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 April 30, 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:  6,382,389 (as of May 28,
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
                                 April 30, 1996



                         PART I - FINANCIAL INFORMATION


ITEM 1.      Financial Statements                                  Page

             Unaudited Balance Sheet as of April 30, 1996             3

             Unaudited Statements of Income for the three
             months ended April 30, 1996 and 1995                     5

             Unaudited Statements of Cash Flows for the three
             months ended April 30, 1996 and 1995                     6

             Notes to Financial Statements                            7

ITEM 2.      Management's Discussion and Analysis                    11


                           PART II - OTHER INFORMATION

ITEM 6.      Exhibits and Reports on Form 8-K                        15

SIGNATURE PAGE                                                       16

EXHIBIT INDEX                                                        17



<PAGE>
                               THE SOURCE COMPANY

                             Unaudited Balance Sheet

                                 April 30, 1996


Assets
Current
           Cash                                                    $ 1,073,570
           Receivables:
               Trade (net of allowance for doubtful
                 accounts of $82,824)                                3,848,179
               Income Taxes                                            165,700
               Related Parties                                          53,171
               Employees                                                 3,623
               Interest Receivable                                      21,498
               Notes Receivable - Officers                              83,749
           Prepaid Expenses                                            144,236
           Other current assets                                          1,665
-------------------------------------------------------------------------------
Total Current Assets                                                 5,395,391
-------------------------------------------------------------------------------
Office Equipment and Furniture                                       1,578,744
Less Accumulated Depreciation and Amortization                       1,035,201
-------------------------------------------------------------------------------
Net Office Equipment and Furniture                                     543,543
-------------------------------------------------------------------------------

Other Assets
           Notes Receivable - Officers                                 233,578
           Investment in limited partnership                            62,956
           Goodwill, net of accumulated amortization                    80,968
           Cash surrender value of life insurance                       71,618
           Other                                                        59,335
-------------------------------------------------------------------------------
Total Other Assets                                                     508,455
-------------------------------------------------------------------------------

TOTAL ASSETS                                                       $ 6,447,389
-------------------------------------------------------------------------------


<PAGE>
                               THE SOURCE COMPANY

                             Unaudited Balance Sheet

                                 April 30, 1996


Liabilities and Stockholders' Equity
Current
     Note payable - bank (Note 3)                                  $ 1,807,715
     Accounts payable                                                   52,660
     Due to Retailers (Note 9)                                         195,026
     Accrued liabilities:
         Compensation                                                  306,186
         Other                                                         119,542
     Deferred income taxes                                             117,000
     Current maturities of long-term debt (Note 4)                      45,165
-------------------------------------------------------------------------------
Total Current Liabilities                                            2,643,294
-------------------------------------------------------------------------------
Long-term Debt (Note 4)                                                 71,787
     Less current maturities                                            45,165
-------------------------------------------------------------------------------
Total Long-term Debt                                                    26,622
-------------------------------------------------------------------------------
Deferred income taxes                                                  278,000
-------------------------------------------------------------------------------
Total Liabilities                                                    2,947,916
-------------------------------------------------------------------------------

Stockholders' Equity
     Preferred stock (Note 7)                                              206
     Common stock                                                       63,824
     Additional paid-in-capital                                      2,928,747
     Retained Earnings                                                 506,696
-------------------------------------------------------------------------------
Total Stockholders' Equity                                           3,499,473
-------------------------------------------------------------------------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                           $ 6,447,389
-------------------------------------------------------------------------------


<PAGE>
                               THE SOURCE COMPANY

                         Unaudited Statements of Income

                                              Three Months Ended April 30,
                                             1996                      1995
                                          -------------------------------------

Commission Revenues                      $ 1,424,030               $ 1,757,385
Merchandise Revenues                          29,938                   275,252
-------------------------------------------------------------------------------
                                           1,453,968                 2,032,637
-------------------------------------------------------------------------------
Cost of Commission Revenues                1,204,838                   759,150
Cost of Merchandise Sold                           0                   171,592
-------------------------------------------------------------------------------
                                           1,204,838                   930,742
-------------------------------------------------------------------------------
Gross Profit                                 249,130                 1,101,895
Selling, General and Administrative
  Expense                                    876,902                   751,363
-------------------------------------------------------------------------------
Operating Income (Loss)                    (627,772)                   350,532
-------------------------------------------------------------------------------
Other Income (Expense)
            Interest income                    8,956                     3,145
            Interest expense                (42,322)                  (23,669)
            Other                            (5,955)                   (1,898)
-------------------------------------------------------------------------------
Total Other Income (Expense)                (39,321)                  (22,422)
-------------------------------------------------------------------------------
Income (Loss) Before Income Taxes          (667,093)                   328,110
Provision for Income Taxes                   196,864                 (247,675)
-------------------------------------------------------------------------------
Net Income (Loss)                        $ (470,229)               $    80,435
-------------------------------------------------------------------------------
Earnings (Loss) per Share - Primary      $    (0.07)               $      0.02
-------------------------------------------------------------------------------
Weighted Average of Shares
   Outstanding - Primary                   6,379,900                 5,340,000
-------------------------------------------------------------------------------
Earnings (Loss) per Share - Fully
    Diluted                              $    (0.07)               $      0.02
-------------------------------------------------------------------------------
Weighted Average of Shares
   Outstanding - Fully Diluted             6,379,900                 5,340,000
-------------------------------------------------------------------------------


<PAGE>
<TABLE>
                               THE SOURCE COMPANY

                       Unaudited Statements of Cash Flows
<CAPTION>


                                                                                 Three Months Ended April 30,
                                                                           -----------------------------------------
                                                                                  1996                   1995

<S>                                                                          <C>                   <C>
Operating Activities
     Net income (loss)                                                       $   (470,229)         $    80,435
     Adjustments to reconcile net cash
       provided by operating activities:
          Depreciation and amortization                                             44,566              34,396
          Provision for losses on accounts receivable                             (16,376)              34,683
          Impairment of investment in limited partnership                            5,000               5,000
          Write-off related party receivable                                             0              10,644
          Deferred income taxes                                                   (41,000)              58,000
          Changes in assets and liabilities:
              (Increase)/Decrease in accounts receivable                           327,263           (697,172)
              (Increase)/Decrease in other assets                                (307,540)           (107,551)
              Increase/(Decrease) in A/P and accrued expenses                    (525,698)             133,919
              Increase/(Decrease) in amounts due customers                         111,571
                                                                                                             0
---------------------------------------------------------------------------------------------------------------
Cash Used in Operating Activities                                                (872,443)           (447,646)
---------------------------------------------------------------------------------------------------------------

Investment Activities
     Loans to officers                                                            (54,034)                   0
     Repayments from related party                                                       0             240,240
     Collections from (advances to) employees                                        3,417             (3,000)
     Capital expenditures                                                         (53,559)            (37,575)
---------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Investing Activities                                  (104,176)             199,665
---------------------------------------------------------------------------------------------------------------

Financing Activities
     Issuance of common stock                                                       30,000                   0
     Issuance of preferred convertible stock                                     1,922,075                   0
     Principal payments on long-term debt                                         (19,714)            (29,603)
     Borrowings under short-term debt agreements                                   311,000             281,571
     Repayments under short-term debt agreements                                 (217,000)                   0
---------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities                                            2,026,361             251,968
---------------------------------------------------------------------------------------------------------------

Increase in Cash                                                                 1,049,742               3,987

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

Cash, end of period                                                        $     1,073,570         $   256,542
---------------------------------------------------------------------------------------------------------------
</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  $109,867  and
                            $40,712  of such  purchases  made  during  the three
                            months ended April 30, 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 April 30, 1996 the Company had
                            a receivable from FMG of $53,171 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
                            $46,575 and $45,750 for the three months ended April
                            30, 1996 and 1995,  respectively.  Amounts  paid for
                            the  airplane  were $0 and  $22,063  for  the  three
                            months ended April 30, 1996 and 1995, respectively.

                            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 which bear interest at the rate of 7.34% per
                            annum  and  are   payable  in  five   equal   annual
                            installments.


2.  Notes                                           
    Receivable              Officers
                                                             
                            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  beginning  April  1996.  These notes are
                            current   and  the   Company   is   unaware  of  any
                            circumstances   that  would  negatively  impact  the
                            collectibility of these notes.

                            Included  in  current  notes  receivable  is $32,304
                            which  was   advanced  to  certain   officers  on  a
                            short-term  basis and is  scheduled  to be repaid in
                            the following quarter.


<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 $4,000,000
                            scheduled  to  expire  on July 1,  1997.  Borrowings
                            under the loans bear  interest  at the bank's  prime
                            plus 1%  (effectively  9.25% at April 30,  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 April 30,
                            1996 were $1,807,715.


4.   Long-term 
     Debt                   Long-term debt consists of: Debt
                            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                                   $ 23,337

                            Obligations under capital lease               48,450
                            ----------------------------------------------------
                            Total Long-term Debt                          71,787

                            Less Current Maturities                       45,165
                            ----------------------------------------------------

                            Long-term Debt                             $  26,622
                            ----------------------------------------------------


5.  Supplemental            

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

                            Three  Months Ended April 30,    1996         1995
                            ----------------------------------------------------

                            Interest                      $ 41,000     $  23,000

                            Income Taxes                  $222,000     $  91,000
                            ----------------------------------------------------



<PAGE>
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. 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.


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.


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 April 30,
                            1996 is $485,946  due the Company  under the Advance
                            Pay  Program  (net of  $1,851,460  due  the  program
                            participants).  Income from the program was $276,733
                            during the three months ended April 30, 1996 and was
                            not material in 1995.


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  $195,026 at April 30, 1996
                            under such arrangements.


10.  Unaudited              In  the  opinion  of   management,   the   unaudited
     Financial              financial information as of April 30, 1996 contained
     Statements             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 three  months  ended
                            April 30, 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.

         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.

         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:
<PAGE>
                                                       Three Months
                                                      Ended April 30,
                                                    1996           1995
                                                    ----           ----

Commission Revenues                                 97.9%         86.5%

Merchandise Revenues                                 2.1%         13.5%

Total Revenue                                      100.0%        100.0%

Cost of Commission Revenues                         82.9%         37.3%

Cost of Merchandise Sold                             0.0%          8.4%

Gross Profit                                        17.1%         54.3%

Selling, General & Administrative Expenses          60.3%         37.0%

Operating Income                                  (43.2)%         17.3%

Interest Expense, Net                              (2.3)%        (1.0)%

Other Income/(Expense), Net                        (0.4)%        (0.1)%

Earnings Before Income Taxes                      (45.9)%         16.2%

Net Income                                        (32.3)%          4.0%



Commission Revenues

          Commission  Revenues  decreased $333,000 from the comparable period of
Fiscal 1996  primarily  resulting  from a decrease in space  design  revenues of
$346,000.   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.

         Recently,  many  wholesalers  were  purchased  by or merged  with other
wholesalers. These consolidations made it difficult, if not impossible, at times
to gather sales data.  This  activity,  combined with the Company's own internal
consolidation of the operations of the once separate entities now comprising the
Company,  caused the  process of filing  claims to fall  behind  schedule  which
resulted in less commission revenue than expected during the quarter ended April
30,  1996.  Despite  these  factors,  commission  revenues  from the Advance Pay
Program  grew   $167,000  as  a  result  of   significant   increased   retailer
participation.  Commission revenue on claims which would have been substantially
completed  had it not  been for  these  factors  will be  recognized  in  future
quarters.


Merchandise Revenues

         Merchandise Revenues decreased $245,000. The decrease was primarily the
result of the discontinuation of time specific programs with Walgreens and Kmart




<PAGE>
that expired prior to January 31, 1996.  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 $446,000. 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") increased $571,000.  Wages accounted for $230,000 of
the increase. New hires comprised approximately $90,000 of this increase,  while
the  balance of the  increase  was the result of raises  and  bonuses.  Bad debt
expense  increased  approximately   $152,000.   Accounting  and  legal  expenses
increased  $71,000.  Rent,  telephone and utilities have increased  $44,000 as a
result of adding  regional  offices in Canada and  California.  Insurance  costs
increased  $42,000  resulting  from increases in premiums due to the addition of
equipment and personnel.  Contract  labor,  data entry costs and consulting fees
increased  $41,000 in connection with the consolidation of the operations of the
once separate entities now comprising the Company.


Interest Expense

         Interest  expense  increased   $19,000  due  to  increased   borrowings
necessary to fund the Advance Pay Program.


Provision for Income Taxes

         The Provision  for Income Taxes 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 $872,000 during
the quarter ended April 30, 1996 compared to approximately $448,000 for the same

<PAGE>
period  in  1995.  Cash  advanced  under  the  Advance  Pay  Program   increased
approximately  $308,000  and  cash  used to pay  wages  increased  approximately
$268,000.  The average  collection  period for the three  months ended April 30,
1996 was 247.8 days  (calculated as follows:  365  days/(Revenues/Average  A/R))
compared to 114.0 days for the three month  period  ended  April 30,  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 April 30, 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 $4,000,000.
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 April 30, 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.

         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  $2,500,000  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  $270,675 at April 30, 1996. The Company has
made similar advances to the Company's Executive Vice President totaling $14,618
at April 30,  1996.  Such  advances  are  evidenced by  promissory  notes,  bear
interest  at  the  rate  of  7.34%,   and  are  payable  in  five  equal  annual
installments.  Additionally,  during this quarter, short-term advances were made
to the Company's Chief Executive  Officer and Chief Operating  Officer  totaling
$32,304.  This amount is scheduled to be repaid in the  following  quarter.  The
Company also made advances to FMG, Inc., a North  Carolina  corporation in which
Company officers hold a controlling interest.  Such advances bear interest at an
annual rate equal to prime plus one-half  percent and had a balance at April 30,
1996 of $53,171.  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 April 30, 1996, the Company's total long-term debt  obligations were
$71,787  of  which  $45,165  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)      No current  reports  on Form 8-K have been filed  during the
                    three months ended April 30, 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            18