<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

        (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, 2002

         [ ] Transition report under Section 13 or 15(d) of the Exchange Act

         For the transition period from           to
                                        ---------    ---------

         Commission file number 1-13437
                                -------

                        SOURCE INTERLINK COMPANIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)


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

                         TWO CITY PLACE DRIVE, SUITE 380
                            ST. LOUIS, MISSOURI 63141
                    (Address of Principal Executive Offices)


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



         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

         Indicate by check mark whether the registrant (1) has 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 [ ]

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.


<Table>
<Caption>
                           Class               Outstanding on June 11, 2002
<S>                                            <C>
               Common Stock, $.01 Par Value              18,189,465
</Table>


<PAGE>


                        SOURCE INTERLINK COMPANIES, INC.

                                      INDEX

                         PART I - FINANCIAL INFORMATION

<Table>
<Caption>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
ITEM 1.       Financial Statements

              Consolidated Balance Sheets as of
              April 30, 2002 and January 31, 2002                           1

              Consolidated Statements of Income for the three months
              ended April 30, 2002 and 2001                                 3

              Consolidated Statements of Comprehensive Income for the
              three months ended April 30, 2002 and 2001                    3

              Consolidated Statement of Stockholders'
              Equity for the three months ended April 30, 2002              4

              Consolidated Statements of Cash Flows for the
              three months ended April 30, 2002 and 2001                    5

              Notes to Consolidated Financial Statements                    6

ITEM 2.       Management's Discussion and Analysis                         14


                           PART II - OTHER INFORMATION

ITEM 1.       Legal Proceedings                                            25

ITEM 2.       Changes in Securities                                        25

ITEM 3.       Defaults Upon Senior Securities                              25

ITEM 4.       Submission of Matters to a Vote of Security Holders          25

ITEM 5.       Other Information                                            25

ITEM 6.       Exhibits and Reports on Form 8-K                             25
</Table>


<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                                     CONSOLIDATED BALANCE SHEETS
                                                                  (in thousands)

<Table>
<Caption>
                                                          (unaudited)
                                                         April 30, 2002   January 31, 2002
                                                         --------------   ----------------
<S>                                                      <C>              <C>
ASSETS

CURRENT

      Cash                                                  $  2,975          $  2,943

      Trade receivables, net of allowance for doubtful
      accounts of $6,375 and $6,142 at April 30, 2002
      and January 31, 2002, respectively and net of
      allowance for returns of $41,757 and $40,077 at
      April 30, 2002 and January 31, 2002, respectively       56,061            66,515

      Income taxes receivable                                  5,505             6,085

      Inventories (Note 2)                                    17,430            20,290

      Other current assets                                     2,112             2,950
                                                            --------          --------
TOTAL CURRENT ASSETS                                          84,083            98,783
                                                            ========          ========

Land                                                           1,423             1,423

Plants and buildings                                           8,587             8,584

Office equipment and furniture                                18,247            17,554
                                                            --------          --------
Property, Plants and Equipment                                28,257            27,561

Less accumulated depreciation and amortization                 7,790             7,184
                                                            --------          --------
NET PROPERTY, PLANTS AND EQUIPMENT                            20,467            20,377
                                                            ========          ========

OTHER ASSETS

      Intangibles, net (Note 3)                               43,100            43,069

      Deferred tax asset                                       1,182             2,065

      Other                                                    3,445             3,363
                                                            --------          --------
TOTAL OTHER ASSETS                                            47,727            48,497
                                                            ========          ========

                                                            $152,277          $167,657
                                                            ========          ========
</Table>


                    See accompanying notes to consolidated financial statements.


                                       1
<PAGE>



                                                SOURCE INTERLINK COMPANIES, INC.

                                                     CONSOLIDATED BALANCE SHEETS
                                                                  (in thousands)

<Table>
<Caption>
                                                          (unaudited)
                                                         April 30, 2002   January 31, 2002
                                                         --------------   ----------------
<S>                                                      <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT

     Checks issued against future deposits                  $  4,236          $     --

     Accounts payable and accrued expenses, net of
     allowance for returns of $40,472 and $38,527 at
     April 30, 2002 and January 31, 2002, respectively        46,995            60,536

     Due to retailers                                          3,843             3,099

     Deferred income taxes                                        --               953

     Current maturities of long-term debt (Note 5)            33,351            42,097

     Other current liabilities                                    24                24
                                                            --------          --------
TOTAL CURRENT LIABILITIES                                     88,449           106,709
                                                            ========          ========
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 5)              16,975            15,578
                                                            ========          ========
OTHER LONG-TERM LIABILITIES                                      577               329
                                                            ========          ========
TOTAL LIABILITIES                                            106,001           122,616
                                                            ========          ========

COMMITMENTS

STOCKHOLDERS' EQUITY

Contributed Capital:

     Common Stock, $.01 par - shares authorized,
     40,000,000; 19,415,585 issued and 18,189,465
     outstanding at April 30, 2002 and
     19,414,799 issued and 18,288,679
     outstanding at January 31, 2002                             194               194

     Preferred Stock, $.01 par - shares authorized,
     2,000,000; -0- issued and outstanding at
     April 30, 2002 and January 31, 2002                          --                --

     Additional paid-in-capital                              103,389           103,386
                                                            --------          --------
     Total contributed capital                               103,583           103,580

Accumulated other comprehensive (loss):

    Foreign currency translation                                (288)             (387)

Accumulated deficit                                          (50,068)          (51,666)
                                                            --------          --------
                                                              53,227            51,527
Less:  Treasury Stock (1,226,120 and 1,126,120
shares at cost at April 30, 2002 and
January 31, 2002, respectively)                               (6,951)           (6,486)
                                                            --------          --------
TOTAL STOCKHOLDERS' EQUITY                                    46,276            45,041
                                                            ========          ========
                                                            $152,277          $167,657
                                                            ========          ========
</Table>


                    See accompanying notes to consolidated financial statements.


                                       2
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                               CONSOLIDATED STATEMENTS OF INCOME
                                                                     (unaudited)
                                           (in thousands, except per share data)

<Table>
<Caption>
                                                           Three Months Ended April 30,
                                                                2002         2001
                                                              --------      --------
<S>                                                        <C>              <C>
Revenues                                                      $ 66,313      $ 18,257
Costs of Revenues                                               51,746        11,319
                                                              --------      --------
                                                                14,567         6,938
Selling, General and Administrative Expense                     11,495         4,616
Amortization of Goodwill (Note 3)                                   --           755
                                                              --------      --------
Operating Income                                                 3,072         1,567
                                                              --------      --------
Other Income (Expense)
            Interest income                                         32            81
            Interest expense                                      (841)         (613)
            Other                                                  523         1,975
                                                              ========      ========
Total Other Income (Expense)                                      (286)        1,443
                                                              --------      --------
Income Before Income Taxes                                       2,786         3,010
Income Tax Expense                                               1,188           485
                                                              ========      ========
Net Income                                                    $  1,598      $  2,525
                                                              ========      ========

Earnings per Share - Basic                                    $   0.09      $   0.15
                                                              --------      --------

Weighted Average of Shares Outstanding - Basic (Note 6)         18,255        17,257
                                                              --------      --------

Earnings per Share - Diluted                                  $   0.09      $   0.15
                                                              --------      --------

Weighted Average of Shares Outstanding - Diluted (Note 6)       18,431        17,384
                                                              ========      ========
</Table>


                                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                     (unaudited)
                                                                  (in thousands)

<Table>
<Caption>
                                                           Three Months Ended April 30,
                                                                2002         2001
                                                              --------      --------
<S>                                                        <C>              <C>
Net Income                                                    $  1,598      $  2,525
Unrealized Loss on Available-for-Sale Securities, net               --          (354)
of tax
Foreign Currency Translation Adjustment                             99          (149)
                                                              --------      --------
Comprehensive Income                                          $  1,697      $  2,022
                                                              --------      --------
</Table>

                    See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                     (unaudited)
                                                   (in thousands, except shares)
<Table>
<Caption>
                                 Common Stock     Additional                Other         Treasury Stock        Total
                              ------------------   Paid-in   Accumulated Comprehensive  -------------------  Stockholders'
                                Shares    Amount   Capital     Deficit      (Loss)        Shares    Amount       Equity
                              ----------  ------  ----------  --------   -------------  ---------  --------  -------------
<S>                           <C>         <C>     <C>         <C>        <C>            <C>        <C>       <C>
Balance, January 31, 2002     19,414,799   $194    $103,386   $(51,666)      $(387)     1,126,120   $(6,486)    $45,041

Purchase of treasury stock                                                                100,000      (465)       (465)

Foreign currency
translation adjustment                                                          99                                   99

Other                                786                  3                                                           3

Net income                                                       1,598                                            1,598

                              ----------   ----    --------   --------       -----      ---------   -------     -------
Balance, April 30, 2002       19,415,585   $194    $103,389   $(50,068)      $(288)     1,226,120   $(6,951)    $46,276
                              ==========   ====    ========   ========       =====      =========   =======     =======
</Table>


                    See accompanying notes to consolidated financial statements.


                                       4
<PAGE>




                                                SOURCE INTERLINK COMPANIES, INC.

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     (unaudited)
                                                                  (in thousands)
<Table>
<Caption>
Three Months Ended April 30,                                                    2002           2001
----------------------------                                                  --------      --------
<S>                                                                           <C>           <C>
OPERATING ACTIVITIES
     Net income                                                               $  1,598      $  2,525
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
          Depreciation and amortization                                            658         1,281
          Provision for losses on accounts receivable                              264            --
          Loss on disposition of equipment                                          28           126
          Deferred income taxes                                                    366           291
          Other                                                                    (32)           58
          Changes in assets and liabilities:
             Decrease (increase) in accounts receivable                         10,289        (3,156)
             Decrease in inventories                                             2,860           588
             Decrease (increase) in other assets                                   884          (813)
             (Decrease) increase in accounts payable and accrued expenses      (13,287)           67
             Increase in amounts due to retailers                                  743         2,000
                                                                              --------      --------
CASH PROVIDED BY OPERATING ACTIVITIES                                            4,371         2,967
                                                                              ========      ========

INVESTMENT ACTIVITIES
     Capital expenditures                                                         (751)         (516)
     Investment in Interlink                                                        --       (10,624)
     Other                                                                          24            57
                                                                              --------      --------
CASH USED IN INVESTING ACTIVITIES                                                 (727)      (11,083)
                                                                              ========      ========

FINANCING ACTIVITIES
     Increase (decrease) in checks issued against future deposits                4,236          (204)
     Borrowings under credit facility                                           68,715        29,646
     Principal payments on credit facility                                     (76,064)      (20,859)
     Common Stock reacquired                                                      (465)           --
     Other                                                                         (34)           --
                                                                              --------      --------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                 (3,612)        8,583
                                                                              ========      ========

INCREASE IN CASH                                                                    32           467

CASH, beginning of period                                                        2,943         1,085
                                                                              --------      --------

CASH, end of period                                                           $  2,975      $  1,552
                                                                              ========      ========
</Table>


                    See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.       BASIS OF PRESENTATION

The consolidated financial statements as of April 30, 2002 and for the three
month period ended April 30, 2002 and 2001, include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments and
reclassifications) necessary to present fairly the financial position, results
of operations and cash flows at April 30, 2002 and for all periods presented.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K for the year
ended January 31, 2002. The results of operations for the three month period
ended April 30, 2002 are not necessarily indicative of the operating results to
be expected for the full year.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the current year
presentation.

2.       INVENTORIES

Inventories consist of the following (in thousands):

<Table>
<Caption>
                                  April 30, 2002     January 31, 2002
                                  --------------     ----------------
<S>                               <C>                <C>
         Raw materials                $ 2,814             $ 2,559
         Work-in-process                1,992               1,754
         Finished goods:
           Fixtures                     2,087               1,790
           Magazine inventory          10,537              14,187
                                      -------             -------
                                      $17,430             $20,290
                                      =======             =======
</Table>

Magazine and periodical inventories are returnable to the publishers for full
credit in the event of non-sale.

3.       GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"),
and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 eliminates the
pooling of interests method of accounting for all business combinations
initiated after June 30, 2001 and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination. The Company adopted SFAS 141 as of July 1, 2001.

As of February 1, 2002, the Company adopted SFAS 142, which addresses the
financial accounting and reporting standards for the acquisition of intangible
assets outside of a business combination and for goodwill and other intangible
assets subsequent to their acquisition. This accounting standard requires that
goodwill and indefinite-lived intangible assets are no longer amortized but
tested for impairment on an annual basis, or more frequently if circumstances
warrant. The provisions of the standard also require the completion of a
transitional impairment test in the year of adoption, with any impairments
identified upon initial implementation treated as a cumulative effect of a
change in accounting principle. In connection with the adoption of SFAS 142, the
Company has determined that


                                       6
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

there are no indications of goodwill impairment. The exact amount of the
impairment, if any, will not be known until the Company completes the goodwill
impairment tests, however, preliminary indications are that there will be no
impairment.

In accordance with SFAS 142, goodwill associated with acquisitions consummated
after June 30, 2001 is not amortized and the amortization of goodwill from
business combinations consummated before June 30, 2001 ceased on February 1,
2002.

A summary of the Company's intangible assets is as follows:

<Table>
<Caption>
                                                April 30, 2002     January 31, 2002
                                                --------------     ----------------
<S>                                             <C>                <C>
         Indefinite-lived Intangible Assets
             Goodwill                              $42,794             $42,769

         Amortizable Intangible Assets
             Other                                     698                 658
             Accumulated Amortization                  392                 358
                                                   -------             -------
         Net Intangibles                           $43,100             $43,069
                                                   =======             =======
</Table>

Goodwill increased $25,000 from January 31, 2002 to April 30, 2002 due to
fluctuations in the foreign currency exchange rates.

Amortization expense for the three months ended April 30, 2002 was $34,000.
Amortization expense for each of the five succeeding years is estimated to be
approximately $135,000.

4.       BUSINESS COMBINATIONS

In a series of transactions occurring between February 21, 2001 and June 1,
2001, the Company acquired all of the stock of The Interlink Companies, Inc.
("Interlink") for cash totaling $13,677,000 (including professional fees and net
of cash acquired) and 980,025 shares of the Company's common stock, valued at
the time of acquisition at $5.4 million. Interlink has various operating
companies, including International Periodical Distributors, Inc. ("IPD"), a
direct distributor of magazines, and Deyco, a specialty national magazine
distributor.

This transaction has been accounted for as a purchase, and accordingly, the
assets and liabilities have been recorded at fair market value. Results of
operations have been included as of the effective date of the transaction. The
purchase price exceeded the fair value of the assets acquired by approximately
$70.9 million.


                                       7
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Unaudited pro forma results of operations for the three months ended April 30,
2001 for the Company and The Interlink Companies, Inc. are listed below (in
thousands):

<Table>
<Caption>
                                                         Three months ended
                                                           April 30, 2001
                                                         ------------------
<S>                                     <C>              <C>
                 Total Revenues         As reported            $18,257
                                        Pro forma               67,313
                 Net Income (Loss)      As reported              2,525
                                        Pro forma               (3,143)

                 Earnings Per Share
                      Basic             As reported            $  0.15
                      Diluted           As reported               0.15
                      Basic             Pro forma                (0.17)
                      Diluted           Pro forma                (0.17)
</Table>


                                       8
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.       LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consists of (in thousands):

<Table>
<Caption>
                                                                      April 30,    January 31,
                                                                        2002          2002
                                                                      ---------    -----------
<S>                                                                   <C>          <C>
       Revolving Credit Facility - Bank of America                    $29,421        $36,073

       Revolving Credit Facility - Congress Financial Corporation      12,502         11,068

       Term loan - Congress Financial Corporation                       1,139          2,778

       Industrial Revenue Bonds                                         4,000          4,000

       Notes payable to former owner of acquired company, 12%
       annual interest payable quarterly; two equal remaining
       installments due February 2002 and August 2002                   2,500          2,500

       Note payable to former owner of acquired company, 12%
       annual interest, payable in four quarterly installments
       beginning May 2001                                                  --            250

       Note payable to former owner of acquired company, interest
       prime plus 1% compounded semi-annually, payable in two
       remaining installments in March 2002 and March 2003                200            400

       Other                                                              564            606

                                                                      -------        -------
       Total Long-term Debt                                            50,326         57,675

       Less current maturities                                         33,351         42,097
                                                                      -------        -------

       Long-term Debt                                                 $16,975        $15,578
                                                                      =======        =======

</Table>

On December 22, 1999, the Company entered into an unsecured credit agreement
with Bank of America, N.A. The credit agreement enables the Company to borrow up
to $46.0 million under a revolving credit facility that terminates December 31,
2002. Borrowings under the credit facility bear interest at a rate equal to the
monthly LIBOR rate (1.83% at January 31, 2002) plus a percentage ranging from
1.0% to 2.1% depending on the Company's ratio of funded debt to earnings before
interest, taxes, depreciation and amortization and carries a facility fee of 1/4
% per annum on the difference between $25 million and the average principal
amount outstanding under the loan (if less than $25 million) plus 3/8% per annum
of the difference between the maximum amount of the loan and the greater of (i)
$25 million or (ii) the average principal amount outstanding under this loan.
Under the credit agreement, the Company is limited in its ability to declare
dividends or other distributions on capital stock or payments in connection with
the purchase, redemption, retirement or acquisition of capital stock and is
required to maintain certain financial ratios. The Company was in compliance
with such ratios at April 30, 2002 other than ratios driven by earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The availability at
April 30, 2002 on the revolving credit facility was approximately $16.6 million.


                                       9
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The existing revolving credit facility terminates on December 31, 2002. The
Company is currently in the process of negotiating an extension with Bank of
America including modifications to the agreement that would ease the financial
covenants. The Company has received from Bank of America a proposed term sheet
which indicates that we will be required to offer collateral and accept a rate
increase. In addition to negotiating an extension with Bank of America, the
Company also continues to examine opportunities with other banks, one of which
has provided a proposed term sheet, not a commitment, which is subject to the
completion of due diligence with results satisfactory to the bank.

The Company has Industrial Revenue Bonds (IRB). On January 30, 1995, the City of
Rockford issued $4.0 million of its Industrial Project Revenue Bonds, Series
1995, and the proceeds were deposited with the Amalgamated Bank of Chicago, as
trustee. Bank of America ("the Bank") has issued an unsecured letter of credit
for $4.1 million in connection with the IRB with an initial expiration date of
April 20, 2001. As provided in the reimbursement agreement, the expiration date
shall automatically extend for successive additional periods of one calendar
month until the twentieth day of the thirteenth month following receipt of a
notice of non-extension from the Bank. To date, no such notice of non-extension
has been received and management does not expect such notice to be given by the
Bank in the foreseeable future. The bonds are secured by the trustee's indenture
and the $4.1 million letter of credit. The bonds bear interest at a variable
weekly rate (approximately 80% of the Treasury Rate) not to exceed 15% per
annum. The bonds mature on January 1, 2030. Fees related to the letter of credit
are .75% per annum of the outstanding bond principal plus accrued interest.

In connection with the acquisition of Interlink, the Company assumed IPD and
Deyco's secured credit facility with Congress Financial Corporation
("Congress"). On February 22, 2001, IPD and Deyco entered into the credit
facility with Congress which expires on February 21, 2005. The credit agreement
includes a $4,000,000 term loan, which was repaid in May, 2002, as well as a
revolving credit facility secured by the Company's accounts receivable,
inventories, equipment and other intangibles. Borrowings under the term loan
portion of the credit facility bear interest at a rate equal to 0.5% in excess
of the prime rate. Borrowings under the revolving credit portion of the facility
bear interest at a rate equal 0.25% in excess of the prime rate. Under the
credit agreement, IPD and Deyco are required to maintain certain financial
ratios. IPD and Deyco were in compliance with all such ratios at April 30, 2002.

6.       EARNINGS PER SHARE

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

<Table>
<Caption>
                                                           Three Months Ended
                                                              April 30,
                                                            2002        2001
                                                           ------      ------
<S>                                                        <C>         <C>
       Basic weighted average number of common shares
       outstanding                                         18,255      17,257

       Effect of dilutive securities:
          Stock options and warrants                          176         127
                                                           ------      ------

       Diluted weighted average number of common shares
       outstanding                                         18,431      17,384
                                                           ======      ======
</Table>


                                       10
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7.       SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental information on interest and income taxes paid is as follows (in
thousands):

<Table>
<Caption>
           Three Months Ended April 30,     2002     2001
           ----------------------------     ----     ----
<S>                                         <C>      <C>
           Interest                         $848     $589

           Income Taxes                     $689     $ 53
</Table>

8.       SEGMENT FINANCIAL INFORMATION

Effective the quarter ended October 31, 2001, the Company's segment reporting
has been restructured based on the reporting of senior management to the Chief
Executive Officer. This restructuring combines the Company's business units in a
logical way that more easily identifies business concentrations and synergies
for both analysis of results and real-time control by management. The reportable
segments of the Company are in-store services, manufacturing and magazine
distribution. In-store services derives revenues from (1) providing information
and management services relating to retail magazine sales to U.S. and Canadian
retailers, magazine publishers, confectioners and vendors of gum and general
merchandise sold at checkout counters and (2) designing, manufacturing, shipping
and salvaging display racks used by retailers at checkout counters as well as at
other points of purchase throughout their stores. The manufacturing segment
derives revenues from designing, manufacturing and installing primarily wooden
store fixtures. The magazine distribution segment derives revenues from
distributing magazines to major book chains, independent retailers and secondary
wholesalers. Formerly, the segments were services, display rack and store
fixture manufacturing and magazine distribution. The accounting policies of the
segments are the same as those described in the Summary of Accounting Policies.
All intersegment sales during the quarters ended April 30, 2002 or 2001 have
been eliminated.

<Table>
<Caption>
(in thousands)                      In-Store                    Magazine
Three Months Ended April 30, 2002   Services   Manufacturing   Distribution   Consolidated
---------------------------------   --------   -------------   ------------   ------------
<S>                                 <C>        <C>             <C>            <C>

Revenue                              $13,364      $ 5,847         $47,102        $ 66,313
Cost of Revenue                        6,511        4,355          40,880          51,746
                                     -------      -------         -------        --------
Gross Profit                           6,853        1,492           6,222          14,567
Selling, General & Administrative      5,057          485           5,953          11,495
Operating Income (Loss)                1,796        1,007             269           3,072
Other Income (Expenses), net            (432)          (3)            149           (286)
                                     -------      -------         -------        --------
Income (Loss) Before Income Taxes      1,364        1,004             418           2,786
                                     -------      -------         -------        --------

Total Assets                         $98,836      $20,404         $33,037        $152,277
                                     =======      =======         =======        ========
</Table>


                                       11
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


<Table>
<Caption>
(in thousands)                      In-Store                    Magazine
Three Months Ended April 30, 2001   Services   Manufacturing   Distribution   Consolidated
---------------------------------   --------   -------------   ------------   ------------
<S>                                 <C>        <C>             <C>            <C>
Revenue                             $ 14,078      $ 4,179              --        $ 18,257
Cost of Revenue                        7,476        3,843              --          11,319
                                    --------      -------         -------        --------
Gross Profit                           6,602          336              --           6,938
Selling, General & Administrative      4,167          449              --           4,616
Amortization of Goodwill                 669           86              --             755
                                    --------      -------         -------        --------
Operating Income (Loss)                1,766         (199)             --           1,567
Other Income (Expenses), net           1,436            7              --           1,443
                                    --------      -------         -------        --------
Income Before Income Taxes             3,202         (192)             --           3,010
                                    --------      -------         -------        --------

Total Assets                        $140,065      $29,778              --        $169,843
                                    ========      =======         =======        ========
</Table>

9.       RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interest method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

The Company adopted SFAS 142 effective February 1, 2002 and is currently in the
process of implementation. On a preliminary basis, the Company has estimated
that there will be no impairment. The goodwill write-off, if any, will be
recorded as a one-time, non-cash charge in the second quarter of fiscal 2003,
and will be reflected as a cumulative effect of a change in accounting
principle. The charge, if any, will have no impact on our income from operations
or cash flows.


                                       12
<PAGE>


                                                SOURCE INTERLINK COMPANIES, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For comparative purposes, the following schedule is a reconciliation of reported
net income to adjusted net income for the three months ended April 30, 2001,
adjusted to exclude goodwill amortization, along with comparative information
for the three months ended April 30, 2002 (in thousands).

<Table>
<Caption>
Three Months Ended April 30,                        2002     2001
----------------------------                       ------   ------
<S>                                                <C>      <C>
Reported Net Income                                $1,598   $2,525
Add Back: Goodwill Amortization, net of tax            --      595
Adjusted Net Income                                 1,598    3,120
Reported Earnings Per Share - Basic and Diluted    $ 0.09   $ 0.15
Adjusted Earnings Per Share - Basic and Diluted    $ 0.09   $ 0.18
</Table>


                                       13
<PAGE>


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

SOME OF THE INFORMATION CONTAINED IN THIS FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. WHEN USED IN THIS
REPORT, THE WORDS "MAY," "WILL," "BELIEVES," "ANTICIPATES," "INTENDS,"
"EXPECTS," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. BECAUSE SUCH FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES, OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO: (i) OUR DEPENDENCE ON THE
MARKETING AND DISTRIBUTION STRATEGIES OF PUBLISHERS AND OTHER VENDORS; (ii) OUR
ABILITY TO ACCESS CHECKOUT AREA INFORMATION; (iii) RISKS ASSOCIATED WITH OUR
ADVANCE PAY PROGRAM, INCLUDING PROBLEMS COLLECTING INCENTIVE PAYMENTS FROM
PUBLISHERS; (iv) DEMAND FOR OUR DISPLAY RACKS AND STORE FIXTURES; (v) OUR
ABILITY TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY; (vi) COMPETITION; (vii)
OUR ABILITY TO EFFECTIVELY MANAGE OUR EXPANSION; (viii) GENERAL ECONOMIC AND
BUSINESS CONDITIONS NATIONALLY, IN OUR MARKETS AND IN OUR INDUSTRY; (ix) OUR
ABILITY TO MAINTAIN ADEQUATE FINANCING ON ACCEPTABLE TERMS SUFFICIENT TO ACHIEVE
OUR BUSINESS PLANS (x) OUR ABILITY TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES
WITH AND INTO OUR CORPORATE ORGANIZATION, AND (xi) OUR ABILITY TO ATTRACT AND/OR
RETAIN SKILLED MANAGEMENT. INVESTORS ARE ALSO DIRECTED TO CONSIDER OTHER RISKS
AND UNCERTAINTIES DISCUSSED IN OTHER REPORTS PREVIOUSLY AND SUBSEQUENTLY FILED
BY US WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

OVERVIEW

We are a leading provider of information and management services for retail
magazine sales to U.S. and Canadian retailers and magazine publishers. We are
also a leading manufacturer of display and store fixtures used by retailers. On
May 31, 2001, we acquired The Interlink Companies, Inc. ("Interlink") and its
operating companies, including International Periodical Distributors, Inc.
("IPD"), a distributor of magazines to bookstore chains, record stores, computer
stores and independent retailers, and David E. Young, Inc. ("Deyco"), a national
distributor to secondary wholesalers who supply magazines to independent
retailers and specialty chains. Interlink represents a new business segment,
magazine distribution. Through this strategic acquisition, we have become a
leading direct distributor of magazines to bookstore chains, computer stores and
independent retailers.

Through our information services, we provide sales data and product placement
and other related information in various user-friendly formats, including print,
CD-ROM and over the Internet. This information helps users to formulate
marketing, distribution and advertising plans and to react more quickly to
changing market conditions. Our information services cover over 10,000 magazine
titles and are provided to approximately 1,000 retail chains with approximately
80,000 stores and 400,000 checkout counters. We believe we maintain the most
comprehensive information database available for retail magazine sales and
magazine placement at checkout counters. We have expanded upon our experience
with retail magazine sales to provide similar information and services to
confectioners and vendors of general merchandise sold at checkout counters.

We assist retailers in increasing sales and incentive payment revenues by
reconfiguring and designing front-end display fixtures, supervising
installation, selecting products and negotiating, billing and collecting
incentive payments from vendors. Historically, as part of our services, we
arranged for the manufacture of display fixtures for many of our customers.
Since January 1999, we acquired five display fixture manufacturers.
Manufacturing display fixtures in our own facilities allows us to be a
full-service provider of management services for the checkout area, or
"front-end," of a customer's store. We also can integrate the design and
manufacturing processes with our clients' merchandising strategies and better
manage the timing of display fixture delivery and installation.

The Company's segment reporting has been restructured based on the reporting of
senior management to the Chief Executive Officer. This restructuring combines
the Company's business units in a logical way that more easily identifies
business concentrations and synergies for both analysis of results and real-time
control by management. The reportable segments of the Company are in-store
services, manufacturing and magazine distribution.

We believe that we are well positioned to use our existing relationships with
retailers and vendors to cross-sell our products and services.


                                       14
<PAGE>


INDUSTRY OVERVIEW

In-Store Services and Manufacturing

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

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

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

Our in-store service segment and manufacturing segment also operate in the
in-store development industry which is comprised of suppliers who offer products
and services to retailers for the build-out of their store interiors and
suppliers of products and services related to the promotion and display of
merchandise that is offered to consumer products manufacturers.

Magazine Distribution

According to industry statistics, the newsstand magazine sales industry totals
approximately $4.4 billion in retail sales.

The distribution of magazines is generally described on the following levels:

Publishers: Publishers range from large, well-financed publishers of high volume
periodicals and books to independent publishers of low circulation specialty
titles.

National Distributors: National distributors represent publishers in
distributing their products nationwide to Local Distributors, who in turn
deliver the product to a wide variety of classes of trade, including major
retail chains, superstores, computer stores, specialty retailers and independent
retailers. National distributors do not physically handle product, but rather
direct and bill product to the local distributors on behalf of their publisher
clients.

Local Distributors: Local distributors, also referred to as "Wholesalers", take
physical delivery of publications, warehouse them, deliver them to retail
outlets, service magazine displays and initiate the returns process. They are
billed by National Distributors, and, in turn, invoice the retailer. There are
currently three types of Local Distributors, or Wholesalers, within the magazine
industry:

         Primary Wholesalers: Primary wholesalers generally service the stores
         of national and regional retail chains including transportation
         outlets, supermarkets, convenience food stores, and drug stores. This
         class of trade is also commonly referred to as Traditional Retailers.
         Although there are currently only four major primary wholesaler
         companies, they continue to operate from several hundred local
         distribution points.

         Secondary Wholesalers: There are hundreds of secondary wholesalers in
         the United States. Secondary wholesalers generally handle special
         interest magazines, and distribute to smaller retail chains and
         independents. Deyco is a national distributor who primarily represents
         publishers to this group of wholesalers.

         Specialty Distributors: This is the newest class of distributors; these
         are the principal suppliers to the rapidly developing "Specialty
         Market", which consists of bookstores, record stores and other niche
         oriented classes of


                                       15
<PAGE>


         trade such as crafts and hardware. This segment has recently developed
         into a significant component of newsstand sales within the last five
         years. While Specialty Distributors are billed by national
         distributors, invoice retailers, and warehouse product, they
         fundamentally differ from the primary and secondary wholesalers in
         other regards. Rather than delivering product via company owned trucks
         and labor, they outsource the actual delivery of product to a third
         party carrier. This enables these companies to supply retail locations
         throughout, and even beyond, the United States from only a handful, as
         opposed to hundreds, of locations. Specialty distributors also differ
         in that because they do not actually deliver the product to their
         retail customers with their own labor force, they lack the capability
         to physically service the fixtures within their retailers' stores. This
         is generally acceptable to these types of retailers as they are able to
         adequately service the display fixtures with their own in-store labor.
         IPD is an example of a Specialty Distributor.

Historically, Local Distributors were comprised of a geographically specific
series of local family-owned "monopolies". In 1995, the historical structure was
disrupted when the traditional major retailers began bidding out their magazine
business to a single distribution company nationwide. This resulted in the
consolidation to create what is currently recognized as the four Primary
Wholesalers. While Secondary Wholesalers have always existed, the Primary
Wholesalers' concentration and focus upon the major Traditional retail chains
have afforded these Secondary Wholesalers new opportunities with the smaller
retailer chains and independents. In many instances Secondary wholesalers are
solicited by some of the tens of thousands of smaller retailers whose
distribution from the Primary Wholesalers has been discontinued.

In contrast, much of the Specialty Market's emergence has occurred since 1995,
and because they were able to employ the Specialty Distributors as their
preferred alternative, they are the only retail class of trade to not have been
greatly affected by the Primary Wholesalers' consolidation.

This consolidation continues to affect all other distribution channels of the
publishing industry, limiting the business prospects for distributors that
cannot provide the geographic reach or level of service required by customers.
As a result, periodical wholesaling is being transformed from a low-cost,
low-risk, local or regional industry into an industry that is more capital
intensive, more reliant on technology and in many instances national in scope.

BUSINESS SEGMENTS

Our claims submission services for magazine retailers were established over 20
years ago. Our experience in providing these services is the foundation for our
other services. Set forth below are descriptions of our services and products in
each of our segments: in-store services (26.9% of our fiscal 2002 revenues)
manufacturing (7.5% of our fiscal 2002 revenues), and magazine distribution
(65.6% of our fiscal 2002 revenues). See Note 8 in our "Notes to Consolidated
Financial Statements" for certain financial information of each of our segments.

In-Store Services

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

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

Retailer customers who use our traditional claim submission program include
Fleming, Southland 7-Eleven and Walgreens.

Advance Pay Program. As an extension of our claim submission program, we have
established our Advance Pay Program for magazine sales. Under this program, we
advance to participating retailers a negotiated fixed percentage of the total
quarterly incentive payments and pocket rental fees otherwise due the retailer.
We generally make these payments within 90


                                       16
<PAGE>


days after the end of the quarter. We then collect the payments for our own
account. This service provides the retailer with improved cash flow and relief
from the burdensome administrative task of processing a large number of small
checks from publishers. Payments collected from publishers under the Advance Pay
Program as a percentage of all incentive payments collected from publishers grew
from 32.6% during fiscal 2000 to 47.4% during fiscal 2001 to 50.4% during fiscal
2002.

Our payments to the retailer precede our collections from the publisher. In
order to make these payments to retailers, we use funds generated from
operations and funds borrowed under our revolving credit facility. We generally
assume the risk of uncollectibility of the incentive and pocket rental payments.

Customers of our Advance Pay Program include A&P, Ahold USA, Food Lion, Kmart,
Target and W.H. Smith.

ICN, PIN and Store Level Data. In response to the business communications
opportunities presented by the internet, we have developed our ICN website. The
ICN website enables subscribing magazine publishers to access information
regarding pricing, new titles, discontinued titles and display fixture
configuration changes on a chain-by-chain basis. This information is important
to publishers because discontinuation and placement of their titles on the
display fixture can have a significant impact on sales. We believe that, prior
to ICN, publishers could not react as quickly to these changes. Publishers also
can use ICN to promote special incentives and advertise and display special
editions, new publications and upcoming covers, all of which can increase their
sales. We have an agreement with Barnes & Noble, Inc. to jointly offer their
store-by-store daily sales data to magazine publishers. We also have agreements
with AC Nielsen, the world's leading market research firm, and Efficient Market
Services ("EMS"), a privately held consumer-information company, to market and
sell store-level point-of-sale data. We believe the more timely, store-by-store
information has increased the attractiveness of our ICN website to publishers.

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

The ICN website is configured so that publishers cannot access the strategically
sensitive information of other publishers and retailers. Retailers and
publishers can also exchange information and conduct transactions on the
Internet site without compromising their sensitive, proprietary information.

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

Store Level Data provides publishers with daily insight into magazine sales
performance and information regarding their own titles' performance compared to
their competitors' sales performance on a daily, weekly or issue basis store by
store.

We receive annual fees, paid quarterly or monthly, from each publisher and
general merchandiser that subscribes to ICN, PIN or Store Level Data. For a fee,
publishers may advertise and run promotions and special programs on ICN. We have
approximately 150 retailer subscribers, including Ames Department Stores,
Eckerd, Kmart, Southland 7-Eleven, W.H. Smith and Wegman's Food Markets, and
approximately 20 publishers, including Comag, Murdoch Magazines, Time
Distribution Services and Times Mirror.

Front-End Management. We help retailers to increase sales and incentive payment
revenues by reconfiguring and designing front-end display fixtures, supervising
fixture installation, selecting products and negotiating, billing and collecting
incentive payments from vendors. We also help our retailer clients to develop
specialized marketing and promotional programs, which may include, for example,
special mainline or checkout displays and cross-promotions of magazines and
products of interest to the readers of these magazines.

Front-End and Point-of-Purchase Displays. We design, manufacture, deliver and
dispose of custom front-end and point-of-purchase displays for both retail store
chains and product manufacturers, including Kmart, Food Lion, Kroger, Target,
Home Depot and Hershey Food Corporation. For many of our retail store accounts,
we also invoice vendors for fixture costs and coordinate the collection of
payments on these invoices. We believe that manufacturing display fixtures
increases our access


                                       17
<PAGE>


to information about sales of magazines and other products from retail checkout
areas, which enhances our ability to provide PIN and ICN.

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

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

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

Manufacturing

In September 1999, we acquired Huck, a major manufacturer and supplier of custom
wood displays and fixtures to national retailers. Also, in September, we
acquired Arrowood, another manufacturer of wooden display fixtures. These
acquisitions enable us to meet demands for customized wooden display fixtures
from our major retail customers. This strategic broadening of our base business
provides access to new markets, solidifies existing relationships, and further
strengthens our leading position as the front-end one-stop shop for retailers.

Current customers for wooden store fixtures include bookstore chains, discount
stores, department stores, convenience stores, pizza delivery stores and other
niche retailers. Our fixtures are primarily made from wood veneers or laminated
wood. Other raw materials used include paints and varnishes and hardware such as
hinges, drawer slides, aluminum and other metals to support and assemble the
wood product. Our production process includes cutting, machining, assembly and
finish. Virtually all product is shipped assembled ready to place in service at
a retailer's store.

All wooden store fixtures are custom made and as such we do not manufacture
product without a customer commitment for the product. Engineering and design
teams work closely with retailers to create product to meet specific
requirements. The process includes use of computer assisted drawings ("CAD") and
"photo rendering" that allow a retailer to see an image of the product from
various angles and make changes. Once the CAD drawing is finalized, a prototype
is typically manufactured for approval prior to large scale manufacturing.
Products we make for retailers are check out counters, service desks, fitting
rooms, customized room kits, bookshelves, magazine racks and other merchandise
display fixtures.

To meet seasonal demands for product, customers will typically provide
commitments well in advance of needing the product in its stores so that enough
product is available for shipment when needed. As such, our inventory levels
increase during seasonal periods when customers are not opening or remodeling
stores, typically November through April. Inventory levels decrease during
periods when the majority of store openings and remodelings occur, typically
July through October.


                                       18
<PAGE>


Magazine Distribution

On May 31, 2001, we acquired Interlink and its operating companies, including
IPD, a distributor of magazines to the Specialty Market, including bookstore
chains, record stores, computer stores and independent retailers, and Deyco, a
national distributor to the secondary wholesalers. This established our magazine
distribution segment.

Through our magazine distribution segment, we distribute approximately 5,000
titles for publishers and national distributors. IPD arranges for copies of each
issue to be shipped from the supplier to our seven geographically dispersed
distribution centers, at which point the magazine copies are repackaged for
shipment by third party carriers to approximately 7,000 retail outlets. In
contrast, Deyco arranges for shipments of magazines to be made directly by the
supplier to secondary magazine wholesalers located throughout the country.

Almost all magazines are distributed on a fully returnable basis. Within a
specified period, which could be as much as 180 days, after the publisher
specified off-sale date, the retailers and secondary distributors are entitled
to return to our magazine distribution segment all unsold copies for full credit
of the price payable by such customers. Periodically, we report to our suppliers
the amount of returns received and obtain full credit of the price we paid for
such copies.

Payment for delivered copies is made by our customers under a wide variety of
terms, which may include regular payments, net payment and delayed payment. We
endeavor to match the terms of payment received from our suppliers with the
terms of payment offered to our customers, and thereby reduce our working
capital requirements.

Deyco recognizes revenue from sales to wholesalers based on the on-sale date of
each periodical, net of provisions for estimated returns. IPD recognizes revenue
at the time of shipment to the retailer customer, net of estimated returns.
Retailer customers of IPD include Barnes & Noble, B. Dalton Booksellers,
Borders, Waldenbooks, Babbages, Hastings Book, Music & Video and Tower
Magazines/MTS, Inc.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities. On an ongoing basis, management evaluates its estimates, including
those that relate to magazine sales returns, magazine purchase returns, bad
debts, intangible assets, income tax contingencies, accruals and litigation.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions and
conditions. If actual results significantly differ from management's estimates,
the Company's financial condition and results of operations could be materially
impacted.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. The Company records a reduction in revenue for estimated
magazine sales returns and a reduction in cost of sales for estimated magazine
purchase returns. These estimates are based on historical sales returns,
historical purchase returns and other known factors. If the historical data the
Company uses to calculate these estimates does not properly reflect future
returns, revenue and/or cost of sales may be misstated.

The Company provides for potential uncollectible accounts receivable based on
customer specific information and historical collection experience. If market
conditions decline, actual collection experience may not meet expectations and
may result in increased bad debt expenses.

The carrying value of the Company's net deferred tax assets assumes that the
Company will be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions. If these estimates and
assumptions change in the future, the Company may be required to increase or
decrease valuation allowances against its deferred tax assets resulting in
additional income tax expenses or benefits.

In assessing the recoverability of the Company's goodwill and other intangible
assets, the Company must make estimates of expected future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
and their


                                       19
<PAGE>


related assumptions change in the future, the Company may be required to record
impairment charges. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, on February 1,
2002 and will be required to analyze its goodwill for impairment on an annual
basis. The Company does not expect to record any impairment charges as a result
of the adoption of this statement.

Deyco's costs of sales represents 8.7% of our total cost of sales and 12.3% of
our magazine distribution segment's cost of sales. Due to the complexities of
the many combinations and permutations of thousands of magazines and hundreds of
customers and publishers as well as the fact that payment for issues sold can
take up to a year and in some cases more to be finally settled, management
accrues a cost of sales for Deyco based on estimates derived from historical
analysis of product cost as a percent of sales. The basis of this estimate is
reviewed and updated on a regular basis. The cost accrual for each month's
billing is kept segregated in the general ledger and as payments are made, they
are charged to the same account. In this way management can track over time the
amount actually paid in settlement for a particular month's sales and
continuously hone the estimate. If the historical data the Company uses to
calculate these estimates does not properly reflect actual cost of sales, cost
of sales for Deyco may be misstated.

INTANGIBLES

Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily goodwill. With the
exception of goodwill these costs are being amortized over periods ranging from
1 to 28 years. In conjunction with our adoption of SFAS 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), we will evaluate our goodwill annually for
impairment, or earlier if indicators of potential impairment exist. See Note 4
to the Consolidated Condensed Financial Statements for a full discussion of our
implementation of SFAS 142.

LONG-LIVED ASSETS

Long-lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value.

RESULTS OF OPERATIONS

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

<Table>
<Caption>
                                                  THREE MONTHS ENDED
                                                       APRIL 30,
                                                  ------------------
                                                  2002          2001
                                                  -----        -----
<S>                                               <C>          <C>
  Revenues                                        100.0        100.0
  Cost of Revenues                                 78.0         62.0
                                                  -----        -----
      Gross Profit                                 22.0         38.0
  Selling, General and Administrative Expense      17.4         25.3
  Amortization of Goodwill                          -.-          4.1
                                                  -----        -----
      Operating Income                              4.6          8.6
  Interest Expense, Net                            (1.2)        (2.9)
  Other Income (Expense), Net                       0.8         10.8
                                                  -----        -----
  Income Before Income Taxes                        4.2         16.5
                                                  -----        -----
      Net Income                                    2.4%        13.8%
                                                  =====        =====
</Table>

QUARTER ENDED APRIL 30, 2002 COMPARED TO QUARTER ENDED APRIL 30, 2001

Revenues

Magazine Distribution. On May 31, 2001, we acquired Interlink. Results of
operations have been included in our consolidated financial statements since the
date of acquisition. Magazine distribution accounted for approximately 71.0% of
our revenues for the quarter ended April 30, 2002. There were no magazine
distribution revenues in the first quarter of fiscal 2002.


                                       20
<PAGE>


In-Store Services. In-store services accounted for approximately 20.2% (69.6%
excluding revenues from our newly acquired magazine distribution companies) and
77.1% of our revenues for the quarters ended April 30, 2002 and 2001,
respectively. In-store service revenues of $13.4 million in first quarter of
fiscal 2003 decreased $714,000 compared to the first quarter of fiscal 2002
primarily as a result of the inclusion in the first quarter of the prior year of
claims submission revenue from IPD, a company subsequently acquired by us.

Manufacturing. Manufacturing accounted for approximately 8.8% (30.4% excluding
revenues from our newly acquired magazine distribution companies) and 22.9% of
our revenues for the quarters ended April 30, 2002 and 2001, respectively.
Revenues of $5.8 million in the first quarter of fiscal 2003 increased $1.7
million compared to the first quarter of fiscal 2002. This increase resulted
from a major customer undertaking more store openings compared to the first
quarter of the prior year. We anticipate that this major customer will continue
to open new stores throughout the next year.

Gross Profit

Magazine Distribution. Gross profit was $6.2 million with a gross margin of
13.2%. We did not distribute magazines during the first quarter of fiscal 2002.

In-Store Services. Gross profit increased $251,000 compared to the first quarter
of fiscal 2002. The gross margin increased slightly from 46.9% to 51.3%. This
improvement was partially due to the fixed cost components of the cost of
revenue which do not increase with increased volume. More importantly, however,
was that we were able to produce more volume with approximately the same amount
of labor dollars. We attribute this to the efforts of our employees and to the
management of our production facilities. Further, we believe that an indiscrete
portion of our gross margin is related to our ability, which is enhanced by our
information products, to attract and retain good customers.

Manufacturing. Gross profit increased $1.2 million compared to the first quarter
of fiscal 2002. The gross margin also increased from 8.0% to 25.5% primarily due
to efficiencies realized as a result of higher production levels.

Selling, General and Administrative Expense ("SG&A")

Magazine Distribution. SG&A expenses were $6.0 million or 12.6% of revenues. We
did not distribute magazines during the first quarter of fiscal 2002.

In-Store Services. SG&A expenses increased from $4.2 million during the quarter
ended April 30, 2001 to $5.1 million during the quarter ended April 30, 2002.
During the quarter ended April 30, 2002, we incurred approximately $300,000 in
expenses related to the consolidation of our offices to Bonita Springs, Florida
which began in December 2001 and is expected to be completed within the next 12
to 15 months. The remaining increase is made up primarily of increases in
payroll, marketing expenses and professional fees, including accounting, legal,
public relations and consulting. As a result, SG&A as a percentage of revenues
increased from 29.6% for the three months ended April 30, 2001 to 37.8% for the
three months ended April 30, 2002.

Manufacturing. SG&A expenses were flat compared to the corresponding quarter of
the prior year. Such expenses associated with the manufacturing segment are
essentially fixed in that they do not vary directly with the volume of
production.

Interest Expense. Interest expense for the quarter ended April 30, 2002
increased $228,000 compared to the quarter ended April 30, 2001 principally due
to the borrowings of the newly acquired magazine distribution companies. A
significant portion of such borrowings were used to acquire the magazine
distribution companies.

Other Income (Expense). Other income of our in-store services segment included
approximately $2.1 million in life insurance proceeds during the quarter ended
April 30, 2001. Other income of our magazine distribution segment included
approximately $500,000 in charges to a third party for processing magazine
returns during the quarter ended April 30, 2002.

Income Tax Expense. The effective income tax rates for the quarters ended April
30, 2002 and 2001 were 42.6% and 16.1%, respectively. The effective income tax
rate for the quarter ended April 30, 2001 varied significantly from the federal
statutory rate due to the non-taxable life insurance proceeds received during
the quarter. Both the rate for the quarter ended April 30, 2002, as well as the
rate for the quarter ended April 30, 2001, varied from the federal statutory
rate due to state income taxes and


                                       21
<PAGE>


expenses not deductible for income tax purposes. These non-deductible expenses
include goodwill amortization, meals and entertainment and officers' life
insurance premiums.

LIQUIDITY AND CAPITAL RESOURCES

Our primary cash requirements for the in-store services segment are for funding
the Advance Pay Program, for purchasing materials and the cost of labor incurred
in the provision of the in-store services. Our primary cash requirements for the
manufacturing segment are for purchasing materials and the cost of labor
incurred in the manufacturing process. Our primary cash requirements for the
magazine distribution segment are for the cost of the periodicals and for
meeting general working capital requirements. Historically, we have financed our
business activities through cash flows from operations, borrowings under
available lines of credit and through the issuance of equity securities.

During the three months ended April 30, 2002, we advanced approximately $19.6
million under the Advance Pay Program. During fiscal 2002, 2001 and 2000, we
advanced approximately $81.5 million, $84.8 million and $68.9 million,
respectively, under the Advance Pay Program. During the three months ended April
30, 2002, the Program was funded by borrowings under the revolving credit
facility and cash flows from operations. Collections under the Advance Pay
Program are used to pay down any outstanding balance under the credit facility.
Thus, the credit facility is primarily used to manage the timing of payments and
collections under the Advance Pay Program. Growth of the Advance Pay Program
will be monitored and controlled to ensure that funding will be available either
through cash provided by operations or borrowings under our credit facility.

Net cash provided by operating activities of $4.4 million for the three months
ended April 30, 2002 was primarily from net income and the decrease in accounts
receivable and inventories offset by a decrease in accounts payable and accrued
expenses. The average collection period for the twelve months ended April 30,
2002 was 146 days, 126 days and 41 days for the in-store services segment, the
manufacturing segment and the magazine distribution segment, respectively (all
considered to be within an acceptable range by management based on the nature of
our business and historical experience). Net cash provided by operating
activities of $3.0 million for the three months ended April 30, 2001 was
primarily from net income, non cash items of depreciation and amortization and
the increase in amounts due retailers offset by increases in accounts receivable
and other assets.

Net cash used in investing activities was $0.7 million for the three months
ended April 30, 2002 and $11.1 million for the three months ended April 30,
2001. The primary use of cash during the quarter ended April 30, 2001 was for
the investment in Interlink. Net cash used in financing activities was $3.6
million in the three months ended April 30, 2002 compared to net cash provided
by financing activities of $8.6 million in the three months ended April 30,
2001.

At April 30, 2002, we anticipate capital expenditures during the remainder of
fiscal 2003 of approximately $1.8 million of which approximately $1.1 million is
allocated to company-wide upgrades and maintenance of computers, software and
telecom equipment and approximately $700,000 is allocated to manufacturing plant
equipment upgrades and maintenance.

During fiscal 2003, we are undertaking the first phase of a consolidation of
company-wide administrative offices to new worldwide headquarters in Bonita
Springs, Florida. At April 30, 2002, we anticipate additional capital
expenditure relating to the move of approximately $1.7 million allocated to
furniture, leasehold improvements, computer equipment, and telecom equipment at
the new headquarters.

At April 30, 2002, our total long-term debt obligations were approximately $50.3
million. In December 1999, we entered into an unsecured credit agreement with
Bank of America, N.A. which provides for a $46.0 million revolving credit
facility. The revolving credit facility bears interest at a rate equal to the
London Interbank Offered Rate ("LIBOR") plus a percentage ranging from 1.0% to
2.1% depending on our ratio of funded debt to earnings before interest, taxes,
depreciation and amortization and carries a facility fee of 1/4% per annum on
the difference between $25 million and the average principal amount outstanding
under the loan (if less than $25 million) plus 3/8% per annum of the difference
between the maximum amount of the loan and the greater of (i) $25 million or
(ii) the average principal amount outstanding under this loan. The availability
at April 30, 2002 on the revolving credit facility was approximately $16.6
million.

Under the credit agreement, we are subject to various financial and operating
covenants. These include (i) requirements that we satisfy various financial
ratios and (ii) limitations on the payment of cash dividends or other
distributions on capital stock or payments in connection with the purchase,
redemption, retirement or acquisition of capital stock.


                                       22
<PAGE>


Under the credit agreement, we are required to maintain certain financial
ratios. We were in compliance with all such ratios at April 30, 2002 other than
ratios driven by earnings before interest, taxes, depreciation and amortization
("EBITDA").

The existing revolving credit facility terminates on December 31, 2002. We are
currently in the process of negotiating an extension with Bank of America
including modifications to the agreement that would ease the financial
covenants. We have received from Bank of America a proposed term sheet which
indicates that we will be required to offer collateral and accept a rate
increase. In addition to negotiating an extension with Bank of America, we
continue to examine opportunities with other banks, one of which has provided a
proposed term sheet, not a commitment, which is subject to the completion of due
diligence with results satisfactory to the bank.

In connection with the acquisition of MYCO, Inc., the Company assumed MYCO's
Industrial Revenue Bonds (IRB). On January 30, 1995, the City of Rockford issued
$4.0 million of its Industrial Project Revenue Bonds, Series 1995, and the
proceeds were deposited with the Amalgamated Bank of Chicago, as trustee. Bank
of America, N.A. ("the Bank") has issued an unsecured letter of credit for $4.1
million in connection with the IRB with an initial expiration date of April 20,
2001. As provided in the reimbursement agreement, the expiration date shall
automatically extend for successive additional periods of one calendar month
until the twentieth day of the thirteenth month following receipt of a notice of
non-extension from the Bank. To date, no such notice of non-extension has been
received and management does not expect such notice to be given by the Bank in
the foreseeable future. The bonds are secured by the trustee's indenture and the
$4.1 million letter of credit. The bonds bear interest at a variable weekly rate
(approximately 80% of the Treasury Rate) not to exceed 15% per annum. The bonds
mature on January 1, 2030. Fees related to the letter of credit are .75% per
annum of the outstanding bond principal plus accrued interest.

On February 22, 2001, IPD and Deyco (now our wholly-owned subsidiaries) entered
into a credit agreement with Congress Financial Corporation ("Congress"). The
credit agreement includes a $4,000,000 term loan which was repaid in May, 2002,
as well as a revolving credit facility secured by IPD and Deyco's accounts
receivable. Borrowings under the term loan portion of the credit facility bear
interest at a rate equal to 0.5% in excess of the prime rate. Borrowings under
the revolving credit portion of the facility bear interest at a rate equal to
0.25% in excess of the prime rate. Under the credit agreement, IPD and Deyco are
required to maintain certain financial ratios. IPD and Deyco were in compliance
with all such ratios at April 30, 2002.

We believe that our cash flow from operations together with our revolving credit
facilities will be sufficient to fund our working capital needs and capital
expenditures for the foreseeable future.

NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

We adopted SFAS 142 effective February 1, 2002 and are currently in the process
of implementation. On a preliminary basis, we have estimated that there will be
no impairment. The goodwill write-off, if any, will be recorded as a one-time,
non-cash charge in the second quarter of fiscal 2003, and will be reflected as a
cumulative effect of a change in accounting principle. The charge, if any, will
have no impact on our income from operations or cash flows.


                                       23
<PAGE>


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risks include fluctuations in interest rates and exchange
rate variability. Our debt relates primarily to credit facilities with Bank of
America, N.A. and IPD and Deyco's facility with Congress Financial Corporation.
The credit facility with Bank of America is a three-year credit agreement with
an outstanding principal balance of approximately $29.4 million as of April 30,
2002. Interest on the outstanding balance is charged based on a variable
interest rate related to LIBOR plus a margin specified in the credit agreement.
The credit facility with Congress includes a $4.0 million term loan, which was
repaid in May, 2002, as well as a revolving credit facility secured by IPD and
Deyco's accounts receivable, inventories, equipment and other intangibles. The
outstanding principal balance under the term loan at April 30, 2002 is
approximately $1.1 million. The revolving credit facility had an outstanding
principal balance of approximately $12.5 million at April 30, 2002. Borrowings
under the term loan portion of the credit facility bear interest at a rate equal
to 0.5% in excess of the prime rate. Borrowings under the revolving credit
portion of the facility bear interest at a rate equal to 0.25% in excess of the
prime rate. Interest on the outstanding balances is subject to market risk in
the form of fluctuations in interest rates.

In order to better manage its exposure to interest rate risk, in February 2001
we entered into an interest rate swap agreement. The swap agreement, with a
notional amount of $15.0 million converts the floating interest rate on the Bank
of America credit facility to a fixed rate. At April 30, 2002 the fair value of
the swap is not material and is recorded in accrued expenses.

We also conduct operations in Canada. For the three months ended April 30, 2002,
approximately 1.2% of our revenues were earned in Canada and collected in local
currency. In addition, we generally pay operating expenses in the corresponding
local currency and will be subject to increased risk for exchange rate
fluctuations between such local currency and the dollar. We do not conduct any
significant hedging activities.


                                       24
<PAGE>


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Not Applicable

ITEM 2.  CHANGES IN SECURITIES

         Not Applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

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

         There were no matters submitted to a vote of security holders in the
quarter ended April 30, 2002.

ITEM 5.  OTHER INFORMATION

         Not Applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (b) The were no Current Reports on Form 8-K filed during the quarter
ended April 30, 2002.


                                       25
<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.

                                               SOURCE INTERLINK COMPANIES, INC.


Date:  June 14, 2002                           /s/ W. BRIAN RODGERS
                                               --------------------
                                               W. Brian Rodgers
                                               Chief Financial Officer