U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10-QSB/A

   (Mark One)
  |X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act 
      of 1934

  For the quarterly period ended July 31, 1996

  |_| Transition report under Section 13 or 15(d) of the Exchange Act

  For the transition period from _________ to _________

  Commission file number   0-26238


                               The Source Company
        (Exact Name of Small Business Issuer as Specified in Its Charter)


               Missouri                           43-1710906
   (State or Other Jurisdiction of             (I.R.S. Employer
   Incorporation or Organization)             Identification No.)

                             11644 Lilburn Park Road
                            St. Louis, Missouri 63146
                    (Address of Principal Executive Offices)


                                 (314) 995-9040
                (Issuer's Telephone Number, Including Area Code)


                                 Not Applicable
         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

          Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

          State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest  practicable date:  6,809,689 (as of July 31,
1996)

         Transitional Small Business Disclosure Format (check one):
Yes_________ No     X


<PAGE>


                               THE SOURCE COMPANY


           QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION

                              FOR THE QUARTER ENDED
                                  July 31, 1996



                         PART I - FINANCIAL INFORMATION


ITEM 1.           Financial Statements                                   Page

                  Unaudited Balance Sheet as of July 31, 1996             3

                  Unaudited Statements of Income for the three
                  months ended July 31, 1996 and 1995 and for the
                  six months ended July 31, 1996 and 1995                 5

                  Unaudited Statements of Cash Flows for the six
                  months ended July 31, 1996 and 1995                     6

                  Notes to Financial Statements                           7

ITEM 2.           Management's Discussion and Analysis                   13


                           PART II - OTHER INFORMATION

ITEM 6.           Exhibits and Reports on Form 8-K                       18

SIGNATURE PAGE                                                           19

EXHIBIT INDEX                                                            20
<PAGE>
                               THE SOURCE COMPANY

                             Unaudited Balance Sheet

                                  July 31, 1996


Assets
Current
     Cash                                                    $    559,347
     Receivables:
            Trade (net of allowance for doubtful 
              accounts of $63,806)                              5,414,973
            Income Taxes                                          401,000
            Related Parties                                        31,171
            Employees                                               4,280
            Interest Receivable                                     6,792
            Notes Receivable - Officers                            58,395
     Prepaid Expenses                                             179,742
     Other current assets                                           1,627
--------------------------------------------------------------------------
Total Current Assets                                            6,657,327
--------------------------------------------------------------------------
Office Equipment and Furniture                                  1,648,414
Less Accumulated Depreciation and Amortization                  1,082,312
--------------------------------------------------------------------------
Net Office Equipment and Furniture                                566,102
--------------------------------------------------------------------------

Other Assets
     Notes Receivable - Officers                                  175,183
     Investment in limited partnership                             57,956
     Goodwill, net of accumulated amortization                     79,273
     Unallocated purchase price of acquisitions                   990,097
     Cash surrender value of life insurance                        71,618
     Other                                                         56,747
--------------------------------------------------------------------------
Total Other Assets                                              1,430,874
--------------------------------------------------------------------------

TOTAL ASSETS                                                 $  8,654,303
--------------------------------------------------------------------------
<PAGE>
                               THE SOURCE COMPANY
                             Unaudited Balance Sheet
                                  July 31, 1996


Liabilities and Stockholders' Equity
Current
     Note payable - bank (Note 3)                            $  3,464,715
     Accounts payable                                             144,898
     Due to Retailers (Note 9)                                     85,553
     Accrued liabilities:
         Compensation                                             254,827
         Other                                                    138,979
     Deferred income taxes                                        124,000
     Current maturities of long-term debt (Note 4)                164,531
--------------------------------------------------------------------------
Total Current Liabilities                                       4,377,503
--------------------------------------------------------------------------
Long-term Debt (Note 4)                                           384,349
     Less current maturities                                      164,531
--------------------------------------------------------------------------
Total Long-term Debt                                              219,818
--------------------------------------------------------------------------
Deferred income taxes                                             239,000
--------------------------------------------------------------------------
Total Liabilities                                               4,836,321
--------------------------------------------------------------------------

Redeemable Common Stock
     211,245 Shares Issued and Outstanding                        753,820
--------------------------------------------------------------------------

Stockholders' Equity
     Preferred stock (Note 7)                                         129
     Common stock                                                  68,097
     Additional paid-in-capital                                 2,924,551
     Retained Earnings                                             71,385
--------------------------------------------------------------------------
Total Stockholders' Equity                                      3,064,162
--------------------------------------------------------------------------

TOTAL LIABILITIES, REDEEMABLE COMMON
      STOCK & STOCKHOLDERS' EQUITY                           $  8,654,303
--------------------------------------------------------------------------
<PAGE>
<TABLE>
                               THE SOURCE COMPANY

                         Unaudited Statements of Income

<CAPTION>
                                               Three Months Ended July 31,            Six Months Ended July 31,
                                                 1996               1995               1996               1995
                                             ---------------------------------     ---------------------------------

<S>                                       <C>                <C>                 <C>                <C>            
Commission Revenues                       $     1,209,928    $      1,820,519    $    2,633,958     $     3,577,904
Merchandise Revenues                               94,602              67,280           124,540             342,532
--------------------------------------------------------------------------------------------------------------------
                                                1,304,530           1,887,799         2,758,498           3,920,436
--------------------------------------------------------------------------------------------------------------------
Cost of Commission Revenues                     1,146,254             797,034         2,351,092           1,556,184
Cost of Merchandise Sold                           11,254               4,550            11,254             176,142
--------------------------------------------------------------------------------------------------------------------
                                                1,157,508             801,584         2,362,346           1,732,326
--------------------------------------------------------------------------------------------------------------------
Gross Profit                                      147,022           1,086,215           396,152           2,188,110
 Selling, General and Administrative
  Expense                                         794,600              795,408         1,671,502          1,546,771
--------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                         (647,578)              290,807       (1,275,350)            641,339
--------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
            Interest income                         7,284                5,336            16,240              8,481
            Interest expense                     (71,856)             (23,512)         (114,178)           (47,181)
            Other                                 (4,760)             (21,228)          (10,715)           (23,126)
--------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense)                     (69,332)             (39,404)         (108,653)           (61,826)
--------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes               (716,910)              251,403       (1,384,003)            579,513
Provision for Income Taxes                        281,599             (95,677)           478,463          (343,352)
--------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                         $     (435,311)    $         155,726   $     (905,540)    $       236,161
--------------------------------------------------------------------------------------------------------------------
Earnings (Loss) per Share - Primary       $        (0.07)    $            0.02   $        (0.14)    $          0.04
--------------------------------------------------------------------------------------------------------------------
Weighted Average of Shares
   Outstanding - Primary                        6,546,092            6,299,389         6,463,909          6,299,389
--------------------------------------------------------------------------------------------------------------------
 Earnings (Loss) per Share - Fully
    Diluted                               $        (0.07)            N/A         $        (0.14)           N/A
--------------------------------------------------------------------------------------------------------------------
Weighted Average of Shares
   Outstanding - Fully Diluted                  6,546,092            N/A               6,463,909           N/A
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
                               THE SOURCE COMPANY

                       Unaudited Statements of Cash Flows


<CAPTION>

                                                                                Six Months Ended July 31,
                                                                        ------------------------------------------
                                                                               1996                     1995

<S>                                                                     <C>                      <C>
Operating Activities
     Net income (loss)                                                  $      (905,540)         $        236,161
     Adjustments to reconcile net cash
       provided by operating activities:
          Depreciation and amortization                                           98,812                   73,994
          Provision for losses on accounts receivable                           (35,394)                   60,779
          Impairment of investments in limited partnership                        10,000                   10,000
          Write-off related party receivable                                           0                   10,644
          Deferred income taxes                                                (114,191)                 (27,000)
          Changes in assets and liabilities:
              (Increase)/Decrease in accounts receivable                       (975,001)                (808,988)
              (Increase)/Decrease in other assets                              (557,556)                (272,328)
              Increase/(Decrease) in A/P and accrued expenses                  (573,797)
                                                                                                           94,118
              Increase/(Decrease) in amounts due customers                         2,098                  (3,000)
------------------------------------------------------------------------------------------------------------------
Cash Used in Operating Activities                                            (3,050,569)                (625,620)
------------------------------------------------------------------------------------------------------------------

Investment Activities
     Acquisition of Magazine Marketing, Inc.                                   (275,000)                        0
     Repayments on Notes Receivable                                               29,715                        0
     Repayments from related party                                                22,000                  240,240
     (Advances to) collections from employees                                      2,760                  (3,000)
     Capital expenditures                                                      (115,360)                 (62,024)
------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Investing Activities                                (335,885)                  175,216
------------------------------------------------------------------------------------------------------------------

Financing Activities
     Issuance of Common Stock                                                     30,000                        0
     Issuance of preferred convertible stock                                   1,922,075                        0
     Borrowings under long-term debt agreements                                  281,318                        0
     Principal payments on long-term debt                                       (62,420)                        0
     Borrowings under short-term debt agreements                               2,076,000                  395,501
     Repayments under short-term debt agreements                               (325,000)                (156,891)
------------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities                                          3,921,973                  238,610
------------------------------------------------------------------------------------------------------------------

Increase/(Decrease) in Cash                                                      535,519                (211,794)

Cash, beginning of period                                                         23,828                  252,555
------------------------------------------------------------------------------------------------------------------

Cash, end of period                                                     $        559,347         $         40,761
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                    THE SOURCE COMPANY

                    Notes to Financial Statements (Unaudited)



1.  Related Party                   
    Transactions           The Company  purchases data processing  services from
                           an  employment   service  company  owned  by  certain
                           officers  of the  Company.  There were  $174,345  and
                           $116,988 of such purchases made during the six months
                           ended July 31, 1996 and 1995, respectively.

                           At January 31,  1995,  the  Company  was  indebted to
                           director and  stockholder  Timothy A. Braswell in the
                           amount of $56,192.  Such debt bore  interest at 10.0%
                           and  matured  on  January  1,  1996.   The  Company's
                           indebtedness under the promissory note was secured by
                           an  interest  in  the  accounts   receivable  of  the
                           Company.  This  obligation was fully satisfied as the
                           final payment was made on December 29, 1995.

                           One  of  the  Company's   stockholders  also  owns  a
                           majority  of  stock  of  FMG,   Inc.,   primarily  an
                           investing company. At July 31, 1996 the Company had a
                           receivable from FMG of $31,171 at prime plus .5%.

                           The Company currently leases certain office space and
                           has,   in  the   past,   leased  an   airplane   from
                           partnerships   controlled  by   stockholders  of  the
                           Company.  Amounts  paid  for the  office  space  were
                           $94,783 and $73,500 for the six months ended July 31,
                           1996 and  1995,  respectively.  Amounts  paid for the
                           airplane were $0 and $37,204 for the six months ended
                           July 31, 1996 and 1995, respectively.

                           Certain  officers of the  Company,  have from time to
                           time,  received cash  advances from the Company.  The
                           officers  executed  promissory  notes in favor of the
                           Company in the  aggregate  amount of  $233,578.  Such
                           notes  bear  interest  at the rate of 7.34% per annum
                           and are payable in five equal annual installments.


2.  Notes                  Officers
    Receivable                       
                           The notes  receivable  relate to  advances to certain
                           officers of the Company.  The notes bear  interest at
                           7.34% and are payable in five equal  annual  payments
                           of $69,489  which began  April 1996.  These notes are
                           current   and  the   Company   is   unaware   of  any
                           circumstances   that  would  negatively   impact  the
                           collectibility of these notes.
<PAGE>
                           Other

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


3.  Notes Payable          The  Company has a  revolving  loan  credit  facility
                           providing  for  aggregate  borrowings  of  $5,000,000
                           scheduled to expire on July 1, 1997. Borrowings under
                           the loans bear  interest at the bank's  prime plus 1%
                           (effectively  9.25% at July 31, 1996) and are secured
                           by  an   assignment   of   interest  in  the  limited
                           partnership   investment,   personal   guarantees  of
                           certain of the  stockholders  of the  Company,  and a
                           security  agreement  including  equipment,  fixtures,
                           personal  property,  accounts  receivable,   contract
                           rights,  notes and  general  intangibles.  Borrowings
                           under the revolving  credit facility at July 31, 1996
                           were $3,464,715.


4.  Long-term                        
    Debt                   Long-term debt consists of:
     
                           Note payable to bank,  $3,950 per
                           month   including   interest   at
                           bank's   prime   rate   plus  .5%
                           (effectively    8.75%)    through
                           October 1996,  collateralized  by
                           equipment                                    $ 11,995

                           Note   payable   to   stockholder
                           (former    owner   of    Magazine
                           Marketing,   Inc.),  non-interest
                           bearing,    payable    in   eight
                           quarterly     installments     of
                           $10,000,  discounted based on the
                           Company's   effective   borrowing
                           rate                                           63,950

                           Term  note   payable  in  monthly
                           installments   of   $7,639   plus
                           interest  at the bank's  coporate
                           base  rate  plus 1%,  due June 1,
                           1999                                          259,720

                           Obligations  under  capital lease              48,684
                           -----------------------------------------------------
                           Total Long-term Debt                          384,349

                           Less Current Maturities                       164,531
                           -----------------------------------------------------

                           Long-term Debt                               $219,818
                           -----------------------------------------------------
<PAGE>
5.  Supplemental           Supplemental information on interest and income taxes
    Cash Flow              paid is as follows:
    Information

                           Six Months Ended July 31,      1996         1995
                           -----------------------------------------------------

                                     Interest         $ 112,000      $  47,000

                                     Income Taxes     $ 286,000      $ 343,000
                           -----------------------------------------------------


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

                           Since   Periodico  had  no   significant   assets  or
                           operations at the  transaction  date, the transaction
                           was accounted for as an issuance of 959,389 shares of
                           common  stock by the Company in exchange  for the net
                           assets  of   Periodico,   which  were   recorded   at
                           Periodico's  cost  basis  and  amounted  to $0 at the
                           transaction  date. In addition,  the  pre-transaction
                           date financial  statements of the combined entity are
                           those of the Company.

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

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

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

                           Acquisition of Magazine Marketing, Inc.

                           On June 28,  1996,  the Company  acquired  all of the
                           stock of Magazine  Marketing,  Inc.  in exchange  for
                           100,000  shares of common stock of The Source Company
                           and $275,000 in cash. In addition,  the Company shall
                           pay $10,000 at the end of each quarter for a two year
                           period  following  the  closing  date  (or a total of
                           $80,000). The first such payment was made on July 29,
                           1996.

<PAGE>
                           The  transaction has been accounted for as a purchase
                           and,  accordingly,  the assets and  liabilities  have
                           been  recorded  at  fair  market  value.  Results  of
                           operations  have been  included  as of the  effective
                           date of the  transaction.  The purchase  price of the
                           transaction  exceeds  the fair  value  of the  assets
                           acquired in the amount of $762,368.

                           The following  schedule reflects pro forma statements
                           of income:

                           Six Months Ended July 31,     1996           1995
                           -----------------------------------------------------

                           Revenue                      $2,995,433   $4,371,347
                           Net income (loss)            $(883,911)   $  278,188
                           Net income (loss) per share  $   (0.14)   $     0.04
                           -----------------------------------------------------

                           Acquisition of Readers Choice, Inc.

                           On June 30,  1996,  the Company  acquired  all of the
                           issued  and  outstanding  shares of  Readers  Choice,
                           Inc., a wholly owned  subsidiary  of United  Magazine
                           Company,  in exchange  for  111,245  shares of common
                           stock of The Source  Company.  This  transaction  has
                           been accounted for as a purchase and accordingly, the
                           assets and  liabilities  have been  recorded  at fair
                           market  value.   Results  of  operations   have  been
                           included as of the effective date of the transaction.
                           This  transaction  did not meet any of the conditions
                           to be considered a significant business  combination.
                           The  purchase  price of the  transaction  exceeds the
                           fair  value of the assets  acquired  in the amount of
                           $233,169.


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

                           Each  share  of  the  1996   Series  7%   Convertible
                           Preferred  Stock  entitles  its  holder to receive an
                           annual dividend, when and as declared by the Board of
                           Directors,  of $7 per share  payable in shares of the
                           Company's  common stock; to convert it into shares of
                           common  stock  subject  to  the   conversion   rights
                           described   in   the    Certificates    Designations,
                           Preferences  and  Relative  Rights of 1996  Series 7%
                           Convertible  Preferred  Stock (the  Certificate);  to
                           receive  $100 per share in the event of  dissolution,
                           liquidation  or  winding up of the  Company,  whether
                           voluntary  or  involuntary;  and,  subject to certain
                           conditions in the Certificate, may be redeemed at the
                           option of the Company at a price of $100 per share or
                           at the  option  of the  holder at a price of $100 per
                           share within 30 days  following the effective date of
                           a merger or consolidation in which the Company is not
                           the surviving entity.
<PAGE>
                           During March 1996,  the Company  issued 20,000 shares
                           of 1996  Series 7%  Convertible  Preferred  Stock for
                           $100 per share.  Brokers' fees totaling $120,000 were
                           incurred in  connection  with the stock  issuances of
                           which  $60,000  was paid in cash and $60,000 was paid
                           by issuance of an additional  600 shares of preferred
                           stock.

                           On June 3, 1996, an investor  converted  5,000 shares
                           of the Company's 1996 Series 7% Convertible Preferred
                           Stock  into  common   stock  of  the   Company.   The
                           conversion price was $3.55 per share,  which resulted
                           in the  issuance of 140,714  shares of common  stock.
                           This  conversion  also  resulted  in the  issuance to
                           certain  of  the  Company's   financial  advisors  of
                           options to purchase an additional 2,814 shares of the
                           common stock of the Company.  This option to purchase
                           is  exercisable  for a two year period at an exercise
                           price equal to $4.26 per share.

                           On July 29, 1996 two  investors  converted  2,250 and
                           500   shares  of  the   Company's   1996   Series  7%
                           Convertible  Preferred Stock into common stock of the
                           Company.  The  conversion  price was $3.65 per share,
                           which  resulted in the  issuance of 61,643 and 13,698
                           shares, respectively, of common stock.

                           On August 30, 1996, the Company issued a common stock
                           dividend to  investors  who held the  Company's  1996
                           Series 7% Convertible  Preferred  Stock. At this date
                           there were 12,850  shares of such stock  outstanding.
                           The 7% dividend  resulted in a common stock  dividend
                           of 9,515 shares  based on an issuance  price of $4.46
                           per share.

                           On September  11, 1996, an investor  converted  5,000
                           shares of the  Company's  1996 Series 7%  Convertible
                           Preferred Stock into common stock of the Company. The
                           conversion price was $3.50 per share,  which resulted
                           in the  issuance of 142,857  shares of common  stock.
                           This  conversion  also  resulted  in the  issuance to
                           certain  of  the  Company's   financial  advisors  of
                           options to purchase an additional 2,857 shares of the
                           common stock of the Company.  This option to purchase
                           is  exercisable  for a two year period at an exercise
                           price equal to $4.20 per share.


8.  Advance Pay Program    The Company has  established  an Advance Pay Program.
                           Under this  program  the  Company  advances an agreed
                           upon percentage of the incentive  payments  otherwise
                           due  the  retailer  from  magazine   publishers  upon
                           quarterly submission of claims for such payments. The
                           claims  otherwise  due the  retailer  become  due the
                           Company.  Included in trade  receivables  at July 31,
                           1996 is $1,394,764  due the Company under the Advance
                           Pay  Program  (net  of  $1,364,807  due  the  program
                           participants).  Income from the program was  $482,598
                           during the six months ended July 31, 1996 and was not
                           material in 1995.
<PAGE>
9.  Due To Retailers       The  Company  has  arrangements  with  certain of its
                           customers   whereby  the  Company  is  authorized  to
                           collect  and  deposit  in its  own  accounts,  checks
                           payable to its customers for incentive payments.  The
                           Company  retains  the  commission   related  to  such
                           payments and pays the customer  the  difference.  The
                           Company owes retailers $85,553 at July 31, 1996 under
                           such arrangements.


10.  Unaudited
     Financial
     Statements            In the opinion of management, the unaudited financial
                           information  as of July  31,  1996  contained  herein
                           reflects all adjustments  (consisting  only of normal
                           recurring  adjustments)  necessary to fairly  present
                           such   information   in  accordance   with  generally
                           accepted  accounting   principles.   The  results  of
                           operations for the six months ended July 31, 1996 are
                           not  necessarily  indicative  of  the  results  to be
                           expected for the entire year.
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

          This Quarterly  Report contains  forward looking  information  that is
subject to certain  risks,  trends and  uncertainties  that could  cause  actual
results to differ materially from those projected. Among these risks, trends and
uncertainties  are those  related  to the  ability  of the  Company  to  attract
adequate capital resources to fund its growth, and the dependence of the Company
on the terms of  incentive  programs  over which it has no  control.  For a more
complete  discussion  of  these  and  other  risks,  trends  and  uncertainties,
investors are directed to Exhibit 99.1  attached to the Company's  Annual Report
on Form  10-KSB,  a copy of which may be  obtained  without  charge  by  written
request to the Company.


Overview

          The Company provides monitoring, documentation and collection services
required to obtain single copy magazine sales incentive  payments available from
magazine  publishers  to  magazine  and  periodical  retailers.  The Company has
developed a contractual relationship with approximately 50,000 mass merchandise,
grocery and pharmacy stores located  throughout the United States and in eastern
Canada under which it provides such services and related merchandising  services
on a frequent basis,  in many cases daily,  and holds power of attorney from its
retailer  clients to collect  incentive  payments  from  publishers.  To further
expand  its  presence  in the  upper  midwest  and  increase  the  number of its
mid-sized chain retailer  clients,  in June of 1995 the Company  acquired all of
the business and assets of Dixon's Modern Marketing Concepts, Inc. and Tri-State
Stores, Inc., both of Chicago Heights, Illinois, in exchange for the issuance of
an aggregate of 300,000  shares of common  stock.  The Company has  continued to
expand its operations in the upper midwest through the  acquisitions of Magazine
Marketing,  Inc. and Readers Choice,  Inc., a wholly owned  subsidiary of United
Magazine Company.

          The  Company  issued  100,000  shares  of its  common  stock,  cash of
$275,000 and a note payable totaling  $80,000 payable  quarterly over a two year
period,  in  exchange  for  all the  stock  of  Magazine  Marketing,  Inc.  This
transaction has been accounted for as a purchase and, accordingly, the financial
statements  reflect the combined  results of operations as of June 28, 1996, the
transaction date. Assets have been recorded at fair value and the purchase price
in excess of fair  value has been  recorded  as  unallocated  purchase  price of
acquisitions.

          The Company  issued 111,245 shares of its common stock in exchange for
all issued and outstanding  stock of Readers Choice,  Inc. This  transaction has
been accounted for as a purchase and, accordingly, the assets have been recorded
at fair  value  and the  results  of  operations  reflect  combined  results  of
operations  from June 30, 1996,  the  transaction  date.  The purchase  price in
excess of the fair value of the assets has been recorded as unallocated purchase
price of acquisitions.

          A majority of the  Company's  revenues  are derived  from  commissions
earned in  connection  with the  collection  of incentive  payments  owed to the
Company's retailer clients from magazine publishers. Most such incentive payment
programs  offer  the  retailer  a  cash  rebate  equal  to a  percentage  of the
retailer's actual net sales of the publisher's titles which is payable quarterly
upon  submission  of a properly  documented  claim.  Under  agreements  with its
retailer  clients,  the Company gathers sales data,  submits claims for payment,
collects payments and receives a percentage of the aggregate  payments collected
on the retailers' behalf.  Claims for incentive payments are generally submitted
to the publishers  quarterly based on actual net sales of the publishers' titles
recorded  in the  previous  calendar  quarter.  Except  in  connection  with its
expanded  Advance Pay Program,  the Company  does not  guarantee to its retailer
clients  any  payments  due  to  the  client  from  magazine   publishers,   and
accordingly,  does not assume any credit  risk  associated  with such  incentive
payments.
<PAGE>
          Under both the  standard  arrangement  and the  Advance  Pay  Program,
commission  revenue is recognized at the time claims for incentive  payments are
substantially  completed for  submission to the  publishers  based on the amount
claimed,  less an  estimated  reserve  necessary  to maintain an  allowance  for
doubtful  accounts of  approximately 2% of trade accounts  receivable.  However,
under the standard arrangement, invoices for services provided by the Company in
connection  with the claim  process are not issued  until the  Company  receives
settlement  of the claim.  Under the Advance Pay  Program,  the  customer is not
invoiced for the commission,  which is the difference  between the claim and the
advance amount.


Results of Operations

          The following  table sets forth,  for the periods  presented,  certain
information  relating to the operations of the Company expressed as a percentage
of Total Revenue:
<TABLE>
<CAPTION>

                                                   Three Months                     Six Months
                                                  Ended July 31,                 Ended July 31,
                                                  --------------                 --------------
                                              1996              1995          1996               1995
                                              ----              ----          ----               ----

<S>                                           <C>               <C>          <C>                 <C>  
Commission Revenues                           92.7%             96.4%        95.5%               91.3%

Merchandise Revenues                           7.3%              3.6%         4.5%                8.7%

Total Revenue                                100.0%            100.0%       100.0%              100.0%

Cost of Commission Revenues                   87.9%             42.3%        85.2%               39.7%

Cost of Merchandise Sold                       0.8%              0.2%         0.4%                4.5%

Gross Profit                                  11.3%             57.5%        14.4%               55.8%

Selling, General &
  Administrative Expenses                     60.9%             42.1%        60.6%               39.4%

Operating Income                            (49.6)%             15.4%      (46.2)%               16.4%

Interest Expense, Net                        (4.9)%            (1.0)%       (3.6)%              (1.0)%

Other Income/(Expense), Net                  (0.4)%            (1.1)%       (0.4)%              (0.6)%

Earnings Before Income
  Taxes                                     (55.0)%             13.3%      (50.2)%               14.8%

Net Income                                  (33.4)%              8.2%      (32.8)%                6.0%
</TABLE>


Commission Revenues

          Commission  Revenues decreased $611,000 for the quarter ended July 31,
1996  compared to the  quarter  ended July 31,  1995  primarily  due to magazine
wholesaler consolidation and the internal consolidation of the operations of the
<PAGE>
once separate  entities now comprising the Company.  Recently,  many wholesalers
were purchased or merged with other wholesalers.  These  consolidations  made it
difficult,  if not  impossible,  at times to gather  sales data.  These  factors
caused the process of filing claims to fall behind  schedule  which  resulted in
less  commission  revenue than expected  during the quarter ended July 31, 1996.
Commission revenue on claims which would have been  substantially  completed had
it not been for these  factors is  expected  to be  recognized  during the third
quarter.

         Commission  Revenues  decreased  $944,000 for the six months ended July
31,  1996  compared  to the six months  ended July 31,  1996.  This  decrease is
largely  comprised of a $913,000  decrease in commission  revenues from standard
agreements,  a  $350,000  decrease  in space  design  revenues,  and a  $323,000
increase in commission  revenues  from the Advance Pay Program.  The decrease in
commission  revenues from standard agreements is due to the factors noted in the
previous  paragraph,  and space  design  revenues  are  recognized  as front end
display manufacturers ship the displays to the retailers, the timing of which is
not within the Company's control.


Merchandise Revenues

          Although  Merchandise Revenues increased slightly for the three months
ended July 31, 1996 over the same period in the prior year, Merchandise Revenues
decreased  $218,000  for the six months ended July 31, 1996 over the same period
in the prior  year.  Such  decreases  are  expected  to  continue as a result of
management's decision to de-emphasize this portion of its business.


Cost of Commission Revenues

          The Cost of Commission Revenues increased  approximately  $349,000 and
$795,000  for the three  month  period  compared to the same period in the prior
year and the six month  period  compared  to the same  period in the prior year,
respectively.  These increases were primarily the result of the Company's effort
to more precisely identify and reclassify categories of costs as direct costs of
commission  revenues.  Costs of producing commission revenues are inelastic and,
therefore, are not directly proportional to revenue.


Selling, General and Administrative Expense

          As discussed above, the Company has reclassified certain categories of
costs as direct costs of commission  revenues.  Thus,  certain costs included in
selling,  general and  administrative  expense  during the prior periods are now
classified as direct costs of commission revenues.

          Selling,  General and  Administrative  Expense plus Cost of Commission
Revenues (or "total costs") for the six month period increased $920,000 over the
comparable  period  in the prior  year.  Wages  accounted  for  $490,000  of the
increase.   New  hires,   including  personnel  formerly  employed  by  Magazine
Marketing,  Inc., comprised  approximately $200,000 of this increase,  while the
balance of the increase  was the result of raises and bonuses.  Bad debt expense
increased  approximately  $133,000.  Accounting  and  legal  expenses  increased
$110,000.  Rent,  telephone and  utilities  have  increased  $75,000 as a direct
result of  expanding  the square  footage  rented in North  Carolina  and adding
regional  offices in Canada,  Arizona and California.  Insurance costs increased
$63,000  resulting  from  increases in premiums due to the addition of equipment
and  personnel.  Computer  hardware  and  software  acquisitions  combined  with
equipment and furniture  acquisitions related to the additional regional offices
contributed to a $19,000  increase in depreciation  expense.  Auto lease expense
increased $15,000 resulting from the addition of several leased automobiles.
<PAGE>
          The total costs for the second  quarter  increased  $348,000  over the
second quarter of the prior year.  Wages accounted for $262,000 of the increase.
New hires comprised  approximately $110,000 of this increase,  while the balance
of the  increase  was the result of raises  and  bonuses.  Accounting  and legal
expenses  increased  $40,000.  Insurance costs increased  $30,000 resulting from
increases  in premiums due to the addition of  equipment  and  personnel.  Rent,
telephone  and utilities  increased  $28,000 as a result of expanding the square
footage rented in North Carolina and adding regional offices in Canada, Arizona,
and California.


Interest Expense

          Interest  expense  for the  second  quarter  and the six month  period
increased $48,000 and $67,000, respectively,  over the comparable periods in the
prior year. This increase is due primarily to the increased borrowings necessary
to fund the Advance Pay Program.


Provision for Income Taxes

          The Provision for Income Taxes for all periods  presented differs from
the statutory rate due to non-deductible meals and entertainment, officers' life
insurance, country club dues, and auto lease expense.


Liquidity and Capital Resources

          The Company's  primary cash requirements are for funding the Company's
Advance  Pay  Program  and   selling,   general  and   administrative   expenses
(particularly  salaries,  travel and data entry expenses) incurred in connection
with the  solicitation of new clients and the maintenance of existing  accounts.
Historically, the Company has financed its business activities through cash flow
from  operations,  short-term  borrowings  under  available  lines of credit and
through the issuance of equity securities.

          Net cash used by operating activities was approximately $3,051,000 for
the six months ended July 31, 1996  compared to  approximately  $626,000 for the
same period in 1995.  Cash  advanced  under the  Advance  Pay Program  increased
approximately  $2,318,000  and cash  used to pay wages  increased  approximately
$335,000.  The average  collection period for the six months ended July 31, 1996
was 314.1 days (calculated as follows: 365 days/(Revenues/Average A/R)) compared
to 119.2 days for the six month period ended July 31, 1995.  The primary  factor
contributing  to the  decrease in accounts  receivable  turnover  was a delay in
filing claims caused by wholesaler  consolidation and by internal  consolidation
of operations of the once separate entities that now comprise the Company.

          The Company is primarily engaged in the business of providing services
to its retailer clients;  therefore,  its capital  expenditure  requirements are
minimal.  At July 31, 1996 the Company had no outstanding  material  commitments
for capital expenditures.

          The Company has an agreement with  Boatmen's  Bank of St. Louis,  N.A.
("Boatmen's") providing for two separate revolving loans aggregating $5,000,000.
All borrowings under the agreement mature on July 1, 1997.  Borrowings under the
agreement bear interest at an annual rate equal to the Boatmen's  Corporate Base
Rate plus 1% (9.25% at July 31,  1996) and are secured by  substantially  all of
the  assets of the  Company as well as the  personal  guarantees  of Messrs.  S.
Leslie Flegel and William H. Lee and their spouses.
<PAGE>
          The  first  of these  loans is a  working  capital  facility  based on
eligible Accounts Receivable of the Company.  The second facility is reserved to
fund the Company's Advance Pay Program.  Under this facility the Company is able
to borrow up to  $3,000,000  based on a percentage  of its  accounts  receivable
derived from the Advance Pay Program.

          On February  28,  1996,  the Company  sold 8,000  shares of its common
stock in a private transaction in reliance on Section 4(2) of the Securities Act
and  Regulation  D  promulgated  thereunder.  The  transaction  resulted  in net
proceeds to the Company of $30,000.

          During March 1996, the Company sold an aggregate of 20,000 of its 1996
Series 7% Convertible Preferred Stock, $0.01 par value per share (the "preferred
stock"), in a series of transactions  exempt from the registration  requirements
of the Securities Act of 1933, as amended.  The preferred  stock was sold for an
aggregate  purchase price of  $2,000,000,  resulting in net cash proceeds to the
Company of  $1,922,075  after  deducting  commissions  and  expenses of $77,925.
Additional  broker fees of $60,000 were paid through the issuance of another 600
shares of preferred stock.

          From time to time, the Company has made cash advances to the Company's
Chief Executive Officer totaling $221,485 at July 31, 1996. The Company has made
similar advances to the Company's  Executive Vice President  totaling $12,093 at
July 31, 1996. Such advances are evidenced by promissory notes, bear interest at
the rate of 7.34%, and are payable in four remaining equal annual  installments.
The Company also made advances to FMG,  Inc., a North  Carolina  corporation  in
which Company officers hold a controlling interest.  Such advances bore interest
at an annual rate equal to prime plus one-half percent and had a balance at July
31,  1996 of  $31,171.  Each of the related  parties  which are  indebted to the
Company are current with respect to all payments of principal and interest,  and
the  Company is  unaware of any  circumstances  which are  reasonably  likely to
negatively impact the collectibility of such indebtedness.

          At July 31, 1996, the Company's total long-term debt  obligations were
$384,349,  of which  $164,531  is due in the next  twelve  months.  The  Company
anticipates  that the funds  necessary  to  satisfy  these  obligations  will be
derived primarily from cash flows from operations.
<PAGE>
                                     PART II
                                OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      See Exhibit Index.

(b)      A report on Form 8-K dated June 28, 1996 reporting the  acquisition  of
         Magazine  Marketing, Inc. was filed July 10, 1996.

<PAGE>
                                   SIGNATURES

           In  accordance  with  the  requirements  of  the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                                        THE SOURCE COMPANY



Date:  January 22, 1997                 /s/ W. Brian Rodgers
                                        ----------------------------------
                                        W. Brian Rodgers
                                        Chief Financial Officer
<PAGE>
                                  EXHIBIT INDEX



Exhibit No.             Description                                     Page
-----------             -----------                                     ----

27                      Amended Financial Data Schedule                  21