##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2002

Commission file number 1-13293

The Hillman Companies, Inc. (formerly SunSource, Inc.)

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 23-2874736                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|10590 Hamilton Avenue
Cincinnati, Ohio                         |  | 45231                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (513) 851-4900

Securities registered pursuant to Section 12(b) of the Act:

|                                                                                                   |  |                                          
|-------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of Class                                                                                     |  | Name of Each Exchange on Which Registered
|                                                                                                   |  |                                          
|11.6% Junior Subordinated Debentures
Preferred Securities Guaranty
Preferred Share Purchase Rights |  | None                                     

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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           NO  X

On May 14, 2002 there were 7,138,665 Common Shares issued and outstanding by
the Registrant and 4,217,724 Trust Preferred Securities issued and outstanding
by the Hillman Group Capital Trust (formerly SunSource Capital Trust). The
Trust Preferred Securities trade on the American Stock Exchange.

Page 1 of 20





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THE HILLMAN COMPANIES, INC.

INDEX

|                                                          |                                                                                                      |         |    |       | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------- | -- | ----- | 
|PART I. FINANCIAL INFORMATION                             |                                                                                                      | PAGE(S)
|Item 1. Consolidated Financial Statements                 |                                                                                                      |         |    |      
|                                                          | Consolidated Balance Sheets as of March 31, 2002
(Unaudited) and December 31, 2001                   |         |    | 3     | 
|                                                          | Consolidated Statements of Operations for
the Three Months ended March 31, 2002 and 2001
(Unaudited) |         |    | 4     | 
|                                                          | Consolidated Statements of Cash Flows
for the Three Months ended March 31, 2002 and 2001
(Unaudited) |         |    | 5     | 
|                                                          | Notes to Consolidated Financial Statements
(Unaudited)                                               |         |    | 6-11  | 
|Item 2. Managements Discussion and Analysis of Financial |                                                                                                      |         |    |      
|                                                          | Condition and Results of Operations                                                                  |         |    | 12-18 | 
|Item 3.
Quantitative and Qualitative                      |                                                                                                      |         |    |      
|                                                          | Disclosures
About Market Risk                                                                        |         |    | 18    | 
|PART II. OTHER INFORMATION                                |                                                                                                      |         | 19 |      
|SIGNATURES                                                |                                                                                                      |         | 20 |      

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |              |        |         |  | 
|----------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---------------------- | ------------------------------------------ | ------------------------------------ | ------ | --------- | ------- | ------------ | ------ | ------- |  | 
|                                                                                          |                                                                                        |                        |                                            |                                      |        | March 31, |         |              |        |        
|                                                                                          |                                                                                        |                        |                                            |                                      |        | 2002      |         | December 31,
|ASSETS                                                                                    |                                                                                        | (Unaudited)            |                                            | 2001                                
|                                                                                          |                                                                                        |                        |                                            |                                     
|Current assets:                                                                           |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          | Cash and cash equivalents                                                              |                        | $                                          | 1,652                                |        |           | $       | 2,059        |       
|                                                                                          | Restricted investments                                                                 |                        |                                            | 1,142                                |        |           |         | 1,187        |       
|                                                                                          | Accounts receivable, net                                                               |                        |                                            | 34,998                               |        |           |         | 28,399       |       
|                                                                                          | Inventories                                                                            |                        |                                            | 48,624                               |        |           |         | 49,937       |       
|                                                                                          | Deferred income taxes                                                                  |                        |                                            | 9,136                                |        |           |         | 9,136        |       
|                                                                                          | Other current assets                                                                   |                        |                                            | 5,786                                |        |           |         | 5,868        |       
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total current assets                       |                                      |        | 101,338   |         |              |        | 96,586  | 
|Property and equipment, net                                                               |                                                                                        |                        | 54,802                                     |                                      |        |           | 55,285  |             
|Goodwill
and other intangibles, net                                                       |                                                                                        |                        | 132,767                                    |                                      |        |           | 133,138 |             
|Deferred income taxes                                                                     |                                                                                        |                        | 26,138                                     |                                      |        |           | 25,443  |             
|Restricted investments                                                                    |                                                                                        |                        | 6,331                                      |                                      |        |           | 7,462   |             
|Other investments                                                                         |                                                                                        |                        | 16,357                                     |                                      |        |           | 16,185  |             
|Deferred financing fees                                                                   |                                                                                        |                        | 5,540                                      |                                      |        |           | 5,536   |             
|Other assets                                                                              |                                                                                        |                        | 4,711                                      |                                      |        |           | 4,929   |             
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total assets                               |                                      | $      | 347,984   |         |              | $      | 344,564 | 
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |        |           |         |              |        |         |  | 
|Current liabilities:                                                                      |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          | Accounts payable                                                                       |                        | $                                          | 19,680                               |        |           | $       | 17,124       |       
|                                                                                          | Current portion of senior term loans                                                   |                        |                                            | 4,125                                |        |           |         | 3,813        |       
|                                                                                          | Current portion of capitalized lease obligations                                       |                        |                                            | 56                                   |        |           |         | 74           |       
|                                                                                          | Deferred income tax liability                                                          |                        |                                            | 31                                   |        |           |         | 31           |       
|                                                                                          | Accrued expenses:                                                                      |                        |                                            |                                      |        |           |         |              |       
|                                                                                          |                                                                                        | Salaries and wages     |                                            |                                      | 2,091  |           |         |              | 5,337  |        
|                                                                                          |                                                                                        | Income and other taxes |                                            |                                      | 1,884  |           |         |              | 2,014  |        
|                                                                                          |                                                                                        | Deferred compensation  |                                            |                                      | 1,142  |           |         |              | 1,187  |        
|                                                                                          |                                                                                        | Other accrued expenses |                                            |                                      | 15,869 |           |         |              | 15,427 |        
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total current liabilities                  |                                      |        | 44,878    |         |              |        | 45,007  | 
|Long term senior term loans                                                               |                                                                                        |                        | 49,125                                     |                                      |        |           | 50,312  |             
|Bank revolving credit                                                                     |                                                                                        |                        | 41,177                                     |                                      |        |           | 34,052  |             
|Long term capitalized lease obligations                                                   |                                                                                        |                        | 236                                        |                                      |        |           | 248     |             
|Long term unsecured subordinated notes                                                    |                                                                                        |                        | 40,703                                     |                                      |        |           | 40,240  |             
|Deferred compensation                                                                     |                                                                                        |                        | 6,331                                      |                                      |        |           | 7,462   |             
|Deferred income tax liability                                                             |                                                                                        |                        | 4,603                                      |                                      |        |           | 4,603   |             
|Other non-current liabilities                                                             |                                                                                        |                        | 6,642                                      |                                      |        |           | 7,122   |             
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total liabilities                          |                                      |        | 193,695   |         |              |        | 189,046 | 
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|Guaranteed preferred beneficial interests in the
Companys junior subordinated debentures |                                                                                        |                        | 102,137                                    |                                      |        |           | 102,104 |             
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|Commitments and contingencies                                                             |                                                                                        |                        |                                            |                                      |        |           |         |             
|Stockholders equity:                                                                     |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          | Preferred stock, $.01 par, 1,000,000 shares
authorized, none outstanding               |                        |                                            |                                      |        |           |         |             |       
|                                                                                          | Common stock, $.01 par, 20,000,000 shares authorized,
7,138,665 issued and outstanding |                        |                                            | 71                                   |        |           |         | 71           |       
|                                                                                          | Additional paid-in capital                                                             |                        |                                            | 56,252                               |        |           |         | 56,252       |       
|                                                                                          | Accumulated deficit                                                                    |                        |                                            | (4,171                               | )      |           |         | (2,909       | )     
|                                                                                          | Accumulated other comprehensive income                                                 |                        |                                            |                                     |        |           |         |             |       
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total stockholders equity                 |                                      |        | 52,152    |         |              |        | 53,414  | 
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             
|                                                                                          |                                                                                        |                        | Total liabilities and stockholders equity |                                      | $      | 347,984   |         |              | $      | 344,564 | 
|                                                                                          |                                                                                        |                        |                                            |                                      |        |           |         |             

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED,
(dollars in thousands)

|                                                           |                                              |                                |        |           |        |             |         |        |        |  
|---------------------------------------------------------- | -------------------------------------------- | ------------------------------ | ------ | --------- | ------ | ----------- | ------- | ------ | ------ | -
|                                                           |                                              |                                |        | Successor |        | Predecessor
|                                                           |                                              |                                |        |           |        |            
|                                                           |                                              |                                |        | March 31, |        | March 31,  
|                                                           |                                              |                                |        | 2002      |        | 2001       
|                                                           |                                              |                                |        |           |        |            
|Net sales                                                  |                                              | $                              | 63,425 |           |        | $           | 109,929 |       
|Cost of sales                                              |                                              |                                | 28,475 |           |        |             | 64,960  |       
|                                                           |                                              |                                |        |           |        |             |         |       
|                                                           |                                              | Gross profit                   |        |           | 34,950 |             |         |        | 44,969 |  
|                                                           |                                              |                                |        |           |        |             |         |       
|Operating expenses:                                        |                                              |                                |        |           |        |             |         |       
|                                                           | Selling, general and administrative expenses |                                |        | 26,549    |        |             |         | 37,700 |       
|                                                           | Depreciation                                 |                                |        | 3,083     |        |             |         | 3,045  |       
|                                                           | Amortization                                 |                                |        | 370       |        |             |         | 903    |       
|                                                           |                                              |                                |        |           |        |             |         |       
|                                                           |                                              | Total operating expenses       |        |           | 30,002 |             |         |        | 41,648 |  
|                                                           |                                              |                                |        |           |        |             |         |       
|Management fee expense                                     |                                              |                                | (450   | )         |        |             |        |       
|Other income (expense)                                     |                                              |                                | 52     |           |        |             | (369    | )     
|                                                           |                                              |                                |        |           |        |             |         |       
|                                                           |                                              | Income from operations         |        |           | 4,550  |             |         |        | 2,952  |  
|Interest expense, net                                      |                                              |                                | 3,450  |           |        |             | 3,215   |       
|Distributions on guaranteed preferred
beneficial interests |                                              |                                | 3,057  |           |        |             | 3,058   |       
|Equity in earnings of affiliate (Note 2)                   |                                              |                                |       |           |        |             | 501     |       
|                                                           |                                              |                                |        |           |        |             |         |       
|                                                           |                                              | Loss
before income tax benefit |        |           | (1,957 | )           |         |        | (2,820 | )
|Income tax benefit                                         |                                              |                                | (695   | )         |        |             | (191    | )     
|                                                           |                                              |                                |        |           |        |             |         |       
|                                                           |                                              | Net loss                       |        | $         | (1,262 | )           |         | $      | (2,629 | )
|                                                           |                                              |                                |        |           |        |             |         |       

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED,
(dollars in thousands)

|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |             |        |       |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | --------- | ------ | ----------- | ------ | ----- | ------ | -
|                                                 |                                                                              |                                           |                                     |                                       |        | Successor |        | Predecessor
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 |                                                                              |                                           |                                     |                                       |        | March 31, |        | March 31,  
|                                                 |                                                                              |                                           |                                     |                                       |        | 2002      |        | 2001       
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|Cash flows from operating activities:            |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 | Net loss                                                                     |                                           | $                                   | (1,262                                | )      |           | $      | (2,629      | )     
|                                                 | Adjustments to reconcile net loss to net cash
used for operating activities: |                                           |                                     |                                       |        |           |        |             |       
|                                                 |                                                                              |                                           | Depreciation and amortization       |                                       |        | 3,453     |        |             |        | 3,948 |       
|                                                 |                                                                              |                                           | Equity in earnings of affiliate     |                                       |        |          |        |             |        | (501  | )     
|                                                 |                                                                              |                                           | Deferred income tax benefit         |                                       |        | (695      | )      |             |        | (356  | )     
|                                                 |                                                                              |                                           | Changes in current operating items: |                                       |        |           |        |             |        |       |       
|                                                 |                                                                              |                                           |                                     | Increase in accounts receivable       |        |           | (6,599 | )           |        |       | (6,662 | )
|                                                 |                                                                              |                                           |                                     | Decrease in inventories               |        |           | 1,313  |             |        |       | 419    |  
|                                                 |                                                                              |                                           |                                     | Decrease in income taxes receivable   |        |           |       |             |        |       | 27     |  
|                                                 |                                                                              |                                           |                                     | Increase in other current assets      |        |           | (70    | )           |        |       | (299   | )
|                                                 |                                                                              |                                           |                                     | Increase in accounts payable          |        |           | 2,556  |             |        |       | 63     |  
|                                                 |                                                                              |                                           |                                     | Decrease in other accrued liabilities |        |           | (2,666 | )           |        |       | (3,458 | )
|                                                 |                                                                              |                                           | Other items, net                    |                                       |        | 102       |        |             |        | 828   |       
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 |                                                                              | Net cash used for operating activities    |                                     |                                       | (3,868 | )         |        |             | (8,620 | )    
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|Cash flows from investing activities:            |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 | Proceeds from sale of property and equipment                                 |                                           |                                     |                                      |        |           |        | 444         |       
|                                                 | Capital expenditures                                                         |                                           |                                     | (2,600                                | )      |           |        | (3,342      | )     
|                                                 | Other, net                                                                   |                                           |                                     | 89                                    |        |           |        | (643        | )     
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 |                                                                              | Net cash used for investing activities    |                                     |                                       | (2,511 | )         |        |             | (3,541 | )    
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|Cash flows from financing activities:            |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 | Repayments of senior term loans                                              |                                           |                                     | (1,187                                | )      |           |        |            |       
|                                                 | Borrowings of revolving credit loans, net                                    |                                           |                                     | 7,125                                 |        |           |        | 12,173      |       
|                                                 | Borrowings of unsecured subordinated notes                                   |                                           |                                     | 312                                   |        |           |        |            |       
|                                                 | Principal payments under capitalized lease obligations                       |                                           |                                     | (30                                   | )      |           |        | (241        | )     
|                                                 | Financing
fees, net                                                          |                                           |                                     | (248                                  | )      |           |        |            |       
|                                                 | Repayments under other credit facilities, net                                |                                           |                                     |                                      |        |           |        | (204        | )     
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|                                                 |                                                                              | Net cash provided by financing activities |                                     |                                       | 5,972  |           |        |             | 11,728 |      
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|Net decrease in cash and cash equivalents        |                                                                              |                                           | (407                                | )                                     |        |           | (433   | )          
|Cash and cash equivalents at beginning of period |                                                                              |                                           | 2,059                               |                                       |        |           | 2,811  |            
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            
|Cash and cash equivalents at end of period       |                                                                              | $                                         | 1,652                               |                                       |        | $         | 2,378  |            
|                                                 |                                                                              |                                           |                                     |                                       |        |           |        |            

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

1.     Basis of Presentation:

The accompanying financial statements include the consolidated accounts of The
Hillman Companies, Inc., (the Company), formerly SunSource Inc., and its
indirect, wholly owned subsidiaries including an investment trust, Hillman
Group Capital Trust (the Trust) formerly SunSource Capital Trust. Also, the
Company has minority investments in two affiliates, GC-Sun Holdings, L.P.,
operating as Kar Products, and STS Operating, Inc., its former SunSource
Technology Services subsidiary (STS or Technology Services). See Note 2,
Contribution of Subsidiaries/Acquisitions/Divestitures and Note 5, Subsequent
Events. All significant intercompany balances and transactions have been
eliminated.

On September 26, 2001, SunSource Inc. (SunSource) was acquired by Allied
Capital Corporation (Allied Capital) pursuant to the terms and conditions of
an Agreement and Plan of Merger dated as of June 18, 2001, by and among Allied
Capital, Allied Capital Lock Acquisition Corporation and SunSource (the Merger
Transaction). Certain members of management and other stockholders continued
as stockholders of the Company after the merger. The total transaction value
was $74,027, consisting of the cash purchase price paid for the outstanding
common stock of the Company aggregating $71,494 and managements common shares
valued at $2,533. The Company was the surviving entity in the merger and
organized as an independently managed, privately held portfolio company of
Allied Capital.

On September 28, 2001, the Company refinanced its $115 million bank revolving
credit and $21.5 million term loan with $105 million in senior secured credit
facilities (the Refinancing).

The Companys Statements of Operations and Cash Flows for the periods presented
prior to the September 28, 2001 Merger Transaction are referenced herein as the
predecessor financial statements (the Predecessor or Predecessor Financial
Statements). The Companys Consolidated Balance Sheet as of March 31, 2002
and December 31, 2001, Statement of Operations and Cash Flow for the three
months ended March 31, 2002 are referenced herein as the successor financial
statements (the Successor or Successor Financial Statements). The
Successor Financial Statements include the effects of the Merger Transaction
and related transactions completed subsequent to the Merger Transaction,
including the Refinancing and sale of the Technology Services subsidiary.

The accompanying Successor Financial Statements reflect the allocation of the
aggregate purchase price of $74,027 to the assets and liabilities of the
Company based on fair values at the date of the merger in accordance with
Accounting Principles Board Opinion #16, Accounting for Business Combinations
for transactions initiated prior to June 30, 2001.

The accompanying unaudited consolidated condensed financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes the financial statements include all
normal recurring accrual adjustments necessary for a fair presentation.
Operating results for the three months ended March 31, 2002 do not necessarily
indicate the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Companys annual report for the year ended December 31, 2001.

Page 6 of 20





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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

1.     Basis of Presentation, continued:

Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. Under SFAS
No. 142, goodwill and certain other intangible assets are no longer amortized
but are reviewed for impairment. In connection with the adoption of SFAS No.
142, the Company has completed the first step of the transitional goodwill
impairment test, which requires the Company to compare the fair value of its
reporting units to the carrying value of the net assets of the respective
reporting units as of January 1, 2002. Based on this analysis, the Company has
concluded that no impairment existed at the time of adoption, and, accordingly,
the Company has not recognized any transitional impairment loss.

Results for periods prior to the adoption of SFAS 142 have not been
restated to reflect the effect of discontinuing goodwill
amortization. The following table reconciles the reported net loss to
results that would have been reported if SFAS 142 had been adopted as of
January 1, 2001.

|                                           |                   |   |                             |        |      |   |        |        |  
|------------------------------------------ | ----------------- | - | --------------------------- | ------ | ---- | - | ------ | ------ | -
|                                           |                   |   | Three Months Ended March 31
|                                           |                   |   |                            
|                                           |                   |   | 2002                        |        | 2001
|                                           |                   |   |                             |        |     
|Reported net loss                          |                   | $ | (1,262                      | )      |      | $ | (2,629 | )     
|Goodwill amortization, net of income taxes |                   |   | 0                           |        |      |   | 531    |       
|                                           |                   |   |                             |        |      |   |        |       
|                                           | Adjusted net loss |   | $                           | (1,262 | )    |   | $      | (2,098 | )
|                                           |                   |   |                             |        |      |   |        |       

Intangible assets subject to amortization included in goodwill and other intangible assets consisted of the following at March 31, 2002:

|           |       |   |                 |        |                          |   |       |       | 
|---------- | ----- | - | --------------- | ------ | ------------------------ | - | ----- | ----- | 
|           |       |   | Carrying Amount |        | Accumulated Amortization
|           |       |   |                 |        |                         
|Trademarks |       | $ | 6,500           |        |                          | $ | 520   |      
|Patents    |       |   | 7,700           |        |                          |   | 1,925 |      
|Other      |       |   | 1,250           |        |                          |   | 823   |      
|           |       |   |                 |        |                          |   |       |      
|           | Total |   | $               | 15,450 |                          |   | $     | 3,268 | 
|           |       |   |                 |        |                          |   |       |      

Amortization expense for intangible assets for the quarter ended March 31, 2002 was $0.4 million. Amortization expense for the next five years is estimated to be as follows:

|            |  |        |       | 
|----------- |  | ------ | ----- | 
|Year Ended  |  |        |       | 
|December 31 |  | Amount
|            |  |       
|2002        |  | $      | 1,485 | 
|2003        |  | $      | 1,437 | 
|2004        |  | $      | 1,239 | 
|2005        |  | $      | 1,223 | 
|2006        |  | $      | 1,222 | 

Page 7 of 20





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2.     Contribution of Subsidiaries/Acquisitions/Divestitures:

On March 2, 2000, the Company contributed the interests in its Kar Products,
Inc. and A & H Bolt & Nut Company Limited operations (collectively, the Kar
or Kar Products business) to a newly-formed partnership affiliated with
Glencoe Capital, L.L.C. (Glencoe). Glencoe contributed cash equity to the
new partnership, GC-Sun Holdings L.P. (G-C). The Company received $105,000
in cash proceeds from the transaction through repayment of assumed debt by G-C
and retained a minority ownership in G-C. Affiliates of Glencoe hold a
controlling interest in G-C.

On April 13, 2002, the Company entered into a Unit Repurchase Agreement with
G-C, pursuant to which G-C exercised its call right under the
G-C partnership agreement to purchase the Companys interest in G-C. Upon closing of the
transaction, the Company expects to receive a $10 million subordinated note from G-C.
The Company expects the transaction to close in the second quarter of
2002, subject to certain closing conditions.

Prior to the Merger Transaction, the Company had an investment in G-C of
$2,207. As of March 31, 2002, the Companys consolidated balance sheet
includes $10,000 in other investments which represents the Companys investment
in G-C at fair value. This value reflects a step-up in the investment from its
carrying value immediately prior to the Merger Transaction.

On September 28, 2001, the Company sold substantially all of the assets of its
Technology Services subsidiary. The sales price aggregated $25,546 in cash and
preferred stock, subject to post-closing adjustments, plus the assumption of
certain liabilities by the buyer. The sale of assets resulted in no gain or
loss on the sale transaction because the assets and liabilities of Technology
Services were recorded at fair value in conjunction with the Merger
Transaction. As of March 31, 2002, the Companys consolidated balance sheet
includes $6,357 in other investments related to the Companys investment in the
preferred stock of the buyer of the Technology Services business. The cash
proceeds from the sale were distributed to Allied Capital and certain members
of management, who are the remaining common shareholders of the Company.

Page 8 of 20





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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

2.     Contribution of Subsidiaries/Acquisitions/Divestitures, continued:

The following disclosures indicate the Companys estimate of pro forma
financial results for the quarter ended March 31, 2001 had the sale of the
Technology Services subsidiary and the Companys Refinancing been consummated
on January 1, 2000:

|           |  |   |        |  
|---------- |  | - | ------ | -
|Net Sales  |  | $ | 57,001 |  
|Net Income |  | $ | (2,360 | )

On September 26, 2001, SunSource was acquired by Allied Capital pursuant to the
terms and conditions of an Agreement and Plan of Merger dated as of June 18,
2001, the Merger Transaction. Certain members of management and other
stockholders continued as stockholders of the Company after the merger. The
total transaction value was $74,027, consisting of the cash purchase price paid
for the outstanding common stock of the Company aggregating $71,494 and
managements common shares valued at $2,533. The Company was the surviving
entity in the merger and organized as an independently managed, privately held
portfolio company of Allied Capital. See Note 1, Basis of Presentation.

3.     Contingencies:

On February 27, 1996, a lawsuit was filed
against the Company by the buyer, R&B, Inc., of
its Dorman Products division for alleged misrepresentation of certain facts by
the Company upon which the buyer allegedly based its offer to purchase Dorman.
On May 1, 2002, the Company settled this litigation in conjunction with the
purchase of certain assets of the Lowes specialty fastener business from R&B,
Inc. (see Note 5, Subsequent Events). The settlement amount was fully reserved
on the Companys balance sheet as of March 31, 2002.

Certain other legal proceedings are pending which are either in the ordinary
course of business or incidental to the Companys business. Those legal
proceedings incidental to the business of the Company are generally not covered
by insurance or other indemnity.

In the opinion of management, the ultimate resolution of the pending litigation
matters will not have a material effect on the consolidated financial position,
operations or cash flows of the Company.

4.     Segment Information:

The Successor is organized as a single business segment and the Predecessor has
two reportable segments (see Note 1, Basis of Presentation) which were
disaggregated based on the products and services provided, markets served,
marketing strategies and delivery methods. The Successor and the Predecessor
each measure profitability and allocate corporate resources based on each
segments Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA) which is defined as income from operations before depreciation and
amortization.

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

4.     Segment Information, continued:

Following is a tabulation of segment information for the three months ended
March 31, 2002 and 2001. Corporate information is included to reconcile
segment data to the consolidated financial statements.

|                                                           |                                            |   |                            |        |                |   |        |         |  
|---------------------------------------------------------- | ------------------------------------------ | - | -------------------------- | ------ | -------------- | - | ------ | ------- | -
|                                                           |                                            |   | For the Three Months Ended
|                                                           |                                            |   | March 31, 2002             |        | March 31, 2001
|                                                           |                                            |   |                            |        |               
|                                                           |                                            |   | (Successor)                |        | (Predecessor) 
|Net Sales                                                  |                                            |   |                            |        |                |   |        |        
|Hillman Group                                              |                                            | $ | 63,425                     |        |                | $ | 57,001 |        
|Technology Services                                        |                                            |   |                           |        |                |   | 52,928 |        
|                                                           |                                            |   |                            |        |                |   |        |        
|                                                           | Consolidated net sales 
business segments |   | $                          | 63,425 |                |   | $      | 109,929 |  
|                                                           |                                            |   |                            |        |                |   |        |        
|EBITDA                                                     |                                            |   |                            |        |                |   |        |        
|Hillman Group                                              |                                            | $ | 9,155                      |        |                | $ | 8,597  |        
|Technology Services                                        |                                            |   |                           |        |                |   | (422   | )      
|                                                           |                                            |   |                            |        |                |   |        |        
|                                                           | EBITDA  business segments                 |   | $                          | 9,155  |                |   | $      | 8,175   |  
|                                                           |                                            |   |                            |        |                |   |        |        
|Reconciliation of Segment Profit to                        |                                            |   |                            |        |                |   |        |        
|Income (loss) Before Income Taxes                          |                                            |   |                            |        |                |   |        |        
|Segment Profit  EBITDA                                    |                                            | $ | 9,155                      |        |                | $ | 8,175  |        
|Depreciation                                               |                                            |   | (3,083                     | )      |                |   | (3,045 | )      
|Amortization                                               |                                            |   | (370                       | )      |                |   | (903   | )      
|Management fee expense                                     |                                            |   | (450                       | )      |                |   |       |        
|Dividend Income  STS Operating, Inc.                      |                                            |   | 172                        |        |                |   |       |        
|Corporate expenses                                         |                                            |   | (874                       | )      |                |   | (1,275 | )      
|                                                           |                                            |   |                            |        |                |   |        |        
|                                                           | Income from operations                     |   |                            | 4,550  |                |   |        | 2,952   |  
|Equity in earnings of affiliate                            |                                            |   |                           |        |                |   | 501    |        
|Interest expense, net                                      |                                            |   | (3,450                     | )      |                |   | (3,215 | )      
|Distributions on guaranteed preferred
beneficial interests |                                            |   | (3,057                     | )      |                |   | (3,058 | )      
|                                                           |                                            |   |                            |        |                |   |        |        
|                                                           | Income (loss) before income taxes          |   | $                          | (1,957 | )              |   | $      | (2,820  | )
|                                                           |                                            |   |                            |        |                |   |        |        

5.     Subsequent Events:

On May 1, 2002 the Company purchased certain assets of the Lowes specialty
fastener business from R&B, Inc. In
connection with this
transaction, the Company settled litigation filed by R&B, Inc. in February 1996
related to the Companys sale of the Dorman Products division
(See Note 3, Contingencies).
Cash consideration for these transactions and litigation settlement totaled $7.5
million.

On May 1, 2002 the Senior Credit Agreement was amended to provide an additional
$10 million of availability under the revolving credit facility and to increase
the $20 million term loan expiring September 27, 2006 by $15 million. In
addition to funding the transactions described above,
the cash proceeds and additional availability will be used to finance the
planned expansion and automation of the Companys distribution facilities.

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

5.     Subsequent Events, continued:

In December 1999, the Company froze the benefit accruals under the Technology
Services defined benefit retirement plan (the STS Plan), resulting in a
curtailment gain of $5,608. In December 2000, the STS Plan was merged with
another Company owned plan which was held for certain divested operations, and
the Company terminated the merged plans as of December 31, 2000 resulting in a
pre-tax loss of $4,279. In April 2002, the settlement of the STS Plan was
completed and the Company received cash proceeds from plan assets in excess of
settlement obligations totaling $3,903. The Company will recognize a
favorable income adjustment of
$1,231 in the second quarter of 2002 to its previously recorded
estimated loss on termination as a result of final settlement of the STS
Plan.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion provides information which management believes is
relevant to an assessment and understanding of the Companys operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein.

General

The Hillman Companies, Inc. (Hillman or the Company), formerly SunSource
Inc. (SunSource) is one of the largest providers of value-added merchandising
services and hardware-related products to retail markets in North America.
Also, the Company has minority investments in two affiliates, GC-Sun Holdings,
L.P., operating as Kar Products, and STS Operating, Inc., the former SunSource
Technology Services business.

The Company through its wholly owned subsidiary, The Hillman Group, Inc. (the
Hillman Group) provides merchandising services and hardware and related
products, such as, fasteners and similar items, key duplication equipment, keys
and related accessories and identification equipment and items to retail
outlets, primarily hardware stores, home centers and mass merchants.

Merger Transaction

On September 26, 2001, SunSource was acquired by Allied Capital Corporation
(Allied Capital) pursuant to the terms and conditions of an Agreement and
Plan of Merger dated as of June 18, 2001 (the Merger Transaction). Certain
members of management and other stockholders continued as stockholders of the
Company after the merger. The total transaction value was $74.0 million or
$10.375 per SunSource common share, consisting of the cash purchase price paid
for the outstanding common stock of the Company aggregating approximately $71.5
million and managements common shares valued at approximately $2.5 million.
SunSource was the surviving entity in the merger and organized as an
independently managed, privately held portfolio company of Allied Capital.

In connection with the Merger Transaction, on September 28, 2001, the Company
completed the sale of substantially all of the assets of its SunSource
Technology Services business (the STS Business) to STS Operating, Inc. (STS
OP), an entity formed by certain officers and managers of the STS Business,
Allied Capital and Easton Hunt Capital Partners, L.P. for the purpose of
acquiring the STS Business. The purchase price aggregated approximately $25.5
million in cash and preferred stock, subject to post-closing adjustments plus
the assumption of certain liabilities. The equity investment in STS OP will
continue to be held by the Hillman Group.

The Companys operations for the periods presented prior to September 30, 2001
are referenced herein as the predecessor operations (the Predecessor or
Predecessor Operations). The Companys operations for the period presented
since the Merger Transaction are referenced herein as the successor operations
(the Successor or Successor Operations) and include the effects of the
Merger Transaction and related transactions completed subsequently, including
the Companys debt refinancing and sale of the STS business (see Financing
Arrangements below).

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Financing Arrangements

On September 28, 2001, the Company refinanced its $115 million bank revolving
credit and $21.5 million term loan with $105 million in senior secured credit
facilities (the Refinancing). The new senior debt arrangement has a $50
million revolving credit line and a $20 million term loan that expires on
September 27, 2006 and a $35 million term loan that expires on September 27,
2008. As of March 31, 2002, the outstanding balance of the term loans
aggregated $53.25 million.

On May 1, 2002, the Senior Credit Agreement was amended to provide an additional
$10 million of availability under the revolving credit facility and to increase
the $20 million term loan expiring September 27, 2006 by $15 million. Proceeds
of the additional financing were used to finance the purchase of the specialty
fastener business of Lowes, Inc. from R&B, Inc., the settlement of litigation
with R&B, Inc., and the planned expansion and automation of the Companys distribution
facilities.

On December 28, 2000, the Company issued $30 million of unsecured subordinated
notes to Allied Capital and issued an additional $10 million of these notes to
Allied Capital on September 28, 2001 in conjunction with the Refinancing noted
above (the Amended Subordinated Debt Issuance). The majority of the cash
proceeds generated from the Amended Subordinated Debt Issuance were used to
repay at a discount an unsecured subordinated note issued in connection with
the consummation of the acquisition of Axxess Technologies.

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Results of Operations

Segment Sales and Profitability for the Three Months Ended March 31, 2002 and 2001

---

(dollars in thousands)

|                                   |                        |        |                |        |                |        |       |       |  |   |        |         |      |  |       |   | 
|---------------------------------- | ---------------------- | ------ | -------------- | ------ | -------------- | ------ | ----- | ----- |  | - | ------ | ------- | ---- |  | ----- | - | 
|                                   |                        |        | Successor      |        | Predecessor   
|                                   |                        |        |                |        |               
|                                   |                        |        | March 31, 2002 |        | March 31, 2001
|                                   |                        |        |                |        |               
|                                   |                        |        |                |        |                |        | % OF  |       |  |   |        |         | % OF
|Sales                              |                        | AMOUNT |                | TOTAL  |                | AMOUNT |       | TOTAL
|                                   |                        |        |                |        |                |        |       |      
|Hillman Group  Ongoing Operations |                        | $      | 63,425         |        |                |        | 100.0 | %     |  | $ | 57,001 |         |      |  | 100.0 | %
|Technology Services                |                        |        |               |        |                |        |       |       |  |   | 52,928 |         |      |  |       |  
|                                   |                        |        |                |        |                |        |       |       |  |   |        |         |      |  |       |  
|                                   | Consolidated Net Sales |        | $              | 63,425 |                |        |       |       |  |   | $      | 109,929 |      |  |       |   | 
|                                   |                        |        |                |        |                |        |       |       |  |   |        |         |      |  |       |  

|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |      |  
|------------------------------------- | -------------------------------------------- | - | ------ | ------ |  | ----- | ---- | ---- | - | - | ------ | ------ | ---- |  | ---- | ---- | -
|                                      |                                              |   |        |        |  |       | % OF |      |   |   |        |        | % OF
|Gross Profit                          |                                              |   |        |        |  | SALES |      |      |   |   |        | SALES 
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |       
|Hillman Group  Ongoing Operations    |                                              | $ | 34,950 |        |  |       | 55.1 | %    |   | $ | 32,185 |        |      |  | 56.5 | %   
|Technology Services                   |                                              |   |       |        |  |       |      |      |   |   | 12,784 |        |      |  |      |     
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     
|                                      | Consolidated Gross Profit                    |   | $      | 34,950 |  |       |      |      |   |   | $      | 44,969 |      |  |      |      |  
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     
|EBITDA                                |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |       
|Hillman Group                         |                                              | $ | 9,155  |        |  |       | 14.4 | %    |   | $ | 8,597  |        |      |  | 15.1 | %   
|Management fee expense                |                                              |   | (450   | )      |  |       | (0.7 | %)   |   |   |       |        |      |  |      |     
|Dividend income  STS Operating, Inc. |                                              |   | 172    |        |  |       | 0.3  | %    |   |   |       |        |      |  |      |     
|Corporate expenses                    |                                              |   | (874   | )      |  |       | (1.4 | %)   |   |   | (1,275 | )      |      |  | (2.2 | %)  
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     
|                                      | Consolidated EBITDA  ongoing operations (a) |   | $      | 8,003  |  |       |      | 12.6 | % |   | $      | 7,322  |      |  |      | 12.8 | %
|Technology Services                   |                                              |   |       |        |  |       |      |      |   |   | (422   | )      |      |  |      |     
|Equity in earnings of affiliate (b)   |                                              |   |       |        |  |       |      |      |   |   | 501    |        |      |  |      |     
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     
|                                      | Consolidated EBITDA                          |   | $      | 8,003  |  |       |      |      |   |   | $      | 7,401  |      |  |      |      |  
|                                      |                                              |   |        |        |  |       |      |      |   |   |        |        |      |  |      |     



---

|(a) |  | EBITDA (earnings before interest, taxes, depreciation and amortization) is
defined as income (loss) from ongoing operations before depreciation and amortization.                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Represents equity in earnings from the Companys Kar Products, Inc. and A & H
Bolt & Nut Company, Limited business (collectively, the affiliate) which was
contributed on March 2, 2000 to a newly formed partnership affiliated with Glencoe
Capital L.L.C.

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The comparison of operating results for the periods presented below reflect
ongoing operations only (the Hillman Group and Corporate Expenses). Excluded
from this discussion are the operating results of the sold STS Business as
identified in the preceding Results of Operations Table.

Three Months Ended March 31, 2002 and 2001

Net sales from the Hillman Group ongoing operations increased $6.4 million or
11.3% in the first quarter of 2002 to $63.4 million from $57.0 million in 2001.
Hillman entered into a supply agreement in April 2001 to provide fastener
related products to 360 Lowes, Inc (Lowes) stores. In September 2001,
Hillman was named the exclusive, chain-wide supplier of fastener related
products for all 700 Lowes locations. Fastener sales to Lowes represented
$4.3 million of the $6.4 million total sales increase in the first quarter.
Sales to other national accounts including Home Depot, Wal*Mart, Petsmart, and
Tractor Supply increased by an aggregate $1.2 million in the first quarter of
2002 compared to the first quarter of 2001, primarily as a result of new store
growth. In addition, franchise and independent (F&I) accounts increased $0.9
million over the comparable period in 2001. These F&I accounts are typically
individual dealers who are members of larger cooperatives, such as TruServ,
Ace, and Do-It-Best.

The Hillman Groups gross margin was 55.1% in the first quarter of 2002
compared with 56.5% in the first quarter of 2001. The large increase in sales
volume to Lowes and other large national accounts described above and the
resultant shift in sales mix contributed to the 1.4% decline in gross margin in
the comparison period.

The Companys selling, general and administrative expenses (S,G&A) from
ongoing operations increased $2.0 million or 8.2% from $24.5 million in the
first quarter of 2001 to $26.5 million in the first quarter of 2002. Selling
expenses increased $1.3 million or 10.4% primarily as a result of servicing
costs at new national account stores. Warehouse and delivery expenses
increased $1.1 million or 17.9% as a result of increased freight and labor
costs from new business. General and administrative expenses decreased by $0.4
million or 7.0% primarily as a result of reduced corporate expenses.

Total S,G&A expenses from ongoing operations expressed as a percentage of sales
compared with the first quarter of 2001 are as follows:

|                                    |                      |      |                              |      |   |  |      |      |  
|----------------------------------- | -------------------- | ---- | ---------------------------- | ---- | - |  | ---- | ---- | -
|                                    |                      |      | Three Months ended March 31,
|                                    |                      |      |                             
|As of a % of Sales                  |                      | 2002 |                              | 2001
|                                    |                      |      |                              |     
|Selling Expenses                    |                      |      | 22.3                         | %    |   |  | 22.4 | %   
|Warehouse and Delivery Expenses     |                      |      | 11.2                         | %    |   |  | 10.6 | %   
|General and Administrative Expenses |                      |      | 8.4                          | %    |   |  | 10.0 | %   
|                                    |                      |      |                              |      |   |  |      |     
|                                    | Total S,G&A Expenses |      |                              | 41.9 | % |  |      | 43.0 | %
|                                    |                      |      |                              |      |   |  |      |     

EBITDA from ongoing operations after corporate expenses for the first quarter
of 2002 was $8.0 million compared with $7.3 million for the same prior-year
period, representing an increase of 9.6%.

The Companys consolidated operating profit margin from ongoing operations
(EBITDA as a percentage of sales) after corporate expenses decreased slightly
to 12.6% in the first quarter of 2002 compared with 12.8% in 2001. The decrease was primarily the result of pricing pressures and
from costs associated with the opening and servicing of a large number of new
national account customer locations.

Depreciation expense from ongoing operations increased $0.5 million to $3.1
million in the first quarter of 2002 from $2.6 million in the same quarter of
2001 primarily as a result of an increase in the depreciable fixed asset base
in connection with the production of new key duplication machines used for
national accounts.

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Amortization expense from ongoing operations
decreased $0.4 million to $0.4
million in the first quarter of 2002 from $0.8 million in the first quarter of
2001. The decrease in amortization was the result of an accounting standard
change which discontinued the recognition of amortization expense on goodwill
from the Companys acquisitions.

Interest expense, net from ongoing operations increased $0.3 million to $3.5
million in the first quarter of 2002 from $3.2 million in the same period of
2001. The increase was primarily the result of an increase in borrowings
needed to finance the Companys higher seasonal working capital requirements in
the first quarter.

The Company has recorded a management fee charge of $0.45 million for the three
months ended March 31, 2002. In connection with the Merger Transaction, the
Company is obligated to pay management fees to a subsidiary of Allied Capital
for management services rendered in the amount of $1.8 million for calendar
years subsequent to 2001. Payment of management fees are due annually after
delivery of the Companys annual audited financial statements to the Board of
Directors of the Company.

The Company pays interest to the Trust on the Junior Subordinated Debentures
underlying the Trust Preferred Securities at the rate of 11.6% per annum on
their face amount of $105.4 million, or $12.2 million per annum in the
aggregate. The Trust distributes an equivalent amount to the holders of the
Trust Preferred Securities. For the three months ended March 31, 2002 and
2001, the Company paid $3.1 million in interest on the Junior Subordinated
Debentures, equivalent to the amounts distributed by the Trust on the Trust
Preferred Securities.

The Company is subject to federal, state and local income taxes on its domestic
operations and foreign income taxes on its Canadian operation as accounted for
in accordance with Statement of Financial Accounting Standard (SFAS) 109,
Accounting for Income Taxes. Deferred income taxes represent differences
between the financial statement and tax basis of assets and liabilities as
classified on the Companys balance sheet. The Company recorded a tax benefit
for income taxes of $0.7 million on a pre-tax loss of $2.0 million in the first
quarter of 2002. The effective tax rate in the first quarter of 2002 was 35.5%
compared to 6.8% in the first quarter of 2001. The effective tax rate in the
first quarter of 2001 was significantly below the Companys statutory tax rate
primarily due to non-deductible goodwill and other items related to acquisition
and divestiture activities.

Cash Flows

The statements of cash flows reflect the changes in cash and cash equivalents
for the three months ended March 31, 2002 and 2001 by classifying transactions
into three major categories: operating, investing and financing activities.

Operating Activities

The Companys main source of liquidity is cash generated from operating
activities consisting of net earnings from operations adjusted for non-cash
operating items such as depreciation and changes in operating assets and
liabilities such as receivables, inventories and payables.

Cash used in operating activities for the first
quarter of 2002 was $3.9
million compared to $8.6 million in the prior year quarter. The
change
in the current quarter was primarily due to improved earnings in The Hillman
Group and the elimination of losses and working capital associated with the STS
Business sold in September 2001.

Investing Activities

The principal recurring investing activities are property additions for key
duplicating machines and property and equipment. Net property additions for the
first three months of 2002 were $2.6 million compared to $3.3 million in the
comparable prior year period. The decline in capital expenditures in the first
quarter of 2002 compared to the year earlier period is primarily the result of
the rollout of new key duplicating machines to Home Depot which began in the
first quarter of 2001. The placement of new key machines in Home Depot was
substantially completed in 2001.

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Financing Activities

Net borrowings under the Companys senior credit facilities of $6.0 million for
the three months ended March 31, 2002 decreased $5.7 million from the
comparable prior year period as a result primarily of improved cash flow from
operations. See Operating Activities noted above.

Liquidity and Capital Resources

The Companys working capital position of $56.5 million at March 31,2002
represents an increase of $4.9 million from the December 31, 2001 level of
$51.6 million primarily as a result of the seasonal increase in accounts
receivable of $6.6 million offset by an increase in accounts payable of $2.6.
The Companys current ratio increased to 2.26x at March 31, 2002 from 2.15x at
December 31, 2001.

As of May 2, 2002, the Company had $24.4 million available under its secured
credit facilities. The Company had approximately $94.8 million of outstanding
debt under its secured credit facilities at March 31, 2002, consisting of $53.3
million in term loans, $41.2 million in revolving credit borrowings and $0.3
million in capitalized lease obligations. The term loans consisted of a $34.8
million Term B Loan (the Term Loan B) currently at a three (3) month LIBOR
rate of 5.63% and a $18.5 million Term A loan (the Term Loan A) currently at
a three (3) month LIBOR rate of 5.13%. The revolver borrowings (the
Revolver) consist of $30.0 million currently at a six (6) month LIBOR rate of
5.63%, $7.0 million at a three (3) month LIBOR rate of 5.31% and $4.2 million
at an effective rate of 6.75%. The capitalized lease obligations were at
various interest rates.

The Company increased its revolving credit facility by $10 million and its Term
A Loan by $15 million on May 1, 2002 to finance the asset purchase of the
Lowes specialty fastener business and to provide capital to fund the Companys
planned expansion and automation of its distribution facilities.

The Companys net interest coverage ratio from continuing operations for the
three months ended March 31, 2002 increased to 0.70X (earnings before interest,
distributions on trust preferred securities and income taxes, over net interest
expense and distributions on trust preferred securities), from 0.55X in the
2001 comparison period as a result of increased earnings.

Interest on the Amended Subordinated Debt Issuance of $40 million which matures
September 29, 2009 is at a fixed rate of 18.0% per annum, with cash interest
payments being required on a quarterly basis at a fixed rate of 13.5%
commencing November 15, 2001. The outstanding principal balance of the Amended
Subordinated Debt Issuance shall be increased on a quarterly basis at the
remaining 4.5% fixed rate (the PIK Amount). All of the PIK Amounts are due on
the fifth anniversary of the Amended Subordinated Debt Issuance. As of March
31, 2002, the outstanding Amended Subordinated Debt Issuance including the PIK
Amounts was $40.7 million.

In accordance with the Companys senior credit agreement, Hillman must maintain
its fixed charge coverage at all times in excess of 1.05x through December 31,
2002 and 1.10x thereafter to continue monthly distributions on its Trust
Preferred Securities ($1.0 million per month). Hillmans fixed charge coverage
was 1.27x for the twelve month period ended March 31, 2002. The fixed charge
test measures adjusted EBITDA less capital expenditures over cash interest
expense, Trust Preferred Security distributions, scheduled senior debt
repayments and other fixed charge items.

The Company has deferred tax assets aggregating $35.3 million and deferred tax
liabilities of $4.6 million as of March 31, 2002, as determined in accordance
with SFAS 109. Management believes that the Companys deferred tax assets will
be realized through the reversal of existing temporary differences between the
financial statement and tax bases, as well as through future taxable income.

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Inflation

Inflation in recent years has had a modest impact on the operations of the
Company. Continued inflation, over a period of years at higher than current
rates, would result in significant increases in inventory costs and operating
expenses. However, such higher cost of sales and operating expenses can
generally be offset by increases in selling prices, although the ability of the
Companys operating divisions to raise prices is dependent on competitive
market conditions.

Forward Looking Statements

Certain disclosures related to acquisitions and divestitures, refinancing,
capital expenditures, resolution of pending litigation and realization of
deferred tax assets contained in this report involve risks and uncertainties
and may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. We have based these forward-looking
statements on our current expectations, assumptions and projections about
future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions that may cause our actual results,
levels of activity, performance, or achievements to be materially different
from any future results, levels of activity, performance, or achievements
expressed or implied by such forward-looking statements. Actual results could
differ materially from those currently anticipated as a result of a number of
factors, including the risks and uncertainties discussed under captions Risk
Factors set forth in Item 1 of the Companys Annual Report on Form 10-K for
the year ended December 31, 2001. Given these uncertainties, current or
prospective investors are cautioned not to place undue reliance on any such
forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such
as may, will, should, could, would, expect, plan, anticipate,
believe, estimate, continue or the negative of such terms or other
similar expressions. All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements included in this Report. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
Report might not occur.

Quantitative and Qualitative Disclosures About
Market Risk

The Company is exposed to market risk related to changes in interest
rates which may adversely affect its results of operations and
financial condition. The Company seeks to minimize the risk from
interest rate volatility through its regular operating and financing
activities.

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PART II
OTHER INFORMATION

Items 1, 2, 3, 4 & 5  None

Item 6  Exhibits and Reports on Form 8-K

|   |  |        |  |                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  |        |  | Exhibits, Including Those Incorporated by Reference                                                                                                                                                                                                                                                                                                                                            
|   |  | 10.1** |  | Consent and First Amendment to the Credit Agreement dated as of September 28,
2001, by and among The Hillman Group, Inc. as Borrower and Heller
Financial, Inc. as Agent, an Issuing Lender and a Lender and Antares
Capital Corporation, General Electric Capital Corporation and Madison
Capital Funding, LLC, each as Co-Agent and the other financial
institutions party hereto as lenders.
|b) |  |        |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                            
|   |  |        |  | A Current Report on Form 8-K was filed on March 18, 2002 reporting
an unscheduled material event under Item 5 of Form 8-K.                                                                                                                                                                                                                                                                     



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|** |  | Filed herewith
|-- |  | --------------

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SIGNATURES

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

THE HILLMAN COMPANIES, INC.



|                                                                                      |  |                                                                           
|------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|/s/ James P. WatersJames P. Waters
Vice President  Finance
(Chief Financial Officer) |  | /s/ Harold J. WilderHarold J. Wilder
Controller
(Chief Accounting Officer)



DATE: May 14, 2002

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