio 43017                                                                                    
                                                                                                      
Nancy Stoll Lyman                                 0(5)                    0           142,420(10)            2.01%
Director Nominee                                                                                      
203 N. Wabash, Suite 1504
Chicago, IL 60601
</TABLE>
 


                                       47
<PAGE>   50
<TABLE>
<CAPTION>

<S>                                        <C>                        <C>           <C>                     <C>   
Richard H. Stoll, Sr.                              0(5)                 0           391,693(11)              5.53%
Director Nominee
6477 Mill Ridge Road
Maumee, Ohio 43537

R.L. Richards                                  1,250                    *             1,250                     *
Director Nominee
5131 Post Road
Dublin, Ohio 43017

                                                   0(4)                 0         1,087,881                 15.36%
George R. Klein
Director Nominee
1771 E. 30th Street
Cleveland, Ohio 44114

All Directors and Executive                1,095,939                40.95%        3,724,546                 52.58%
Officers as a Group
(6 persons before the Annual
Meeting, 10 persons after the
Annual Meeting)

<FN>
         (1)      Unless otherwise specified, the beneficial owners of the
                  shares of Common Stock have sole voting and investment power
                  over such shares.

         (2)      The total number of shares of Common Stock of the Company
                  outstanding on the date hereof is 2,676,034 shares. None of
                  the executive officers, directors or holders of 5% or more of
                  the Company's issued and outstanding Common Stock hold any
                  options or warrants to acquire Common Stock. The anticipated
                  number of shares outstanding after completion of the
                  transaction acquisitions and the issuance of shares to MDI, L.
                  P. is 7,083,939.

         (3)      Prior to the completion of the Acquisitions, includes 500,000
                  shares of Common Stock of the Company owned by OPD, which
                  Ronald E. Scherer is entitled to vote as the Chief Executive
                  Officer of OPD, but does not include 58,900 shares of Common
                  Stock of the Company held of record by RAP Diversified, Inc.
                  ("RAP"), the sole shareholder of which is David B. Thompson,
                  Trustee for a trust of which the children of Ronald E. Scherer
                  are the beneficiaries. Mr. Scherer disclaims any beneficial
                  ownership of such shares.

                  After the completion of the Acquisitions, includes 133,543
                  (1.89%) shares of Common Stock of the Company to be received
                  by Northern in the Exchange Transactions and 48,260 (0.68%)
                  shares of Common Stock of the Company to be received by
                  Wholesalers in the Exchange Transactions. Mr. Scherer is
                  expected to have voting power over the shares of Common Stock
                  of the Company held by these companies by virtue of his
                  position as Chief Executive Officer of these Companies.
</TABLE>




                                       48
<PAGE>   51




         (4)      Does not include 122,419 shares of Common Stock of the Company
                  (4.57%) held by Mrs. Marshall's son, David Marshall, and
                  122,419 shares of Common Stock of the Company (4.57%) held by
                  Mrs. Marshall's daughter, Miranda Marshall, all of which
                  shares of Common Stock of the Company are subject to Put
                  Agreements between the Company and each of Mrs. Marshall's
                  children.

         (5)      All of such shares of Common Stock of the Company are subject
                  to a shareholders' voting agreement dated as of October 9,
                  1996, among Ronald E. Scherer, certain of the Scherer
                  Affiliates, the Stoll Shareholders, the Michiana Shareholders
                  and the Klein Shareholder, pursuant to which they have agreed
                  to act together in the election of directors of the Company
                  until such time as all principal and interest on the
                  Debentures have been paid in full. The parties to the
                  agreement have agreed to vote for the election to the Board of
                  Directors of two Scherer representatives, two Stoll
                  representatives, one Michiana representative and two Klein
                  representatives.

         (6)      Ronald E. Scherer, OPD and R. David Thomas have agreed to vote
                  their shares of Common Stock of the Company in favor of the
                  acquisitions of Stoll, Michiana, Klein and the Scherer
                  Affiliates and to vote in favor of the reverse stock split at
                  the Annual Meeting of Shareholders.

         (7)      49.5% of the stock of OPD is owned by a trust established for
                  the benefit of Ronald E. Scherer and his family, and 49.5% of
                  the stock of OPD is owned by a trust established for the
                  benefit of Linda Scherer Talbott, the sister of Ronald E.
                  Scherer, and her family.

         (8)      Does not include approximately 25,096 shares of Common Stock
                  of the Company which will be issued in 1997 under terms of the
                  Company's agreement with MDI, L.P.

         (9)      Includes 262,435 (3.70%) shares of Common Stock of the Company
                  to be owned by a trust over which Thaddeus A. Majerek is
                  expected to have voting power as one of the co-trustees. Does
                  not include 273,146 (3.86%) shares of Common Stock of the
                  Company to be owned by another family trust, over which Mr.
                  Majerek disclaims any beneficial ownership.

         (10)     Does not include 1,816,047 (25.64%) shares of Common Stock of
                  the Company to be received by the other Stoll Shareholders,
                  over which Nancy Stoll Lyman disclaims any beneficial
                  ownership.

         (11)     Does not include 1,566,773 (22.12) shares of Common Stock of
                  the Company to be received by the other Stoll Shareholders,
                  over which Richard H. Stoll, Sr. disclaims any beneficial
                  ownership.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------  ----------------------------------------------

See Note 11 of the United Magazine Company consolidated financial statements as
of September 28, 1996, included in Item 8 of this report. Other information
provided under this Item is incorporated by reference from the section of the
Company's Preliminary Proxy Statement filed in February 1997 for its 1997 Annual
Meeting of Shareholders entitled "The Stock and Asset Exchanges -- Conflicts of
Interest and Related Party Transactions" which is filed as Exhibit 99 to this
Form 10-KSB.




                                       49
<PAGE>   52




                                     PART IV
                                     -------

ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------------

(a)  Exhibits:

              3.1   Articles of Incorporation of the Registrant (incorporated by
                    reference from 1989 Form 10-K, Exhibit I).

              3.2   Code of Regulations of Registrant (incorporated by reference
                    from 1989 Form 10-K, Exhibit II).

              4.1   Put Agreement between UNIMAG and Donald E. Garlikov dated
                    July 25, 1992 together with commitment letter between Donald
                    E. Garlikov and Team Logos Corporation dated July 7, 1992
                    (incorporated by reference from Exhibit 4 to the Current
                    Report on Form 8-K of the Registrant, filed August 7, 1992).

              4.2   Services and Management Agreement with Service News Company
                    and SNPC, Inc. and Doris R. Marshall together with related
                    Put Agreements and related documents dated April 5, 1995
                    (incorporated by reference from the Current Report in Form
                    8-KA, Amendment No. 3 to Form 8-K, Current Report filed
                    April 17, 1995 of the registrant, filed January 13, 1996.)

              10.1  Partnership Dissolution and Distribution Plan and Agreement
                    between UNIMAG, Service News Company and Magazine
                    Distributors, Inc. relative to the dissolution of MDI
                    Distributors, Limited Partnership, dated May 24, 1993
                    (incorporated by reference from Exhibit 1 to the Current
                    Report on Form 8-K of the Registrant, filed June 8, 1993.

              10.2  Services and Management Agreement with Service News Company
                    and SNPC, Inc. and Doris R. Marshall together with related
                    Put Agreements and related documents dated April 5, 1995
                    (incorporated by reference from the Current Report in Form
                    8-KA, Amendment No. 3 to Form 8-K, Current Report filed
                    April 17, 1995 of the registrant, filed January 13, 1996.)

              10.3  Asset Transfer and Exchange Agreement between United
                    Magazine Company and Northern News Company, effective July
                    29, 1996 (incorporated by reference from the Current Report
                    on Form 8-KA filed September 30, 1996, See Exhibit 2 (a)
                    therein).

              10.4  Stock Transfer and Exchange Agreement among United Magazine
                    Company, Michiana News Service, Inc. and all of the
                    shareholders of Michiana News Service, Inc. effective July
                    30, 1996 (incorporated by reference from the Current Report
                    on Form 8-KA filed September 30, 1996, See Exhibit 2 (b)
                    therein).

              10.5  Stock Transfer and Exchange Agreement among United Magazine
                    Company, The Stoll Companies and all of the shareholders of
                    The Stoll Companies effective July 31, 1996 (incorporated by
                    reference from the Current Report on Form 8-KA filed
                    September 30, 1996, See Exhibit 2 (c) therein).

                                       50
<PAGE>   53

              10.6  Asset Transfer and Exchange Agreement, subsequently modified
                    to a Stock Transfer and Exchange Agreement, between United
                    Magazine Company and Ohio Periodical Distributors, Inc.,
                    effective August 1, 1996 (incorporated by reference from the
                    Current Report on Form 8-KA filed September 30, 1996, See
                    Exhibit 2 (d) therein).

              10.7  Asset Transfer and Exchange Agreement between United
                    Magazine Company and Wholesalers Leasing Corp., effective
                    August 2, 1996 (incorporated by reference from the Current
                    Report on Form 8-KA filed September 30, 1996, See Exhibit 2
                    (e) therein).

              10.8  Stock Transfer and Exchange Agreement among United Magazine
                    Company, Scherer Companies and all of the shareholders of
                    Scherer Companies effective August 2, 1996 (incorporated by
                    reference from the Current Report on Form 8-KA filed
                    September 30, 1996, See Exhibit 2 (f) therein).

              10.9  Stock Transfer and Exchange Agreement among United Magazine
                    Company, Read-Mor Bookstores, Inc. and all of the
                    shareholders of Read-Mor Bookstores, Inc. effective August
                    2, 1996 (incorporated by reference from the Current Report
                    on Form 8-KA filed September 30, 1996, See Exhibit 2 (g)
                    therein).

              10.10 Stock Transfer and Exchange Agreement among United Magazine
                    Company, The George R. Klein News Co., Central News Co.,
                    Newspaper Sales Inc. and the shareholder of all of those
                    companies, effective September 27, 1996 (incorporated by
                    reference from the Current Report on Form 8-K filed
                    September 27, 1996, See Exhibit 2 therein).




                                       51
<PAGE>   54




21  Subsidiaries of the Registrant

                                     Jurisdiction of       Name in Which
                                      Incorporate or        Business is
    Name of Subsidiary                 Organization          Conducted
    ------------------                 ------------          ---------

    Current Subsidiaries:

    Service News Company               Connecticut          Yankee News
                                                            Company

    Imperial News Co., Inc.            Delaware             Imperial News

    Team Logos Sportstuff,             Ohio                 Team Logos and
    Inc.                                                    Sportstuff

    Sportstuff Marketing, Inc.         Ohio                 Sportstuff Marketing

    UNIMAG I, Inc.                     Delaware             Team Logos
    (subsidiary of Team                                      and
    Logos Sportstuff, Inc.)                                 Sportstuff

    Service News Company of            North Carolina       Service News
    North Carolina (acquired                                 and
    January 13, 1996)                                       Wilmington

    Triangle News Company              Pennsylvania         Triangle
    (acquired January 23, 1996)                              and
                                                            Pittsburgh   
    Acquisition Transaction
    Subsidiaries:

    Michiana News Service, Inc.        Michigan             Michiana

    MacGregor News Service, Inc.       Michigan             MacGregor

    The Stoll Companies                Ohio                 Stoll

    Ohio Periodical Distributors,      Ohio                 OPD
    Inc.

    Scherer Companies                  Delaware             Scherer Companies

    Read-Mor Bookstores, Inc.          Ohio                 Read-Mor

    The George R. Klein News Co.       Ohio                 Klein

    Central News Co.                   Ohio                 Klein

    Newspapers Sales, Inc.             Ohio                 Klein

                                       52
<PAGE>   55

           27    Financial Data Schedules - EDGAR Filing

           99    Excerpt of Portions of the Company's Proxy Statement for 
                 its 1997 Annual Meeting of Shareholders which have been 
                 incorporated by reference into the Form 10-KSB.

(b)  Reports on Form 8-K:

         On August 8, 1996 UNIMAG filed a Form 8-K for the acquisition of
         Michiana News Services, Inc., Stoll Companies, Ohio Periodical
         Distributors, Inc., MacGregor News Agency, Inc. (through the
         acquisition of the assets of Northern News Company) and Scherer
         Companies and for the acquisition of the assets of Wholesalers Leasing
         Corp. On September 27, 1996 UNIMAG filed a Form 8-KA for the
         aforementioned acquisitions.

         On September 27, 1996 UNIMAG filed a Form 8-K for the acquisition of
         George R. Klein News Co., Central News Co., and Newspaper Sales, Inc.

         On September 30, 1996 UNIMAG filed a Form 8-KA Amendment to its Form
         8-K filed August 8, 1996.

(c)  Filing Status:

         Effective October 2, 1994, UNIMAG began filing as an SB filer. The
         first such filing was the Company's Form 10-QSB for the first quarter
         of fiscal 1995.



                                       53
<PAGE>   56


                                   SIGNATURES
                                   ----------


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

                                          UNITED MAGAZINE COMPANY

Date February 20, 1997                    by  /s/ Ronald E. Scherer
     -----------------                       ----------------------------
                                             Ronald E. Scherer, President

Pursuant to the required Securities and Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the registrant and in
the capacities as stated as of the dates indicated below, and in the capacities
indicated.

<TABLE>
<CAPTION>

      Signature                                    Title                              Date
-----------------------                     ------------------                  ----------------

<S>                                         <C>                                 <C>
/s/ Ronald E. Scherer                       Chairman, President                 February 20, 1997
-----------------------                     and Chief Executive                 -----------------
Ronald E. Scherer                           Officer            
                                            

/s/ David B. Thompson                       Director and Treasurer,             February 20, 1997
-----------------------                                                         -----------------
David B. Thompson

/s/Eugene J. Alfonsi                        Director, Vice President            February 20, 1997
-----------------------                                                         -----------------
Eugene J. Alfonsi

/s/ Thomas L. Gerlacher                     Chief Financial                     February 20, 1997
-----------------------                     Officer                             -----------------
Thomas L. Gerlacher                         

</TABLE>








                                       54