<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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                            (I.R.S. Employer
incorporation or organization)                             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                    None
Preferred Securities Guaranty
Preferred Share Purchase Rights

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
      ----         -----

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

On March 20, 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.


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ITEM I - BUSINESS.

GENERAL

SunSource Inc., a Delaware corporation ("SunSource") converted from partnership
to corporate form on September 30, 1997. On March 18, 2002, SunSource, as a
result of the acquisition of a majority of SunSource common stock by Allied
Capital Corporation in September 2001 as discussed below, changed its name to
The Hillman Companies, Inc. ("Hillman" or the "Company") which reflects its
predominant business as one of the largest providers of merchandising services
and hardware-related products to retail markets in North America. In connection
with the SunSource name change, SunSource Capital Trust, which has 4.2 million
Trust Preferred Securities outstanding and trading on the American Stock
Exchange, changed its name to the Hillman Group Capital Trust. The Trust
Preferred Securities trade under the ticker symbol HLM.Pr (formerly SDP.Pr). The
Company has moved its principal executive offices from Philadelphia,
Pennsylvania, to Cincinnati, Ohio.

The Company's principal business is operated through its wholly owned
subsidiary, The Hillman Group, Inc. (the "Hillman Group") which had sales of
$249 million in 2001. The Hillman Group sells to hardware stores, home centers,
mass merchants, pet suppliers, and other retail outlets principally in the U.S.,
Canada, Mexico and South America. Their product lines include thousands of small
parts such as fasteners and related hardware items; keys, key duplication
systems and accessories; and identification items, such as, tags and letters,
numbers, and signs. Services offered include design and installation of
merchandising systems and maintenance of appropriate in-store inventory levels.

On September 26, 2001, SunSource Inc. 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 continue 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 and other stockholders' 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. STS OP purchased the assets of the STS Business
including the rights to the name SunSource from SunSource Technology Services,
LLC, an indirect wholly owned subsidiary of SunSource, pursuant to an Asset
Purchase Agreement, dated September 28, 2001, by and between SunSource
Technology Services, LLC and STS OP. The purchase price aggregated approximately
$25.5 million in cash and preferred stock of STS OP, 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. STS OP is a leading
provider of systems and parts and engineering services for hydraulic, pneumatic,
electronic and related systems to major industrial companies throughout the U.S.
and Canada.


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On May 16, 2001, the Board of Directors approved a plan of legal reorganization
whereby (i) SunSource Technology Services, Inc. ("STS") was formed as a single
member limited liability company and a wholly owned subsidiary of the Hillman
Group and (ii) Axxess Technologies, Inc. was merged with and into the Hillman
Group, collectively, the "2001 Legal Reorganization".

In December 2000, the Board of Directors approved a plan to liquidate the
Company's investment in SunSource Integrated Services de Mexico, SA de CV, the
"Mexican Business Segment". This segment has been accounted for as a
discontinued operation and, accordingly, its results of operations were
segregated from the results of the Company's ongoing businesses including
restatement of prior periods presented. The liquidation process was
substantially completed as of June 30, 2001. On August 3, 2001, STS distributed
its common stock investment in the Mexican Business Segment to the Hillman Group
to segregate the STS Business from the remaining business interests of
SunSource.

On April 13, 2000, the Company sold substantially all of the assets of its
Harding Glass, Inc. ("Harding") subsidiary to VVP America for a cash purchase
price of $30.6 million plus the assumption by the buyer of certain liabilities
aggregating $12.7 million, subject to certain post-closing adjustments. Proceeds
from the sale of Harding were used to repay the Company's outstanding debt.
Harding sales aggregated $28.0 million from January 1, 2000 through April 12,
2000, and $118.3 million for the year ended December 31, 1999.

A plan to dispose of the Company's Harding Glass business was approved by the
Board of Directors in December 1999. From December 1999 through the date of
sale, Harding was accounted for as a discontinued operation and, accordingly,
its results of operations were segregated from results of the Company's ongoing
businesses including restatement of prior periods presented.

On April 7, 2000, the Company acquired Axxess Technologies, Inc. ("Axxess" or
"Axxess Technologies") of Tempe, Arizona through a stock merger transaction.
Axxess is a manufacturer and distributor of key duplication and identification
systems. The transaction was structured as a purchase of 100% of the stock of
the privately held company and repayment of outstanding Axxess debt in exchange
for $87 million in cash and $23 million in subordinated notes. Axxess
Technologies' sales aggregated $19.4 million for the three months ended March
31, 2000, and $82.1 million for the year ended December 31, 1999. The results of
operations for Axxess are included in the results of the Hillman Group from the
date of acquisition. On June 1, 2001, Axxess Technologies merged with and into
the Hillman Group in conjunction with the 2001 Legal Reorganization noted above
with the Hillman Group being the surviving entity in the merger.

On March 2, 2000, the Company contributed its Kar Products operations to a newly
formed partnership affiliated with Glencoe Capital L.L.C. ("Glencoe"). Glencoe
contributed cash equity to the new partnership in exchange for a 51% controlling
interest with the remaining minority interest retained by SunSource. The Company
received $105 million in cash proceeds from the transaction through repayment of
assumed debt by the new partnership, GC-Sun Holdings, L.P. ("G-C"). On October
4, 2000, G-C acquired all of the outstanding stock of Brampton Fastener Co.
Limited (d/b/a Brafasco). On January 4, 2002, G-C provided the Company notice
that it intends to exercise its call right to purchase the Company's partnership
interest as a result of the Merger Transaction with Allied Capital. Hillman is
expected to continue to have an investment in Kar Products upon settlement of
G-C's call right. Kar Products distributes maintenance, repair and operating
("MRO") parts and supplies and offers customized inventory management services
to commercial and


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industrial customers of all sizes in the U.S. and Canada.


INDUSTRY OVERVIEW

Hillman operates in multiple channels of the retail marketplace such as hardware
stores, national and regional home centers and mass merchants. These retail
channels are currently experiencing significant changes driven by the widespread
availability of management information systems. With better information,
manufacturers, distributors and customers are all able to track their expenses,
investments and returns on investments more accurately. The retail industry is
driven by the following trends which are organized around customer requirements
and value-added services:

     (i) Customers are increasing their reliance on value-added distributors as
their contacts with the manufacturers diminish or cease altogether.

     (ii) Customers are outsourcing non-core functions to high quality service
providers.

     (iii) The retail marketplace is in the process of consolidation.

The Hillman Group focuses on delivering merchandising systems, point-of-sale
displays, product support and sales installation services through its nationwide
field sales and service force to the retail sector.

To survive and prosper in this evolving retail channel, Hillman believes that
the critical requirements for success among existing competitors will be market
knowledge, merchandising skills, breadth of inventory and value-added services
including superior support and fulfillment capabilities.

THE HILLMAN GROUP

Refer to Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 21, Segment Information to Consolidated
Financial Statements for segment financial data for the three years ended
December 31, 2001.

The Company is organized as a single business segment which is the Hillman
Group. With annualized sales of approximately $249 million, the Hillman Group
believes that it is the leading provider of fasteners and related small hardware
items; keys, key duplication systems and related accessories; and identification
items, such as, tags and letters, numbers and signs ("LNS") to retail outlets in
North America. Retail outlets served by Hillman are hardware stores, home
centers, mass merchants, pet suppliers, grocery stores and drug stores. Through
its field sales and service organization, Hillman complements its extensive
product selection with value-added services for the retailer.

Sales and service representatives regularly visit retail outlets to review stock
levels, reorder items in need of replacement, and interact with the storeowners
to offer new product and merchandising ideas. Thousands of items can thus be
actively managed with the retailer experiencing a substantial reduction in
paperwork and labor costs. Service representatives also assist in organizing the
products in a consumer-friendly manner. Hillman complements its broad range of
products with value-added merchandising services such as displays, product
identification stickers, retail price stickers, store rack and drawer systems,
assistance in rack positioning and store layout and inventory and restocking
services. Periodically, Hillman introduces new products and package designs with
color-coding for ease of shopping by consumers and also modifies rack designs to


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improve the attractiveness of individual store displays. In effect, Hillman
functions as a merchandising manager for retailers, supporting these services
with high order fill rates and rapid delivery from its eight distribution
centers across the United States. Orders are normally shipped within 48 hours
with a 96% order fill rate.

Hillman also manufactures and markets a value-added mix of high-tech and
conventional products in two core product categories: key duplication systems
and identification systems. The patent-protected Axxess Precision Key
Duplication System(TM) has proven to be a profitable revenue source within Big
Box retailers (defined as mass merchants, home centers and large-format
grocery/drug centers). This system has been placed in over 12,000 retail
locations to date.

In addition, Hillman offers a commercialized, innovative, consumer-operated
vending system, Quick-Tag(TM), which provides custom engraved specialty items,
such as pet identification tags, luggage tags and other engraved identification
tags. Axxess initially targeted the pet identification market with its Quick-Tag
system, and has facilitated the process of obtaining a pet tag by providing pet
owners with a quick and highly convenient means to custom engrave tags while
shopping at large format retail stores such as Wal-Mart and PETsMART. Axxess has
developed other high impact applications for its Quick-Tag(TM) interactive
engraving technology, including luggage tags, key chains and military-style
identification tags. To date, more than 2,800 Quick-Tag(TM) machines have been
placed in retail locations which are being supported by Hillman's sales and
service representatives.

PRODUCTS AND SUPPLIERS. Hillman buys its products from approximately 1,000
vendors, the largest of which accounted for 13% of the Group's annual purchases
and the top five of which accounted for 33% of its purchases. About half of its
purchases are from overseas suppliers, with the balance from domestic
manufacturers and master distributors. Hillman's fastener product line includes
both standard and specialty nuts, bolts, washers, screws and anchors. The line
also includes brass, plastic, stainless steel, and other miscellaneous
fasteners. The depth of the line, over 39,000 products, is believed to be the
largest among suppliers servicing the hardware retail segment. Fasteners
generated just over 51% of total sales in 2001. Non-fastener products feature
picture hanging items and accessories, keys and accessories, LNS, rope and chain
accessories, and an extensive list of specialty items. To assure quality from
its vendors, Hillman conducts periodic on-site evaluations, random sampling of
products and communicates results to vendors. Hillman also tracks the
performance of its vendors based on delivery time and accuracy of shipments.

Hillman provides a competitive line of metal key products for major retailers
and the automotive sector. In 2001, keys and accessories represented 24.4% of
total revenue. It manufactures two metal key duplication systems that are
niche-marketed to retail outlets, primarily mass merchants and home centers and
a code cutting system for use in automotive dealerships and in vehicle fleet
environments.

The Axxess Precision Key Duplication System(TM) creates high quality duplicate
keys with the precision of a locksmith while minimizing the technical skill
required by operators. The system was developed in response to retailers needs
for reducing the miscut rate on keys. Axxess keys provide retailers with nearly
ten times more gross profit per square foot than the average of all products
sold in grocery and mass merchant channels. Hillman also markets a conventional
key cutting system. Key styles marketed include standard brass keys, Color
Plus(TM) keys, rubber head


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keys, and high security vehicle anti-theft key blanks. The conventional system
is marketed to retailers who do not experience high employee turnover and
therefore do not have the same labor constraints as mass merchants, home centers
or grocery and drug retailers.

The key cutting system developed for the automotive industry, PC+ Code Cutter,
produces automobile keys using alphanumeric codes based on a vehicle's
identification number. Utilizing a proprietary computer program, the PC+ Code
Cutter identifies and then cuts keys based on the automobile's original key
pattern. The PC+ Code Cutter is distributed through Barnes Distribution, a
distribution company serving vehicular and industrial markets. Since its
introduction in February 1996, more than 5,000 PC+ Code Cutter systems have been
sold and/or leased.

Hillman also markets key accessories in conjunction with its key duplication
systems. Popular accessories include the Key Light(TM), Valet KeyChain(TM), key
identifiers, key coils and key clips. The Key Mates(TM) line of key accessories
includes a broad range of products such as key chains, tags, lights, floats,
holders, whistles, and a host of other miscellaneous items that complement the
use of keys.

Quick-Tag(TM) is a patented, state-of-the-art consumer-operated vending system
that custom engraves specialty products such as pet identification tags,
military-style I.D. tags, holiday ornaments and luggage tags. Using an
interactive touch screen, customers input information such as a pet name and
telephone number, and the system's proprietary technology engraves the tag in
less than two minutes. The Quick-Tag system does not require incremental labor
and generates high levels of customer satisfaction and attractive margins for
the retailer. The Quick-Tag custom engraving systems generate retail profit per
square foot, over seven times the typical retail average.

Letters, numbers and signs which accounted for 10.5% of 2001 revenues include
packaged self-adhesive letters and numbers; mailbox numbers and accessories;
house numbers and letters; contractor safety program signs; and driveway markers
and reflectors. Typical retailers dedicate eight linear feet of retail space for
this product and view it as a significant contributor to their retail offerings.

Hillman purchases a wide variety of materials and components to manufacture the
Axxess Key Duplication and Quick-Tag engraving machines, many of which are
manufactured to its specifications. Management does not believe that it is
overly dependent on any one supplier; the components do not generally require
proprietary technology; and Hillman has identified or used alternate suppliers
for its primary sourcing needs.

MARKETS AND CUSTOMERS. Hillman services approximately 15,000 franchise and
independent ("F&I") retail outlets. These individual dealers are typically
members of the larger cooperatives, such as TruServ, Ace and Do-it-Best. They
sell directly to the cooperative's retail locations and also supply many
fastener items to the cooperative's central warehouses. These central warehouses
distribute to their members that do not have a requirement for Hillman's
in-store service. These arrangements with the cooperatives reduce credit risk
and logistic expense for Hillman and reduce central warehouse inventory and
delivery costs for the cooperatives.

The products sold to the F&I dealers typically account for approximately 7% of
the retailer's revenues and over 25% of a hardware store's traffic. A typical


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hardware store maintains in inventory thousands of different items, many of
which generate small dollar sales but large profits. It is difficult for a
retailer to monitor economically all stock levels and to reorder the products
from multiple vendors. The problem is compounded by the necessity of receiving
small shipments of inventory at different times and having to stock the goods.
However, failure to have these small items consistently available will have an
adverse effect on store traffic, thereby denying the retailer the opportunity to
sell items that generate higher dollar sales.

In addition, Hillman sells its products to national accounts such as Wal*Mart,
Home Depot, Lowes, K*Mart, PETsMART, and PetCo. Hillman's status as a national
supplier of unique, proprietary products to rapidly growing Big Box retailers
allowed it to develop a formidable market position and high barriers to entry
within its product categories. Management believes that the dynamics, which make
its services attractive to hardware retailers, are present with these larger
customers as well.

Hillman serves over 21,000 customers, the top five of which accounted for
approximately 35% of its annualized sales. The single largest customer
represented slightly less than 12% of total revenue. Hillman telemarketing
activity also sells to approximately 5,000 smaller hardware outlets and over
6,000 non-hardware accounts through its telemarketing operation. New business is
also being cultivated internationally in such places as Canada, Mexico, South
and Central America, and the Caribbean.

SALES AND MARKETING. Hillman has always been more responsive to the needs of the
F&I retailers than its competitors because it employs the largest direct sales
organization in the retail home industry. This organization consists of over 210
people, managed by 20 field managers. Each sales representative is responsible
for approximately 50 full service accounts that they call on approximately every
two weeks. Coupled with the efforts of the Marketing Department, the sales force
not only sells products, but can sell merchandising and technological support
capabilities as well. The Marketing Department provides support through the
development of new products; sales collateral, promotional items, merchandising
aids and marketing services such as advertising and trade show management. Its
EDI system is used by a number of its large customers.

In addition, the national accounts field service organization consists of 245
service people and 20 field managers focusing on "Big Box" retailers, pet super
stores, large national discount chains and grocery stores. This organization
reorders products, details store shelves and sets up in-store promotions.

Management believes that Hillman provides unmatched product support, customer
service and profit opportunities for its retail distribution partners. Hillman
believes that a significant source of its competitive advantage rests in its
ability to provide a greater level of customer service than its competitors.
Hillman products are covered directly by the combined field service
organization, which provides service support through field visits. These field
visits provide Hillman with critical information relating to consumer buying
patterns and retailing trends, and complement their new product development
efforts. Field service representatives also help retail customers to improve the
efficiency and profitability of Hillman's on-site merchandising systems by
consulting with customers in the areas of EDI, product planning, inventory
control, systems interface and store operations.

COMPETITION. The principal competitors for Hillman's F&I business are Midwest
Fasteners, Serv-A-Lite, Elco (a division of Fastenal), and Hyko in the hardware
store marketplace. The first three carry mainly fastener products, while the
latter is the major competitor in letters numbers and signs. Hillman competes
primarily on field service, merchandising, as well as product availability,
price and breadth of product line.



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Management estimates that Hillman sells to approximately 65% of the full service
hardware stores in the F&I marketplace. The hardware outlets that purchase
products but not services from Hillman also purchase products from local and
regional distributors and cooperatives. Competition in this segment is primarily
on the basis of price and availability.

The primary competitors in the national accounts marketplace for fasteners are
Crown-Bolt with an estimated 50% market share, Elco and the Newell Group.
Hillman estimates its share of fasteners in this market to be approximately 20%.
Competition is based primarily on in-store service and price. Other competitors
are local and regional distributors.

The total domestic market for keys is estimated to be 600 million units at the
retail level with annual sales of over $900 million. The key duplication market
can be segmented into three primary retail categories: hardware stores,
locksmiths and Big Box retailers. Hillman believes it maintains the leading
market share of keys in terms of unit and dollar sales. To displace Hillman's
market position, a competitor would have to develop a full range of products
with demonstrably better technology without infringing on patents and buyback
existing inventory from retailers. Management believes that these substantial
competitive barriers help preserve its unique franchise within the key
duplication market segment.

Hyko is the primary competitor in LNS in hardware stores, home centers and mass
merchants. Management estimates that Hillman has the leading market position in
LNS at an approximate 42% market share.

In the engraving market segment, management estimates that the Quick-Tag
engraving system has a 17% market share in the pet tag market. Competitors in
this market are specialty retailers, direct mail order and retailers with
in-store mail order capability. The Quick-Tag system has patent protected
proprietary technology that is a major barrier to entry and preserves this
market segment.

RISK FACTORS

     RISKS ASSOCIATED WITH ACQUISITIONS

The Company is not currently a party to any agreement or understanding regarding
a material acquisition but is pursuing discussions with a number of prospective
sellers of businesses.

An element of Hillman's future growth strategy is to pursue selected
acquisitions that either expand or complement its businesses in new or existing
markets. However, there can be no assurance that the Company will be able to
identify or acquire acceptable acquisition candidates on terms favorable to the
Company and in a timely manner to the extent necessary to fulfill Hillman's
growth strategy. Future acquisitions may be financed through the issuance of
Common Stock, which may be dilutive to the Company's stockholders, or through
the incurrence of additional indebtedness. Furthermore, there can be no
assurance that competition for acquisition candidates will not escalate, thereby
increasing the costs of acquisitions. The process of integrating acquired
businesses into the Company's operations may result in unforeseen difficulties
and may require a disproportionate amount of resources and management's
attention, and there can be no assurance that Hillman will be able to
successfully integrate acquired businesses into its operations. The failure to
complete or successfully integrate prospective acquisitions may have an adverse
impact on the Company's growth strategy.



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     COMPETITION

The retail industry is highly competitive, with the principal methods of
competition being price, quality of service, quality of products, product
availability, credit terms and the provision of value-added services, such as
merchandising design, in-store service and inventory management. The Company
encounters competition from a large number of regional and national
distributors, some of which have greater financial resources than the Company
and may offer a greater variety of products.

     SEASONALITY AND ECONOMIC CONDITIONS

Hillman has in the past experienced seasonal fluctuations in sales and operating
results from quarter to quarter. Typically, the first calendar quarter is the
weakest due to the effect of weather on home projects and the construction
industry.

Changes in general economic conditions could also have a material adverse effect
on the Company's business, results of operations and financial condition.


     DEPENDENCE ON INFORMATION SYSTEMS

The Company believes that its proprietary computer software programs are an
integral part of its business and growth strategies. Hillman depends on its
information systems generally to process orders, to manage inventory and
accounts receivable collections, to purchase, sell and ship products efficiently
and on a timely basis, to maintain cost-effective operations and to provide
superior service to its customers. There can be no assurance that the
precautions which the Company has taken against certain events that could
disrupt the operations of its information systems will prevent the occurrence of
such a disruption. Any such disruption could have a material adverse effect on
the Company's business and results of operations.



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     INSURANCE ARRANGEMENTS

Under the Company's current insurance programs, commercial umbrella coverage is
obtained for catastrophic exposure and aggregate losses in excess of expected
claims. Since October 1991, the Company has retained the exposure on certain
expected losses related to worker's compensation, general liability and
automobile. The Company also retains the exposure on expected losses related to
health benefits of certain employees. The Company believes that its present
insurance is adequate for its businesses. See Note 17, Commitments and
Contingencies, of Notes to Consolidated Financial Statements of the Company as
of and for the three years ended December 31, 2001.

     EMPLOYEES

As of December 31, 2001, the Company's total operations employed approximately
1,460 employees, of which approximately 620 were sales personnel, approximately
635 were employed as warehouse, manufacturing and delivery personnel, and
approximately 205 were administrative positions. In the opinion of management,
employee relations are good.

     BACKLOG

The Company's sales backlog from ongoing operations was $1.6 million as of
December 31, 2001, and $1.3 million as of December 31, 2000.

     WHERE YOU CAN FIND MORE INFORMATION

The Company files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any reports, statements, or other
information filed by the Company at the Commission's public reference rooms at
450 5th Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-202-942-8090 for more information on the public reference rooms. The
Commission also maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers, like Hillman, that file electronically with the Commission. Copies may
also be obtained, after paying a duplicating fee, by electronic request to
publicinfo@sec.gov or by written request to Public Reference Section,
Washington, D.C. 20549-0102.

You can inspect reports, proxy statements, and other information about the
Company at the offices of The American Stock Exchange, 86 Trinity Place, New
York, NY 10006.



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     ITEM 2 - PROPERTIES.

The Hillman Group currently has approximately seventeen (17) leased warehouse
and stocking facilities located throughout the United States and Canada. The
Company's principal properties are as follows:

                           LOCATION                            DESCRIPTION
                           --------                            -----------
                           Cincinnati, Ohio                   358,000 sq.ft.
                           Tempe, Arizona                     208,000 sq.ft.

In the opinion of management, the Company's existing facilities are in good
condition.

     ITEM 3 - LEGAL PROCEEDINGS.

Litigation originally instituted on February 27, 1996 is pending in the Court of
Common Pleas of Montgomery County, Pennsylvania in which Dorman Products of
America, Ltd. ("Dorman"), and its parent, R&B, Inc. ("R&B"), allege that
misrepresentations of certain facts were made by the Company, upon which R&B
allegedly based its offer to purchase the assets of the Company's Dorman
Products division. In the opinion of management, the ultimate resolution of this
matter will not have a material adverse effect on the consolidated financial
position, operations or cash flows of the Company.

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

The Company did not submit any matters to a vote of stockholders during the
quarter ended December 31, 2001.



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                                     PART II

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

STOCK EXCHANGE LISTING

Effective June 19, 2001, the Company transferred listing of its Common Stock and
Trust Preferred Securities from the New York Stock Exchange to the American
Stock exchange utilizing its same ticker symbols SDP and SDP.PR, respectively.
As a result of the Merger Transaction, the common stock is no longer publicly
traded. In connection with the SunSource name change on March 18, 2002, the
Trust Preferred Securities trade under the ticker symbol HLM.Pr (formerly
SDP.Pr).

The following table sets forth the high and low closing sale prices on the New
York Stock Exchange and the American Stock Exchange composite tapes for the
Trust Preferred Securities.




<TABLE>
<CAPTION>
         2001                                                 HIGH                LOW
         ----                                                 ------            -------
<S>                                                           <C>               <C>
         First Quarter                                        $18.62            $15.06
         Second Quarter                                        23.50             17.90
         Third Quarter                                         24.79             23.21
         Fourth Quarter                                        25.47             24.40

         2000
         ----

         First Quarter                                        $19.75            $12.44
         Second Quarter                                        19.25             16.25
         Third Quarter                                         21.00             16.75
         Fourth Quarter                                        17.13             14.75
</TABLE>

The Trust Preferred Securities have a liquidation value of $25.00 per security.
As of March 20, 2002, there were 852 holders of Trust Preferred Securities and
fifteen (15) common stockholders. The total number of Trust Preferred Securities
outstanding as of March 20, 2002, was 4,217,724. The total number of Common
Shares outstanding as of March 20, 2002, was 7,138,665.

DISTRIBUTIONS

The Company pays interest to the Hillman Group Capital Trust, formerly SunSource
Capital Trust (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 years ended December 31, 2001 and 2000, the Company paid
$12.2 million in interest on the Junior Subordinated Debentures, equivalent to
the amounts distributed by the Trust on the Trust Preferred Securities.



                                       12
<PAGE>




ITEM 6 - SELECTED FINANCIAL DATA.

As a result of the Merger Transaction, 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 Company's debt refinancing and sale of an
operating subsidiary completed subsequent to the Merger Transaction.

The following table sets forth selected consolidated financial data of the
Predecessor as of and for the four years ended December 31, 2000 and the nine
months ended September 30, 2001; and consolidated financial data of the
Successor as of and for the three months ended December 31, 2001. Data for all
periods shown are derived from financial statements of the Company which have
been audited by PricewaterhouseCoopers LLP, independent accountants, as
indicated in their reports thereon. See accompanying Notes to Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for information regarding the acquisition
of the Company by Allied Capital, the Company's debt refinancing, and
discontinued operations as well as other acquisitions and divestitures that
affect comparability.

                             (dollars in thousands)

 INCOME STATEMENT DATA:

<TABLE>
<CAPTION>
                                              SUCCESSOR                                   PREDECESSOR
                                             ------------     ---------------------------------------------------------------------
                                             THREE MONTHS     NINE MONTHS           YEAR         YEAR           YEAR        YEAR
                                                ENDED            ENDED              ENDED        ENDED          ENDED       ENDED
                                               12/31/01         9/30/01           12/31/00      12/31/99      12/31/98     12/31/97
                                             ------------     -----------         --------      --------      --------     --------
<S>                                          <C>               <C>               <C>            <C>           <C>          <C>
Continuing Operations
  Net sales                                  $ 60,040          $341,307          $462,839       $543,277      $603,071     $586,411
  Gross profit                                 34,442           143,564           184,660        226,154       252,168      241,003
       Gain on contribution of subsidiaries        --                --            49,115             --            --           --
       Income (loss) before
         discontinued operations               (2,909)           (1,327)           27,290        (11,321)       11,517       30,507
       Income (loss) from discontinued
         operations                                --                --            (2,610)       (25,815)        2,300        2,025
     Extraordinary loss                            --                --                --           (235)           --       (3,392)
     Net income (loss)                       $ (2,909)          $(1,327)         $ 24,680       $(37,371)      $13,817      $29,140
     BALANCE SHEET DATA AT DECEMBER 31:
     Total assets                            $344,564                NA          $322,589       $321,626      $327,523     $292,945
     Long-term debt and capitalized
       lease obligations (1)                 $128,739                NA          $102,790       $126,723       $95,842     $ 93,728
</TABLE>



     (1)  Includes current portion of long-term debt.

                                       13
<PAGE>






ITEM 7 - 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
Company's debt refinancing and sale of an operating subsidiary completed
subsequent to the Merger Transaction (see Financing Arrangements and
Acquisitions/Divestitures below). The Company's


                                       14
<PAGE>

final two business days of operation in September 2001 are immaterial for
separate presentation and have been reflected in the Predecessor Operations.

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 December 31, 2001, the outstanding balance of the term loans
aggregated $54.125 million.

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
acquisition of Axxess Technologies, Inc. on April 7, 2000 (the "Axxess
Subordinated Note Repayment").

 CORPORATE REORGANIZATION

On May 16, 2001, the Board of Directors approved a plan of legal reorganization
whereby (i) SunSource Technology Services, Inc. ("STS") was formed as a single
member limited liability company and a wholly owned subsidiary of the Hillman
Group and (ii) Axxess Technologies, Inc. was merged with and into the Hillman
Group, collectively, the "2001 Legal Reorganization".

 ACQUISITIONS AND DIVESTITURES

On September 28, 2001, the Company sold substantially all of the assets of STS,
its Technology Services business. The sales price aggregated $25.5 million in
cash and preferred stock, subject to post-closing adjustments, plus the
assumption of certain liabilities by the buyer.

In December 2000, the Board approved a plan to liquidate the Company's
investment in SunSource Integrated Services de Mexico, SA de CV, the "Mexican
Business Segment" which provided comprehensive inventory management services of
maintenance and repair materials to large manufacturing plants in Mexico. The
Company recorded a pre-tax loss on liquidation of approximately $4.6 million
representing non-cash charges for accumulated translation losses, the write-down
of inventories and other assets, and other liquidation-related costs. The
liquidation process was substantially completed as of June 30, 2001. On August
3, 2001, STS distributed its common stock investment in the Mexican Business
Segment to the Hillman Group to segregate the STS Business from the remaining
business interests of SunSource. No additional loss on disposal was recorded for
the twelve months ended December 31, 2001.

On November 3, 2000, the Company purchased inventory and other assets of the
Sharon-Philstone division of Pawtucket Fasteners, L.P. of Rhode Island,
distributors of fasteners to the retail hardware marketplace with annual sales
of approximately $14 million for the twelve months ended prior to the
acquisition. The purchase price was $6.9 million for inventory and other assets
including certain post-closing adjustments.

On April 13, 2000, the Company sold substantially all of the assets of Harding
Glass, Inc. ("Harding") for a cash purchase price of $30.6 million plus the
assumption by the buyer of certain liabilities aggregating $12.7 million,
subject


                                       15
<PAGE>

to certain post-closing adjustments. Proceeds from the sale of Harding were used
to repay the Company's outstanding debt. Harding sales aggregated $28.0 million
from January 1, 2000 through April 12, 2000. Since December 1999, Harding has
been accounted for as a discontinued operation and, accordingly, its results of
operations were segregated from results of the Company's ongoing businesses
including restatement of prior periods presented. Through December 31, 2000, the
Company had recorded a loss on the discontinued Harding segment of $22.0 million
in the aggregate, net of tax benefits. No additional loss on disposal was
recorded for the twelve months ended December 31, 2001.

On April 7, 2000, the Company acquired Axxess Technologies, Inc. ("Axxess" or
"Axxess Technologies"), a Tempe, Arizona manufacturer of key duplication and
identification systems. The transaction was structured as a purchase of 100% of
the stock of the privately held company and repayment of outstanding Axxess debt
in exchange for $87 million in cash and $23 million in subordinated notes.
Axxess' sales aggregated $19.4 million for the three months ended March 31,
2000. Axxess' results of operations are included in the results of the Hillman
Group from the date of acquisition. On June 1, 2001, Axxess merged with and into
the Hillman Group in conjunction with the 2001 Legal Reorganization noted above
with the Hillman Group being the surviving entity in the merger.

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
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 million in cash proceeds
from the transaction through repayment of assumed debt by G-C and retained
minority ownership in G-C. Affiliates of Glencoe hold the controlling interest
in G-C. The Company recorded a pre-tax gain on the transaction of approximately
$49.1 million in the first quarter of 2000. On January 4, 2002 G-C provided the
Company notice that it intends to exercise its call right to purchase the
Company's partnership interest as a result of the Merger Transaction with Allied
Capital. Hillman is expected to continue to have a debt investment in Kar
Products upon settlement of G-C's call right.

On October 4, 2000, SunSource's Kar Products affiliate, through the partnership
formed with Glencoe Capital, acquired all of the outstanding stock of Brampton
Fastener Co. Limited, d/b/a Brafasco, a supplier of maintenance and repair
products to industrial customers based in Toronto, Canada. Brafasco had sales of
$28.5 million ($CDN) for the year ended December 31, 2000.

On July 1, 1999, the Company sold the assets of its Integrated Supply fastener
business serving original equipment manufacturers ("OEM") for cash
consideration, net of expenses, of approximately $9.2 million subject to certain
post-closing adjustments plus the assumption of certain liabilities. The Company
recorded an after-tax gain on the sale in the amount of $0.4 million. Sales from
the OEM fastener business aggregated $11.0 million for the six months ended June
30, 1999.

RESTRUCTURING CHARGES AND ASSET WRITE-DOWNS

In the second quarter of 1999, the Company recorded restructuring charges and
asset write-downs aggregating $10.2 million. These non-recurring charges and
write-downs were a result of the Company's plan to reposition Technology
Services ("STS") and Kar Products, write-down key machines at the Hillman Group,
and realign corporate overhead expenses (collectively, the "1999 Restructuring
Plan"). The Company completed the 1999 Restructuring Plan during the fourth
quarter of 1999.



                                       16
<PAGE>

The Technology Services charges and write-downs aggregated $5.4 million
including termination benefits of $2.8 million, an inventory write-down of $2.1
million, and other exit costs of $0.5 million. STS terminated 94 employees as a
result of the 1999 Restructuring Plan.

The Kar Products charge amounted to $1.0 million, comprised solely of
termination benefits. Kar Products terminated 10 employees as a result of the
1999 Restructuring Plan.

The Hillman Group's asset write-down was $3.3 million which was primarily the
result of Hillman's decision not to seek recovery of key machines from
retailers. The write-down represented the remaining net book value of key
machines capitalized as of June 30, 1999.

The Corporate Headquarters component of the restructuring charge was comprised
of other exit costs of $0.4 million and termination benefits of $0.1 million.

See Note 1, Basis of Presentation, of Notes To Consolidated Financial
Statements for the accounting recognition of the restructuring charges.



                                       17
<PAGE>


Results of Operations

Segment Sales and Profitability for each of the Three Years Ended December 31,
2001

                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                   December 31, 2001 (a)         December 31, 2000             December 31, 1999
                                                                    % OF                        % OF                          % OF
Sales                                               AMOUNT         TOTAL         AMOUNT        TOTAL          AMOUNT         TOTAL
-----                                            -------------   ----------   -------------  ----------    --------------  ---------
<S>                                                  <C>            <C>          <C>            <C>            <C>            <C>
Hillman Group- Ongoing Operations (b)                $248,786       100.0%       $ 210,938      100.0%         $ 151,884      100.0%
Technology Services (c)                               152,561                      228,730                       250,394
Expediter Segment (d)                                       -                       22,122                       124,724
Integrated Supply - sold business
 and terminated contracts (e)                               -                        1,048                        16,275
                                                 -------------                -------------                --------------
Consolidated Net Sales                               $401,347                    $ 462,838                     $ 543,277
                                                 =============                =============                ==============

                                                                    % OF                        % OF                          % OF
Gross Profit                                                       SALES                       SALES                         SALES
------------                                                     ----------                  ----------                    ---------
Hillman Group- Ongoing Operations (b)                $140,983        56.7%       $ 117,295       55.6%          $ 81,045       53.4%
Technology Services (c)                                37,023                       52,313                        58,551
Expediter Segment (d)                                       -                       15,052                        86,204
Integrated Supply - sold business
 and terminated contracts (e)                               -                            -                         2,484
                                                 -------------                -------------                --------------
 Consolidated Gross Profit
 before inventory write-down                          178,006                      184,660                       228,284
Inventory write-down                                        -                            -                       (2,130)
                                                 -------------                -------------                --------------
 Consolidated Gross Profit                           $178,006                    $ 184,660                     $ 226,154
                                                 =============                =============                ==============
EBITDA (h)

Hillman Group (b)                                     $45,374        18.2%        $ 34,053       16.1%          $ 15,816       10.4%
Corporate expenses                                    (5,193)       (2.1%)         (8,956)      (4.2%)           (9,161)      (6.0%)
                                                 -------------                -------------                --------------
 Consolidated EBITDA -
 ongoing operations                                    40,181        16.2%          25,097       11.9%             6,655        4.4%
Technology Services (c)                               (1,205)                      (6,652)                      (11,800)
Expediter Segment (d)                                       -                        2,823                        18,965
Integrated Supply - sold business
 and terminated contracts (e)                               -                            -                       (2,125)
Equity in Earnings of
 Expediter Segment (f)                                  (105)                        2,438                             -
Gain (loss) on curtailment/termination
of pension plans (g)                                        -                      (4,279)                         5,608
Restructuring charges                                       -                            -                      (10,248)
                                                 -------------                -------------                --------------
 Consolidated EBITDA                                  $38,871                     $ 19,427                       $ 7,055
                                                 =============                =============                ==============
</TABLE>

(a)  For the purpose of comparing the Company's results of operations for each
     of the three years ended December 31, 2001, the results of the Predecessor
     Operations for the nine months ended September 30, 2001 have been combined
     with the results of the Successor Operations for the three months ended
     December 31, 2001.

(b)  Includes sales, gross profit and EBITDA from Axxess Technologies, Inc.
     since its acquisition on April 7, 2000 and Sharon-Philstone since its
     acquisition on November 3, 2000.

(c)  Represents sales, gross profit and EBITDA from the Company's SunSource
     Technology Services business until its sale on September 28, 2001.

(d)  Represents sales, gross profit and EBITDA from the Company's Kar Products,
     Inc. and A & H Bolt & Nut Company Limited business (collectively, the
     "Expediter Segment") until its contribution on March 2, 2000 to a newly
     formed partnership affiliated with Glencoe Capital L.L.C.

(e)  Represents sales, gross profit and EBITDA from the OEM Fastener Business,
     for the six months ended June 30, 1999 (sold on July 1, 1999) and contracts
     terminated in 1999 and 2000.

(f)  Represents Equity in Earnings from the Contributed Expediter Segment since
     March 2, 2000.

(g)  Represents non-recurring income (expense) as a result of the merger and
     termination of the Company's defined benefit plans in 2000 and the
     curtailment of benefits related to such plans in 1999.

(h)  "EBITDA" is defined as earnings before interest, taxes, depreciation and
     amortization.

                                       18
<PAGE>


The comparison of operating results for the periods presented below reflect
on-going operations only (the Hillman Group including the acquisition of Axxess
Technologies and Sharon-Philstone on a purchase accounting basis and Corporate
Expenses). Excluded from this discussion are divestitures and non-recurring
items as identified on the preceding Segment Sales and Profitability Schedule.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Net sales from the Hillman Group from ongoing operations increased $37.9 million
in 2001 to $248.8 million from $210.9 million in 2000 primarily as a result of
the acquisition of Axxess and Sharon-Philstone, and strong sales from national
accounts. On a pro forma basis including Axxess, the Hillman Group's sales
increased 8.0% in 2001 over the prior year period.

The sales backlog in the Hillman Group was $1.6 million as of December 31, 2001,
compared with $1.3 million at December 31, 2000.

The Hillman Group's gross margin was 56.7% in 2001 compared with 55.6% in 2000.
On a comparable basis, including Axxess for the full year 2000, the gross margin
was 55.8% in 2000. Gross margin improved 0.9% in the comparison period as a
result of higher margin sales of keys and identification items related to the
acquisition of Axxess, price increases for certain fastener products and
productivity gains in the various manufacturing operations.

The Company's Selling, General and Administrative Expenses for the full year
2000 ("S,G&A") from ongoing operations on a comparable basis, including Axxess
increased $0.8 million from $99.6 million in 2000 to $100.4 million in 2001.
Selling expenses on a comparable basis, including Axxess for the full year 2000,
increased $2.7 million primarily as a result of conversion costs associated with
the Hillman Group's purchase of inventory and other assets of Sharon-Philstone.
Warehouse and delivery expenses on a comparable basis, including Axxess for the
full year 2000, increased by $0.6 million. Higher labor costs from new business
and increased rent expense from a new facility offset reduced property taxes at
the Hillman Group. General and administrative expenses on a comparable basis,
including Axxess for the full year 2000, decreased by $2.5 million primarily as
a result of reduced corporate expenses offset by performance bonuses related to
the acquisition of Axxess.

Total S,G&A expenses from ongoing operations on a comparable basis, including
Axxess for the full year 2000, as a percentage of sales compared with prior year
are as follows:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
         AS OF A % OF SALES                                  2001             2000
         ------------------                                  ----             ----
<S>                                                          <C>              <C>
         Selling Expenses                                    20.2%            20.5%
         Warehouse and Delivery Expenses                     10.5%            11.1%
         General and Administrative Expenses                  9.7%            11.6%
                                                             -----            -----
                  Total S,G&A Expenses                       40.4%            43.2%
                                                             =====            =====
</TABLE>

EBITDA from ongoing operations for 2001 was $40.2 million including Axxess and
corporate expenses compared with $29.1 million on a pro forma basis for the year
2000 or an increase of 38.1%.

The Company's operating profit margin from ongoing operations (EBITDA as a
percentage of sales) after corporate expenses increased to 16.2% in 2001
compared with 12.6% in 2000 on a pro forma basis as a result of the acquisition
of Axxess and operational efficiencies.



                                       19
<PAGE>
Depreciation expense from ongoing operations increased $3.8 million to $11.0
million in 2001 from $7.2 million in 2000 primarily as a result of the
acquisition of Axxess.

Amortization expense from ongoing operations increased $1.3 million to $4.0
million primarily as a result of the acquisition of Axxess, Sharon-Philstone and
the Merger Transaction.

Interest expense, net for ongoing operations increased $1.6 million in 2001
from $11.1 million in 2000, primarily as a result of additional interest and
related amortization of deferred financing fees in connection with the Company's
December 2000 issuance of $30.0 million of unsecured subordinated notes.

The Company has recorded a management fee charge of $0.25 million on the
Successor's Statement of Operations for the three months ended December 31,
2001. 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 $0.25 million for calendar year 2001 and $1.8 million
for each calendar year thereafter. 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 years ended December 31, 2001 and 2000, the
Company paid $12.2 million in interest on the Junior Subordinated Debentures,
equivalent to the amounts distributed by the Trust on the Trust Preferred
Securities.

See Note 6, Income Taxes of Notes To Consolidated Financial Statements of the
Company for the three years ended December 31, 2001, for income taxes and
disclosures related to 2001 and 2000 income tax events.

YEARS ENDED DECEMBER 31, 2000 AND 1999

Net sales from the Hillman Group's ongoing operations increased $59.1 million or
38.9% in 2000 to $210.9 million from $151.9 million in 1999 primarily due to the
acquisition of Axxess in early April 2000. Excluding Axxess, Hillman's sales
decreased 1.8% in 2000 over the prior year level as a result of the softening
economy affecting the retail sector during the second half of 2000.

The sales backlog in the Hillman Group was $1.3 million as of December 31, 2000,
compared with $0.6 million at December 31, 1999, primarily as a result of
increased sales volume.

The gross margin from ongoing operations was 55.6% in 2000 compared with 53.4%
in 1999 as a result of higher margin sales of keys, and identification items
related to the acquisition of Axxess. Excluding Axxess, the Hillman Group's
gross margin was 54.6% for the twelve months ended December 31, 2000.

The Company's S,G,& A expenses from ongoing operations excluding Axxess,
decreased $2.1 million from $74.8 million in 1999 to $72.7 million in 2000.
Selling expenses on a comparable basis including Axxess decreased $2.2 million
primarily as a result of reduced sales commissions in the existing Hillman
Group's business. Warehouse and delivery expenses decreased $0.4 million as a
result primarily of lower freight and consulting costs excluding Axxess for the
Hillman Group. General and administrative expenses on a comparable basis
increased by $0.3 million as a result of increased bad debt and health and
welfare costs for the Hillman Group offset by reduced corporate overhead
expenses.



                                       20
<PAGE>
S,G&A expenses from ongoing operations as a percentage of sales compared with
1999, excluding Axxess are as follows:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                   -------------------------------
                                                   2000                       1999
                                                   ----                       ----
<S>                                                <C>                        <C>
         Selling Expenses                          21.4%                      22.4%
         Warehouse and Delivery Expenses           14.7%                      14.6%
         General and Administrative Expenses       12.7%                      12.3%
                                                  ------                      -----
                  Total S,G&A Expenses             48.8%                      49.3%
                                                   =====                      =====
</TABLE>

EBITDA from ongoing operations for the year ended December 31, 2000, was $25.1
million compared with EBITDA from ongoing operations of $6.7 million in 1999
reflecting the inclusion of the acquisition of Axxess Technologies since April
2000. Excluding Axxess, EBITDA from ongoing operations increased $2.2 million or
33.4% over the prior year comparable level. See Segment Sales and Profitability
schedule for the components of EBITDA from ongoing operations for years 2000 and
1999.

The Company's consolidated operating profit margin (EBITDA as a percentage of
sales) from ongoing operations increased to 11.9% in 2000 compared with a 4.4%
operating profit margin in 1999 primarily as a result of the acquisition of
Axxess and operational efficiencies. Excluding the Axxess acquisition, the
Hillman Group's operating profit margin before corporate expenses was 12.0% in
2000.

Interest expense, net for ongoing operations increased $1.5 million in 2000 from
$9.6 million in 1999 due primarily to the acquisition of Axxess and amortization
of deferred financing fees related to refinancing of the Company's debt
structure since December 1999.

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 years ended December 31, 2000 and 1999, the
Company paid $12.2 million in interest on the Junior Subordinated Debentures,
equivalent to the amounts distributed by the Trust on the Trust Preferred
Securities.

See Note 6, Income Taxes, of Notes To Consolidated Financial Statements of the
Company for the three years ended December 31, 2001, for income taxes and
disclosures related to 2000 and 1999 income tax events.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position of $2.1 million as of December 31, 2001, decreased
$0.8 million from the balance at December 31, 2000, as follows: Cash provided
from operations of $7.7 million and cash provided by financing activities of
$2.4 million less cash used for investing activities of $10.9 million. Please
reference the Consolidated Statements of Cash flow of the Predecessor for the
nine months ended September 30, 2001 and of the Successor for the three months
ended December 31, 2001.

The Company's working capital position (excluding cash and cash equivalents,
restricted cash, and restricted investments) of $48.3 million as of December 31,
2001, represents a decrease of $20.4 million from the December 31, 2000 level of
$68.7 million as follows (dollars in thousands):



                                       21
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                     <C>
Reinvestment in working capital                                                         $  13,624
Disposition of STS's working capital                                                      (28,174)
Decrease in current deferred tax assets and liabilities                                    (4,784)
Other items, net                                                                           (1,074)
                                                                                        ----------

Net decrease in working capital for the year ended December 31, 2001                    $ (20,408)
                                                                                        ==========
</TABLE>

The Company's current ratio (excluding the items noted above) increased to 2.1x
at December 31, 2001 from 1.9x at December 31, 2000.

The Company's contractual obligations in thousands of dollars as of December 31,
2001 are summarized below:

<TABLE>
<CAPTION>
                                                                               PAYMENTS DUE
                                                                       --------------------------
                                                                       LESS THAN                  1 TO 3
CONTRACTUAL OBLIGATIONS                              TOTAL             ONE YEAR                    YEARS
-----------------------                              -----             --------                    -----
<S>                                                <C>                <C>                       <C>
Guaranteed Preferred Beneficial
 Interests in the Company's Junior
 Subordinated Debentures                           $105,446           $      --                 $      --
Long Term Senior Term Loans                          54,125               3,813                     9,500
Bank Revolving Credit Facility                       50,312                  --                        --
Long Term Unsecured Subordinated Notes               40,240                  --                        --
Operating Leases                                     27,532               6,212                     8,589
Deferred Compensation Obligations                     8,649               1,187                     2,375
Capital Lease Obligations                               394                  99                       137
Other Long Term Obligations                           8,322               1,730                     2,753
                                                   --------           ---------                 ---------
         Total Contractual Cash
          Obligations                              $295,020           $  13,041                 $  23,354
                                                   ========           =========                 =========
</TABLE>

All of the obligations noted above are reflected on the Company's Consolidated
Balance Sheet as of December 31, 2001, except for the Operating Leases. See
Notes To Consolidated Financial Statements as of and for the Three Years Ended
December 31, 2001 for additional information. Please reference Note 17,
Commitments and Contingencies, for off-balance sheet obligations regarding
outstanding letters of credit for certain insurance programs and contingent
divestiture obligations aggregating $5.2 million and guaranteed lease
obligations in the amount of $0.1 million.

As of December 31, 2001, the Company had $10.7 million available under its
senior secured credit facilities. The Company had approximately $88.5 million of
outstanding debt at December 31, 2001, consisting of $54.1 million in term
loans, $34.1 million in revolving credit borrowings and $0.3 million in
capitalized lease obligations. The term loans consisted of a $34.9 million Term
B Loan (the "Term Loan B") currently at a three (3) month LIBOR rate of 6.19%
and a $19.2 million Term A loan (the "Term Loan A") currently at a three (3)
month LIBOR rate of 5.69%. The revolver borrowings (the "Revolver") consist of
$30.0 million currently at a six (6) month LIBOR rate of 5.63% and $4.1 million
at an effective rate of 6.75%. The capitalized lease obligations were at various
interest rates.

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 new financing consists of a Revolver, Term Loan A, and Term Loan
B. The Revolver and Term Loan A have a five-year term and Term Loan B has a
seven-year term. The credit facility provides Hillman with adequate funds for
working capital and other corporate requirements.

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 1.30x for


                                       22
<PAGE>

the twelve month period ended December 31, 2001. 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.

On September 28, 2001, the Company sold substantially all of the assets of
Technology Services, including its Canadian operation for a sales price of $25.5
million in cash and preferred stock plus the assumption of certain liabilities
by the buyer, subject to certain post-closing adjustments. The cash proceeds
from the sale of SunSource Technology Services were distributed to Allied
Capital and others including certain members of management, who are the
remaining shareholders of the Company.

Interest on the Amended Subordinated Debt Issuance of $40 million to Allied
Capital 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. The
additional cash proceeds generated of $10 million were used primarily for the
Axxess Subordinated Note Repayment which had a balance of approximately $8.8
million on September 28, 2001. See Financing Arrangements discussed earlier
herein.

As of December 31, 2001, the Company's total debt (including distributions
payable) as a percentage of its consolidated capitalization (total debt, Trust
Preferred Securities and stockholders' equity) was approximately 45.3% compared
with 45.0% at December 31, 2000. The Company's consolidated capitalization
(including distributions payable) as of December 31, 2001, was approximately
$284.3 million compared to $231.9 million at December 31, 2000.

The Company spent $12.8 million for capital expenditures in 2001, primarily for
key duplication machines and machinery and equipment. In addition, the Company
has spent $2.2 million in 2001 for materials and supplies and component parts
for construction in process of key duplication machines.

The Company has deferred tax assets aggregating $34.6 million and deferred tax
liabilities of $4.6 million as of December 31, 2001, as determined in accordance
with Statement of Financial Accounting Standards ("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.

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 to raise prices is dependent on competitive market conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's accounting policies are more fully described in Note 2, Summary of
Significant Accounting Policies, of Notes To Consolidated Financial Statements.
As disclosed in Note 2, Summary of Significant Accounting Policies, of Notes To
Consolidated Financial Statements, the preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions about future events that affect the amounts
reported in the financial


                                       23
<PAGE>

statements and accompanying notes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the consolidated
financial statements.

The most significant accounting estimates inherent in the preparation of the
Company's consolidated financial statements include estimates associated with
its evaluation of the recoverability of goodwill as well as those used in the
determination of liabilities related to insurance programs, litigation,
discontinued operations, taxation, restructuring, and environmental matters. In
addition, significant estimates form the basis for the Company's reserves with
respect to sales and pricing allowances, collectibility of accounts receivable,
inventory valuations, post-retirement benefits, post-employment benefits, and
certain benefits provided to current employees. Various assumptions and other
factors underlie the determination of these significant estimates. The process
of determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions,
product mix, and in some cases, actuarial techniques. The Company constantly
re-evaluates these significant factors and makes adjustments where facts and
circumstances dictate. Specific factors are as follows: recoverability of
goodwill is based on discounted future cash flows; litigation and environmental
matters are based on projections provided by legal counsel; insurance programs
and post-retirement benefits are actuarily determined; discontinued operations
and restructuring charges are based on expected termination costs; deferred
taxes are based on the Company's projections of future taxable income; sales and
returns and allowances are based on historical activity and customer contracts;
accounts receivable reserves are based on doubtful accounts and aging of
outstanding balances; inventory reserves are based on expected obsolescence and
excess inventory levels; and post-employment and other employee benefits are
based on benefit plan requirements and severance agreements. Historically,
actual results have not significantly deviated from those determined using the
estimates described above.

The Company believes that its critical accounting policies described in Note 2,
Summary of Significant Accounting Policies of Notes To Consolidated Financial
Statements affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Please reference Note 1,
Basis of Presentation, of Notes To Consolidated Financial Statements for
additional related information.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("the FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 established accounting
and reporting standards for derivative financial instruments and hedging
activities, and requires the Company to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value. Gains
and losses resulting from changes in fair value accounted for depending on the
use of the derivative and whether it is designated and qualifies for hedge
accounting. In June 1999, the FASB issued SFAS 137, which deferred the
implementation of SFAS 133. The Company adopted SFAS 133 during the first
quarter of 2001. The adoption of SFAS 133 has not had a material impact on the
Company's financial position and results of operations because the Company
generally does not engage in derivative transactions.



                                       24
<PAGE>

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("FAS 141")
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141
requires that all business combinations be accounted for under the purchase
method and provides that the use of the pooling-of-interests method is
prohibited for business combinations initiated after June 30, 2001. FAS 141 also
establishes criteria for the separate recognition of intangible assets acquired
in a business combination. FAS 142 requires that goodwill no longer be amortized
to earnings, but instead be subject to periodic testing for impairment. FAS 142
is effective for fiscal years beginning after December 15, 2001, with earlier
application permitted only in specified circumstances. Management is currently
evaluating the expected impact of FAS 142 but does not anticipate a material
impact on the Company's financial position and results of operations.

At the end of June 2001, the FASB issued FASB Statement No. 143, Accounting for
Asset Retirement Obligations. FAS 143 requires that obligations associated with
the retirement of a tangible long-lived asset be recorded as a liability when
those obligations are incurred, with the amount of the liability initially
measured at fair value. FAS 143 will be effective for financial statements for
fiscal years beginning after June 15, 2002. Management is currently evaluating
the expected impact of FAS 143.

FAS 144 supersedes FAS 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB 30, Reporting the Results of Operations, Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. FAS 144 was necessary to resolve significant implementation issues
related to SFAS 121. Although the proposed statement supercedes FAS No. 121, it
retains the fundamental measurement provisions for assets that are to be
disposed of by sale. Additionally, FAS 144 retains the basic provisions of APB
30 for the presentation of discontinued operations in the income statement but
broadens that presentation to include a component of an entity, rather than a
segment of a business. The provisions of FAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. Management is currently evaluating the
expected impact of FAS 144 but does not anticipate a material impact on the
Company's financial position and results of operations.



                                       25
<PAGE>

FORWARD LOOKING STATEMENTS

Certain disclosures related to the Merger Transaction, financing arrangements,
and acquisitions and divestitures 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 this Form 10-K. 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.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.



                                       26
<PAGE>


     ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                         Page
<S>                                                                                       <C>
REPORT OF INDEPENDENT ACCOUNTANTS                                                         28

FINANCIAL STATEMENTS:

Consolidated Balance Sheets, December 31, 2001 and 2000                                   29

Consolidated Statements of Operations for the Three Months Ended December 31,
  2001, Nine Months ended September 30, 2001, and Years ended December 31, 2000
  and 1999                                                                                30

Consolidated Statements of Cash Flows for the Three Months Ended December 31,
  2001, Nine Months ended September 30, 2001, and Years ended December 31, 2000
  and 1999                                                                                31

Consolidated Statements of Changes in Stockholders'
  Equity for the Three Months Ended December 31, 2001,
  Nine Months ended September 30, 2001, and
  Year ended December 31, 2000                                                            32

Notes To Consolidated Financial Statements                                             33-59

FINANCIAL STATEMENT SCHEDULES:

Valuation Accounts                                                                        60
</TABLE>






                                       27
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders'
The Hillman Companies, Inc.


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of the
Hillman Companies, Inc. (formerly SunSource Inc.) at December 31, 2001 and
2000, and the results of their operations and their cash flows for the
three-month period ended December 31, 2001, the nine-month period ended
September 30, 2001 and the two years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 15, 2002
                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                         Successor                       Predecessor
                                                                  -------------------------        ------------------------
                                                                        December 31,                     December 31,
                                                    ASSETS                  2001                             2000
                                                    ------        -------------------------        ------------------------
<S>                                                                                 <C>                              <C>
Current assets:
Cash and cash equivalents                                                           $2,059                           $2,811
Restricted cash                                                                          -                           10,955
Restricted investments                                                               1,187                                -
Accounts receivable, net of
allowance for doubtful accounts of
$537 and $1,400 respectively                                                        28,399                           46,912
Inventories                                                                         49,937                           78,658
Deferred income taxes                                                                9,136                           14,483
Net assets held for sale and liquidation                                               146                            1,767
Other current assets                                                                 5,722                            6,194
                                                                  -------------------------        ------------------------
Total current assets                                                                96,586                          161,780
Property and equipment, net                                                         55,285                           58,314
Goodwill and other intangibles (Net of accumulated
amortization of $1,588 and $14,228, respectively)                                  133,138                           77,949
Deferred income taxes                                                               25,443                           15,118
Restricted investments                                                               7,462                                -
Other investments                                                                   16,185                            1,030
Deferred financing fees                                                              5,536                            5,835
Other assets                                                                         4,929                            2,563
                                                                  -------------------------        ------------------------

Total assets                                                                      $344,564                         $322,589
                                                                  =========================        ========================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
Accounts payable                                                                  $ 17,124                         $ 39,785
Current portion of senior term loans                                                 3,813                              375
Current portion of capitalized lease obligations                                        74                              915
Current portion of unsecured subordinated notes                                          -                            2,677
Notes payable                                                                            -                              624
Dividends / distributions payable                                                        -                            1,019
Accrued expenses:
Salaries and wages                                                                   5,337                            4,307
Income and other taxes                                                               2,014                            2,722
Deferred compensation                                                                1,187                            4,543
Accrued liabilities on discontinued operations                                         810                            2,407
Other accrued expenses                                                              14,617                           19,305
Deferred income tax liability                                                           31                              594
                                                                  -------------------------        ------------------------
Total current liabilities                                                           45,007                           79,273
Long-term senior term loans                                                         50,312                            2,125
Bank revolving credit                                                               34,052                           55,111
Long-term capitalized lease obligations                                                248                              627
Long-term unsecured subordinated notes                                              40,240                           40,960
Deferred compensation                                                                7,462                            7,868
Deferred income tax liability                                                        4,603                            1,629
Other non-current liabilities                                                        7,122                            7,544
                                                                  -------------------------        ------------------------
Total liabilities                                                                  189,046                          195,137
                                                                  -------------------------        ------------------------

Guaranteed preferred beneficial interests in the
 Company's junior subordinated debentures                                          102,104                          114,848
                                                                  -------------------------        ------------------------

Commitments and contingencies (Note 17)

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 at December 31, 2001,
 7,352,137 issued and 6,873,037 outstanding at December 31, 2000                        71                               74
Additional paid-in capital                                                          56,252                           22,808
Accumulated deficit                                                                 (2,909)                            (617)
Unearned compensation                                                                    -                             (428)
Accumulated other comprehensive income                                                   -                             (528)
Treasury stock, at cost                                                                  -                           (8,705)
                                                                  -------------------------        ------------------------
Total stockholders' equity                                                          53,414                           12,604
                                                                  -------------------------        ------------------------

Total liabilities and stockholders' equity                                        $344,564                         $322,589
                                                                  =========================        ========================
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                       29
<PAGE>

                   THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                    (formerly SunSource Inc. and Subsidiaries)
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                              (dollars in thousands)



<TABLE>
<CAPTION>
                                                     Successor                       Predecessor
                                                  ---------------  -----------------------------------------------
                                                    Three months     Nine months
                                                       ended            ended
                                                    December 31,    September 30,      Years ended December 31,
                                                                                       ----------------------
                                                        2001            2001              2000          1999
                                                        ----            ----              ----          -----
<S>                                                    <C>              <C>               <C>           <C>
Net sales                                           $ 60,040         $341,307          $462,838         $543,277
Cost of sales                                         25,598          197,743           278,178          314,993
Cost of sales - Inventory write-down
related to restructuring (Note 1)                          -                -                 -            2,130
                                                  ----------         --------           -------          -------
 Gross profit                                         34,442          143,564           184,660          226,154
                                                  ----------         --------           -------          -------

Operating expenses:
Selling, general and administrative expenses          25,112          113,443           163,573          217,271
Depreciation                                           3,030            9,593             9,455            4,244
Amortization                                           1,588            2,895             3,369            1,840
                                                  ----------         --------           -------          -------
 Total operating expenses                             29,730          125,931           176,397          223,355
                                                  ----------         --------           -------          -------

Restructuring charges and asset write-down (Note 1)        -                -                 -            8,118
Gain (loss) on curtailment/termination of
defined benefit pension plan (Note 16)                     -                -            (5,204)           5,608
Contribution to defined
contribution plan (Note 16)                                -                -               925                -
Management fee expense                                  (250)               -                 -                -
Other income (expense)                                   173             (398)              181              682
                                                  ----------         --------           -------          -------

 Income from operations                                4,635           17,235             4,165              971
Interest expense, net                                  3,616            9,222            11,286            9,875
Distributions on guaranteed preferred
 beneficial interests                                  3,058            9,174            12,232           12,232
Gain on contribution of subsidiaries (Note 4)              -                -            49,115                -
Equity (loss) in earnings of affiliate (Note 4)       (1,168)           1,063             2,438                -
                                                  ----------         --------           -------         --------
Income (loss) from continuing operations
before income taxes                                   (3,207)             (98)           32,200          (21,136)
Provision (benefit) for income taxes                    (298)           1,229             4,910           (9,815)
                                                  ----------         --------           -------         --------
Income (loss) from continuing operations              (2,909)          (1,327)           27,290          (11,321)
                                                  ----------         --------           -------         --------

Discontinued operations (Note 1)
   Loss from discontinued operations less
applicable income taxes of
($110) and ($873), respectively                            -                -              (109)          (1,981)
Loss on disposal discontinued operations
less applicable income taxes
of ($7,393) in 2000                                        -                -            (2,501)         (23,834)
                                                  ----------         --------           -------         --------
Loss from discontinued operations                          -                -            (2,610)         (25,815)
                                                  ----------         --------           -------         --------

Income (loss) before extraordinary item               (2,909)          (1,327)           24,680          (37,136)

Extraordinary loss from early extinguishment
of debt, less applicable income taxes of
($126) (Note 7)                                            -                -                 -             (235)
                                                  ----------         --------           -------         --------
Net income (loss)                                   $ (2,909)        $ (1,327)         $ 24,680         $(37,371)
                                                  ==========         ========           =======         ========
</TABLE>



           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       30
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (formerly SunSource Inc. and Subsidiaries)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)




<TABLE>
<CAPTION>
                                                                Successor                    Predecessor
                                                                ---------      ------------------------------------------
                                                                Three months   Nine months
                                                                    ended        ended
                                                                December 31,   September 30,     Years ended December 31,
                                                                                                -------------------------
                                                                    2001          2001         2000       1999
                                                                    -----         ----         ----       -----
<S>                                                                <C>             <C>         <C>        <C>
Cash flows from operating activities:
Net income (loss)                                                  $(2,909)        $(1,327)    $24,680    $(37,371)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
 Depreciation and amortization                                       4,618          12,488      12,824       6,084
 Restructuring charges and asset write-down                              -               -           -      10,248
 Extraordinary loss                                                      -               -           -         235
 Loss from discontinued segments before taxes                            -               -      10,113      26,688
 Gain on contribution from subsidiaries                                  -               -     (49,115)          -
 Gain on sale of division                                                -               -           -        (365)
 Deferred income tax provision (benefit)                              (298)          1,044      (8,938)     (2,759)
 Loss (gain) on termination/curtailment of pension plans                 -               -       5,204      (5,608)
 Gain on termination of pension plan contributed to
 defined contribution plan                                               -               -        (925)          -
 Loss (equity) in earnings of affiliate                              1,168          (1,063)     (2,438)          -
 Changes in current operating items:

Decrease (increase) in accounts receivable                           7,179         (13,792)      8,455       9,599
Decrease (increase) in inventories                                    (764)          3,964       6,596       1,791
Decrease (increase) in income taxes receivable                           -              27      10,995     (11,022)
Decrease (increase) in other current assets                           (491)           (356)      2,222        (720)
Decrease in accounts payable                                        (3,292)           (185)     (4,866)     (6,701)
Increase (decrease) in other accrued liabilities                     3,163          (3,865)     (4,507)        730
 Other items, net                                                      404           2,013       1,340        (777)
                                                                ----------      -----------------------------------
Net cash provided by (used for) operating activities                 8,778          (1,052)     11,640      (9,948)
                                                                ----------      -----------------------------------
Cash flows from investing activities:
Proceeds from contribution of subsidiaries                               -               -     105,000           -
Costs associated with contribution of subsidiaries                       -               -        (655)          -
Proceeds from sale of subsidiary, net of cash                       18,047               -           -       8,827
Proceeds from sale/liquidation of discontinued operations               40           1,623      30,592           -
Costs associated with sale/liquidation of discontinued operations     (387)         (1,214)     (2,023)          -
Proceeds from sale of property and equipment                            74             718       1,523       5,064
Payment for acquired businesses, net of cash                             -          (5,003)    (88,870)          -
Capital expenditures & construction in process                      (2,796)        (12,179)     (8,345)     (4,730)
Capitalized royalties, licensing & slotting fees                      (554)         (1,172)          -           -
Merger transaction fees                                             (2,503)         (3,112)          -           -
Increase (decrease) in net assets held for sale                          5             (43)       (949)    (17,459)
Other investments                                                   (1,000)              -           -      (1,300)
Other, net                                                            (443)         (1,039)        (68)     (1,349)
                                                                ----------      -----------------------------------
Net cash provided by (used for) investing activities                10,483         (21,421)     36,205     (10,947)
                                                                ----------      -----------------------------------
Cash flows from financing activities:
Borrowings (repayments) of senior term loans, net                   51,875            (250)    (19,000)    (38,500)
Borrowings (repayments) of revolving credit loans, net             (51,142)         30,083     (47,680)     67,791
Borrowings (repayments) of unsecured subordinated notes, net         1,197          (2,785)     20,400           -
Principal payments under capitalized lease obligations                 (62)           (707)       (974)       (300)
Repayment of note issued for purchase of treasury stock             (1,261)              -           -           -
Purchase of treasury stock at cost                                       -               -           -        (325)
Dividends to shareholders                                          (17,718)              -           -      (1,350)
Prepayment penalty                                                  (1,675)              -           -           -
Financing fees                                                      (4,476)              5      (3,303)     (3,522)
Borrowings (repayments) under other credit facilities, net               -            (624)        248        (420)
                                                                ----------      -----------------------------------
Net cash provided by (used for) financing activities               (23,262)         25,722     (50,309)     23,374
                                                                ----------      -----------------------------------
Net increase (decrease) in cash and cash equivalents                (4,001)          3,249      (2,464)      2,479

Cash and cash equivalents at beginning of period                     6,060           2,811       5,275       2,796
                                                                ----------      -----------------------------------
Cash and cash equivalents at end of period                          $2,059          $6,060      $2,811      $5,275
                                                                ==========      ===================================
</TABLE>



           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Retained
                                                                           Additional     Earnings/
                                                                 Common     Paid-in      (Accumulated     Unearned
                                                                 Stock      Capital        Deficit)      Compensation
                                                                 -----      -------        --------      ------------
<S>                                                               <C>        <C>           <C>               <C>
Beginning Balance - December 31, 1999 - Predecessor               $72        $21,342       $(25,297)         $(283)
Net income                                                                                   24,680
Change in cumulative foreign
 translation adjustment
Contribution of subsidiaries
Write-off for discontinued operation
Comprehensive income
Issuance of 23,581 shares of common stock
 to certain non-employee directors                                  1            105
Grant of restricted stock                                           1            464                          (465)
Grant of warrants on financing agreement                                         897
Amortization of stock option discount                                                                           80
Amortization of vested portion of
 restricted stock                                                                                              240
                                                   -----------------------------------------------------------------------
Ending Balance - December 31, 2000 - Predecessor                   74         22,808           (617)          (428)
Net loss                                                                                     (1,327)
Issuance of 16,807 shares of common stock
 to certain non-employee directors                                                58
Issuance of 366,804 shares of common stock
 in exchange for warrants and stock options                         3             (3)
Amortization of stock option discount                                                                           55
Amortization of vested portion of
 restricted stock                                                                                               75
Purchase of 121,524 shares of common stock
 for treasury
Cancellation of 600,624 shares of common stock
 in treasury                                                                  (9,966)
                                                   -----------------------------------------------------------------------
Ending Balance - September 30, 2001 - Predecessor                  77         12,897         (1,944)          (298)
Close predecessor's stockholders' equity at merger date           (77)       (12,897)         1,944            298
Issuance of 7,135,125 shares of common stock
 to shareholders                                                   71         73,956
Net loss                                                                                     (2,909)
Issuance of 3,540 shares of common stock
 for the exercise of stock options                                                14
Dividends to shareholders                                                    (17,718)
                                                   -----------------------------------------------------------------------
Ending Balance - December 31, 2001 - Successor                    $71        $56,252        $(2,909)            $-
                                                   =======================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                                   Accumulated                             Total
                                                                      Other                            Stockholders'
                                                                  Comprehensive      Treasury              Equity
                                                                   Income (1)          Stock             (Deficit)
                                                                   ----------          -----             ---------
<S>                                                                <C>              <C>                 <C>
Beginning Balance - December 31, 1999 - Predecessor                $  (4,344)        $ (8,705)            $ (17,215)
Net income                                                                                                   24,680
Change in cumulative foreign
 translation adjustment                                                 (396)                                  (396)
Contribution of subsidiaries                                           1,495                                  1,495
Write-off for discontinued operation                                   2,717                                  2,717
                                                                                                         ----------
Comprehensive income                                                                                         28,496
                                                                                                         ----------
Issuance of 23,581 shares of common stock
 to certain non-employee directors                                                                              106
Grant of restricted stock                                                                                         -
Grant of warrants on financing agreement                                                                        897
Amortization of stock option discount                                                                            80
Amortization of vested portion of
 restricted stock                                                                                               240
                                                         ----------------------------------------------------------
Ending Balance - December 31, 2000 - Predecessor                        (528)          (8,705)               12,604
Net loss                                                                                                     (1,327)
Issuance of 16,807 shares of common stock
 to certain non-employee directors                                                                               58
Issuance of 366,804 shares of common stock
 in exchange for warrants and stock options                                                                       -
Amortization of stock option discount                                                                            55
Amortization of vested portion of
 restricted stock                                                                                                75
Purchase of 121,524 shares of common stock
 for treasury                                                                          (1,261)               (1,261)
Cancellation of 600,624 shares of common stock
 in treasury                                                                            9,966                     -
                                                         ----------------------------------------------------------
Ending Balance - September 30, 2001 - Predecessor                       (528)               -                10,204
Close predecessor's stockholders' equity at merger date                  528                                (10,204)
Issuance of 7,135,125 shares of common stock
 to shareholders                                                                                             74,027
Net loss                                                                                                     (2,909)
Issuance of 3,540 shares of common stock
 for the exercise of stock options                                                                               14
Dividends to shareholders                                                                                   (17,718)
                                                         ----------------------------------------------------------
Ending Balance - December 31, 2001 - Successor                           $ -              $ -               $53,414
                                                         ==========================================================
</TABLE>




(1)  Cumulative foreign translation adjustment represents the only item of other
     comprehensive income.

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       32
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE 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., formerly SunSource Inc. (the "Company") and its
indirect, wholly owned subsidiaries including an investment trust, Hillman Group
Capital Trust, formerly SunSource Capital Trust (the "Trust"). 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.

The Company's Consolidated Balance Sheet as of December 31, 2000 and its related
Statements of Operations, Cash Flows and Changes in Stockholders' Equity for the
periods presented prior to September 30, 2001 are referenced herein as the
predecessor financial statements (the "Predecessor"or "Predecessor Financial
Statements"). The Company's Consolidated Balance Sheet as of December 31, 2001
and its related Statement of Operations, Cash Flow and Changes in Stockholders'
Equity for the three months ended December 31, 2001 are referenced herein as the
successor financial statements (the "Successor"or "Sucessor Financial
Statements"). The Successor Financial Statements include the effects of the
Merger Transaction, the Company's debt refinancing and sale of an operating
subsidiary completed subsequent to the Merger Transaction (see allocation of the
purchase price below and reference Note 4, Acquisitions and Divestitures, for
information related to these events). For purposes of these financial
statements, the final two business days of operation in September 2001 after the
Merger Transaction are presented as part of the Predecessor Financial Statements
because the results from these two days are immaterial for separate
presentation.



                                       33
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


1.   BASIS OF PRESENTATION, CONTINUED:

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 following table reconciles
the fair value of the acquired assets and assumed liabilities to the total
purchase price:

<TABLE>
<CAPTION>
<S>                                               <C>                  <C>
         Accounts Receivable                      $  60,704
         Inventory                                   77,082
         Property and equipment                      59,010
         Goodwill                                   113,212
         Intangible assets                           12,924
         Other current assets                        31,322
         Other non-current assets                    37,757
                                                    -------
         Total assets acquired                                       $ 392,011
         Less:
         Liabilities assumed                        215,912
         Guaranteed preferred beneficial
         interests in the Company's
           junior subordinated debentures           102,072
                                                    --------
                  Total assumed liabilities                            317,984
                                                                      --------
                           Total purchase price                      $  74,027
                                                                     =========
</TABLE>

The above allocation reflects changes in estimates made to the fair value of the
assets and liabilities since the initial valuation of the Merger Transaction in
accordance with Statement of Accounting Financial Standards 38 ("FAS 38") which
resulted in an increase to goodwill of $5,152 and corresponding adjustments to
inventory, property and equipment, other non-current assets and liabilities
assumed.

The total liabilities include transaction related costs aggregating $4,875 which
were associated with Allied Capital's purchase of the Company and assumed by the
Company in accordance with push down accounting.

The following unaudited pro forma consolidated net sales and net loss for the
years ended December 31, 2001 and 2000, assume that the acquisition of
SunSource, its subsequent refinancing and the acquisitions and dispositions
described in Note 4, Acquisitions and Divestitures, were consummated on January
1, 2000:

<TABLE>
<CAPTION>
                                                            2001             2000
                                                         ---------           ----
<S>                                                      <C>               <C>
                  Net Sales                              $248,786          $238,034
                  Net Loss                               $ (4,737)         $ (7,859)
</TABLE>


 NATURE OF OPERATIONS:

The Company is one of the largest providers of value-added merchandising
services and hardware-related products to retail markets in North America
through its wholly-owned subsidiary, The Hillman Group, Inc. (the "Hillman
Group"). 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").



                                       34
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


1.   BASIS OF PRESENTATION, CONTINUED:

NATURE OF OPERATIONS, CONTINUED:

The Hillman Group provides merchandising services and products, such as,
fasteners and related hardware items, key duplication equipment, keys and
related accessories and identification equipment and items to retail outlets,
primarily hardware stores, home centers and mass merchants. Kar Products offers
personalized inventory management systems of maintenance, repair and operations
("MRO") products to industrial manufacturing customers and maintenance and
repair facilities. STS provides systems, parts and engineering services for
hydraulic, pneumatic, electronic and related systems to major industrial
concerns throughout the U.S. and Canada.

The Company has over 21,000 customers, the largest of which accounted for
slightly less than 12% of net sales in 2001. The average single sale in 2001 was
less than six hundred dollars. Sales performance is tied closely to the overall
performance of the non-defense-goods producing sector of Gross Domestic Product
in the United States.

DISCONTINUED OPERATIONS:

In December 1999, the Company's Board of Directors approved management's plan to
dispose of the Company's glass business, Harding Glass, Inc. ("Harding"). In
December 2000, the Company's Board of Directors also approved management's plan
to liquidate the Company's Integrated Supply - Mexico business (the "Mexican
Segment"). Accordingly, Harding and the Mexican Segment have been accounted for
as discontinued operations with results of operations segregated from results of
the Company's ongoing businesses including restatement of the prior periods
presented. On April 13, 2000, the Company consummated the sale of Harding.
SunSource substantially completed the liquidation of the Mexican Segment as of
June 30, 2001. See Note 4, Acquisitions and Divestitures.

For the year ended December 31, 1999, the Company recorded a loss from Harding's
operations of $3,268 less applicable income taxes of $1,080 and an estimated
loss on its expected disposal of $23,834 unadjusted for any potential future tax
benefits. For the year ended December 31, 2000, the Company recorded an
additional loss on disposal of the discontinued Harding segment of $5,322 less
an income tax benefit of $7,191. Through December 31, 2000, the Company had
recorded a loss on disposal of the discontinued Harding segment of $21,965 in
the aggregate, net of tax benefits. No additional loss on disposal of the
discontinued Harding segment was recorded during the twelve months ended
December 31, 2001.

For the year ended December 31, 1999, the Company recorded income from the
Mexican Segment's operations of $414 less applicable income taxes of $207. For
the year ended December 31, 2000, the Mexican Segment had a loss from operations
of $219 less an income tax benefit of $110. The estimated loss recorded during
the year ended December 31, 2000 on the liquidation of the Mexican Segment was
$4,572 less an income tax benefit of $202. No additional loss on disposal of the
discontinued Mexican Segment was recorded during the twelve months ended
December 31, 2001.



                                       35
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


1.   BASIS OF PRESENTATION, CONTINUED:

DISCONTINUED OPERATIONS, CONTINUED:

Following is summary financial information for the Company's discontinued
Harding and Mexican Segment operations:

<TABLE>
<CAPTION>
                                                             2000                1999
                                                             ----                ----
<S>                                                     <C>                <C>
INCOME (LOSS) FROM
 DISCONTINUED OPERATIONS:
     Harding                                            $     --           $  (2,188)
     Mexican Segment                                        (109)                207
                                                        --------           ---------
   Total income (loss)
    from discontinued operations                        $   (109)          $  (1,981)
                                                        =========          ==========
INCOME (LOSS) ON DISPOSAL OF
 DISCONTINUED OPERATIONS:
   Harding                                              $  1,869           $ (23,834)
   Mexican Segment                                        (4,370)                 --
                                                        ---------          ----------
Total income (loss) on disposal
 of discontinued operations                             $ (2,501)          $ (23,834)
                                                        ---------          ----------



TOTAL INCOME (LOSS) FROM
   DISCONTINUED OPERATIONS:
    Harding                                             $  1,869           $ (26,022)
    Mexican Segment                                       (4,479)                207
                                                        --------           ---------
Total income (loss)
 from discontinued operations                           $ (2,610)          $ (25,815)
                                                        =========          ==========
</TABLE>

As of December 31, 2001 and 2000, the Company had net assets held for sale of
the discontinued operations of $146 and $1,767, respectively, consisting of
receivables, prepaid assets, and property and equipment, and accrued liabilities
of $810 and $2,407, respectively, reserved for the loss on disposal of the
discontinued segments.



                                       36
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


1.   BASIS OF PRESENTATION, CONTINUED:

1999 RESTRUCTURING CHARGES AND ASSET WRITE-DOWNS:

On June 29, 1999, the Board of Directors of the Company approved management's
restructuring plan to reposition STS and Kar Products, write-down impaired
assets at the Hillman Group, and realign corporate overhead expenses. As a
result of this plan, the Company recorded a restructuring charge of $10,248.

The Technology Services charge and write-downs aggregated $5,392 including
termination benefits of $2,744, an inventory write-down of $2,130, other exit
costs of $415 and a write-down of unamortized leasehold improvements of $103.
The termination benefits of $2,744 covered approximately 94 employees. The other
exit costs and write-down of unamortized leasehold improvements were related to
lease buyouts and losses on the sale of owned facilities as a result of
Technology Services' facilities consolidation. The inventory write-down of
$2,130 was the result of a reduction in vendor lines resulting principally from
the facility consolidation process.

The Kar Products charge amounted to $1,020 comprised solely of termination
benefits for about 10 employees.

The Hillman Group's asset write-down was $3,300 and was primarily the result of
the Hillman Group's decision not to seek recovery of key machines from
retailers. The write-down represented the total net book value of key machines
that had been capitalized as of June 30, 1999.

The Corporate Headquarters component of the restructuring charge aggregated $536
comprised of other exit costs of $434 and termination benefits of $102 for two
employees. The other exit costs included lease termination costs of $101 and
unamortized leasehold improvements of $333 on certain assets.

The Board's approval of the restructuring plan provided the Company's management
with the authority to involuntarily terminate employees. The Company established
the levels of benefits that the terminated employees received and informed the
employees of their termination benefits prior to the close of business on June
30, 1999.

As of December 31, 2000, the Company's balance sheet included $295 in other
accrued expenses which were primarily associated with the remaining termination
benefits at STS. On September 28, 2001, the Company sold substantially all of
the assets of STS (see Note 4, Acquisitions and Divestitures) which included $38
of these termination benefits assumed by the buyer of STS.



                                       37
<PAGE>



                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH EQUIVALENTS:

Cash equivalents consist of commercial paper, U.S. Treasury obligations and
other liquid securities purchased with initial maturities less than 90 days and
are stated at cost which approximates market value.

RESTRICTED CASH:

Restricted cash represents cash received as a result of the surrender of life
insurance policies by the Company on December 29, 2000 and held in a Rabbi Trust
to fund deferred compensation liabilities due to the Company's employees (see
Note 13, Deferred Compensation Plans).

RESTRICTED INVESTMENTS:

Restricted investments represent assets held in a Rabbi Trust to fund deferred
compensation liabilities due to the Company's employees. These assets were
transferred from the restricted cash account noted above in January 2001 (see
Note 13, Deferred Compensation Plans).

INVENTORIES:

Inventories consisting predominantly of finished goods are valued at the lower
of cost or market, cost being determined principally on the first-in, first-out
method.

PROPERTY AND EQUIPMENT:

Property and equipment, including assets acquired under capital leases, are
carried at cost and include expenditures for new facilities and major renewals.
Maintenance and repairs are charged to expense as incurred. When assets are sold
or otherwise disposed of the cost and related accumulated depreciation are
removed from their respective accounts, and the resulting gain or loss is
reflected in current operations.

DEPRECIATION:

For financial accounting purposes, depreciation, including that related to plant
and equipment acquired under capital leases, is computed on the straight-line
method over the estimated useful lives of the assets, generally three to ten
years, or, if shorter, over the terms of the related leases.

GOODWILL AND OTHER INTANGIBLE ASSETS:

For the Predecessor Financial Statements, goodwill related to the excess of
acquisition cost over the fair value of net assets acquired in the acquisition
of Axxess Technologies, Inc. ("Axxess") and the purchase of inventory and other
assets of the Sharon-Philstone division of Pawtucket Fasteners, L.P.
("Sharon-Philstone") discussed in Note 4, Acquisitions and Divestitures, is
amortized on a straight-line basis over twenty-five years. All other goodwill
for the Predecessor Financial Statements is amortized on a straight-line basis
over forty years. For the Successor Financial Statements, all goodwill is
amortized on a straight-line basis over twenty-five years. Other intangible
assets arising principally from acquisitions are amortized on a straight-line
basis over periods ranging from three to twenty-five years.



                                       38
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

LONG-LIVED ASSETS:

Under the provisions of Statement of Financial Accounting Standard ("SFAS") 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company has evaluated its long-lived assets and certain
identifiable intangibles including goodwill for financial impairment and will
continue to evaluate them based on the estimated undiscounted future cash flows
as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. See Note 1, Basis of
Presentation--Restructuring Charges and Asset Write-downs, for information on
the write-down of assets related to the Hillman Group's key machines.

INCOME TAXES:

Deferred income taxes are computed using the asset and liability method. Under
this method, deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
(temporary differences) and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. See Note 6,
Income Taxes.

RETIREMENT BENEFITS:

Certain employees of the Predecessor and Successor are covered under
profit-sharing retirement plans ("defined contribution plans") for which
contributions are determined on an annual basis in accordance with the
requirements of each plan. Certain employees of the Predecessor were covered
under post-retirement benefit plans for which benefits were determined in
accordance with the requirements of each plan. See Note 16, Retirement Benefits.

REVENUE RECOGNITION:

Revenue from sales of products is recorded upon the passing of title and risks
of ownership which usually occurs upon the shipment of goods.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

Cash, accounts receivable, short-term borrowings, accounts payable, accrued
liabilities and bank revolving credit are reflected in the consolidated
financial statements at fair value due to short-term maturity or revolving
nature of these instruments. The fair values of the Company's debt instruments
are disclosed in Note 11, Long-Term Debt. The fair value of the Trust Preferred
Securities is disclosed in Note 14, Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures.

TRANSLATION OF FOREIGN CURRENCIES:

For the Predecessor Financial Statements, the translation of applicable
foreign-currency-based financial statements into U.S. dollars is performed for
balance sheet accounts using exchange rates in effect at the balance sheet date
and for revenue and expense accounts using an average exchange rate during the
period. The translation of foreign currency transactions is not applicable to
the Successor Financial Statements as a result of the sale of STS.

Exchange adjustments resulting from foreign currency transactions are recognized
in net income in the Predecessor Statements of Operations and were immaterial
for the two years ended December 31, 2000 and the nine months ended September
30, 2001.



                                       39
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

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

3.   RECENT ACCOUNTING PRONOUNCEMENTS:

In June 1998, the Financial Accounting Standards Board ("the FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 established accounting
and reporting standards for derivative financial instruments and hedging
activities, and requires the Company to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value. Gains
and losses resulting from changes in fair value are accounted for depending on
the use of the derivative and whether it is designated and qualifies for hedge
accounting. In June 1999, the FASB issued SFAS 137, which deferred the
implementation of SFAS 133. The Company adopted SFAS 133 during the first
quarter of 2001. The adoption of SFAS 133 has not had a material impact on the
Company's financial position and results of operations because the Company
generally does not engage in derivative transactions.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("FAS 141")
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141
requires that all business combinations be accounted for under the purchase
method and provides that the use of the pooling-of-interests method is
prohibited for business combinations initiated after June 30, 2001. FAS 141 also
establishes criteria for the separate recognition of intangible assets acquired
in a business combination. FAS 142 requires that goodwill no longer be amortized
to earnings, but instead be subject to periodic testing for impairment. FAS 142
is effective for fiscal years beginning after December 15, 2001, with earlier
application permitted only in specified circumstances. Management is currently
evaluating the expected impact of FAS 141 and FAS 142 but does not anticipate a
material impact on the Company's financial position and results of operations.

At the end of June 2001, the FASB issued FASB Statement No. 143, Accounting for
Asset Retirement Obligations. FAS 143 requires that obligations associated with
the retirement of a tangible long-lived asset be recorded as a liability when
those obligations are incurred, with the amount of the liability initially
measured at fair value. FAS 143 is effective for financial statements for fiscal
years beginning after June 15, 2002. Management is currently evaluating the
expected impact of FAS 143.



                                       40
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


3.   RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:

FAS 144 supersedes FAS 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB 30, Reporting the Results of Operations, Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. FAS 144 was necessary to resolve significant implementation issues
related to SFAS 121. Although the proposed statement supercedes FAS No. 121, it
retains the fundamental measurement provisions for assets that are to be
disposed of by sale. Additionally, FAS 144 retains the basic provisions of APB
30 for the presentation of discontinued operations in the income statements but
broadens that presentation to include a component of an entity, rather than a
segment of a business. The provisions of FAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. Management is currently evaluating the
expected impact of FAS 144 but does not anticipate a material impact on the
Company's financial position and results of operations.

4.   ACQUISITIONS AND DIVESTITURES:

On January 4, 2002, GC-Sun Holdings L.P. ("G-C"), a partnership formed with
Glencoe Capital as noted below, provided the Company notice that it intends to
exercise its call right to purchase the Company's partnership interest as a
result of the Merger Transaction with Allied Capital. Prior to the Merger
Transaction, the Company had an investment in G-C of $2,207. As of December 31,
2001, 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. The Company accounted for its investment in the
partnership under the equity method through December 31, 2001.

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 December 31, 2001, the Company's consolidated balance sheet includes
$6,000 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 stockholders of the Company.

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.

In December 2000, the Board approved a plan to liquidate the Mexican Segment
which provided comprehensive inventory management services of MRO materials to
large manufacturing plants in Mexico. The Company recorded a



                                       41
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


4.   ACQUISITIONS AND DIVESTITURES, CONTINUED:

pre-tax loss on liquidation of approximately $4,600 representing non-cash
charges for accumulated translation losses, the write-down of inventories and
other assets, and other liquidation costs. The liquidation process was
substantially completed as of June 30, 2001. On August 3, 2001, STS distributed
its common stock investment in the Mexican Segment to the Hillman Group to
segregate the STS Business from the remaining business interests of the Company.

On November 3, 2000, the Company's Hillman Group purchased inventory and other
assets of the Sharon-Philstone division of Pawtucket Fasteners, L.P. of Rhode
Island. The Hillman Group assumed the sales and servicing of the
Sharon-Philstone division, distributors of fasteners to the retail hardware
marketplace with annual sales of approximately $14,000 for the twelve-month
period prior to acquisition. The purchase price consisted of $5,460 for
inventory and other assets including certain post-closing adjustments, and
$1,413 for integration liabilities and transaction costs resulting in an
aggregate cash purchase price of $6,873.

On April l3, 2000, the Company sold substantially all of the assets of Harding
for a cash purchase price of $30,592 plus the assumption by the buyer of certain
liabilities aggregating $12,693, subject to certain post-closing adjustments.

On April 7, 2000, the Company's Hillman Group acquired Axxess Technologies, Inc.
("Axxess" or "Axxess Technologies"), a Tempe, Arizona manufacturer of key
duplication and identification systems. The transaction was structured as a
purchase of 100% of the stock of the privately held company and repayment of
outstanding Axxess debt in exchange for $87,000 in cash and $23,000 in
subordinated notes. In connection with the sale of Harding on April 13, 2000,
the Company repaid $9,600 of these subordinated notes leaving a balance of
$13,400 comprised as follows: 1) a $2,400 15% note which was repaid on April 7,
2001 and 2) an $11,000 note which was repaid on September 28, 2001 at a discount
as part of the Company's debt refinancing arrangement. The aggregate
consideration for the transaction was $111,537, including transaction costs of
$1,537, plus the assumption of certain liabilities aggregating $14,018. The
Hillman Group recorded goodwill and other intangible assets of $48,259 related
to this acquisition. Axxess' sales aggregated $19,364 for the three months ended
March 31, 2000, and its results of operations are included in the results of the
Hillman Group from the date of acquisition. On June 1, 2001, Axxess Technologies
merged with and into the Hillman Group with the Hillman Group being the
surviving entity in the merger.

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, G-C. The Company received $105,000 in cash proceeds from the
transaction through repayment of assumed debt by G-C and retained a 49% minority
ownership in G-C. Affiliates of Glencoe hold a controlling interest in G-C. The
Company recorded a pre-tax gain on the transaction of approximately $49,115 in
the first quarter of 2000. Sales from Kar aggregated $22,122 from January 1,
2000 to March 2, 2000, and $124,724 for the year ended December 31, 1999.

On October 4, 2000, the Company's Kar Products affiliate through the partnership
formed with Glencoe Capital acquired all of the outstanding stock of Brampton
Fastener Co. Limited, d/b/a Brafasco, based in Toronto, Canada. G-C purchased
the outstanding stock of Brafasco for cash and notes. Brafasco is a supplier of
maintenance and repair



                                       42
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


4.   ACQUISITIONS AND DIVESTITURES, CONTINUED:

products serving primarily industrial customers. Brafasco had sales of $26,623
($CDN) for the year ended December 31, 1999.

On July 1, 1999, the Company sold the assets of its Industrial Services'
fastener business serving original equipment manufacturers (the "OEM Fastener
Business") for a cash consideration, net of expenses, of approximately $9,160
(subject to certain post-closing adjustments) plus the assumption of certain
liabilities. The Company recorded an after-tax gain on the sale in the amount of
$365. Sales from the OEM Fastener Business aggregated $10,954 for the six months
ended June 30, 1999.

5.   RELATED PARTY TRANSACTIONS:

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 consisted
of cash and preferred stock of STS OP plus the assumption of certain
liabilities. The equity investment in STS OP will continue to be held by the
Hillman Group. See Note 4, Acquisitions and Divestitures.

On September 26, 2001, the Company was acquired by Allied Capital pursuant to
the terms and conditions of an Agreement and Plan of Merger dated as of June 18,
2001. See Note 1, Basis of Presentation, Note 4, Acquisitions and Divestitures,
and Note 11, Long-Term Debt. 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 $250 for calendar year 2001
and $1,800 for each calendar year thereafter. The Company has recorded a
management fee charge of $250 on the Successor's Statement of Operations for the
three months ended December 31, 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. There has not been any payment of
management fees by the Company since the Merger Transaction.

On June 29, 2001, Allied Capital purchased an unsecured subordinated note, with
an outstanding principal balance of approximately $12,500, from a SunSource
creditor for $8,500. In connection with the Merger Transaction and refinancing
the Company's debt, Allied Capital exchanged the note for $8,500 of the
Company's subordinated debt. See Note 1, Basis of Presentation, Note 9, Notes
Payable and Note 11, Long-Term Debt for additional information.

On December 28, 2000, the Company issued $30,000 of unsecured subordinated notes
to Allied Capital which was amended on September 28, 2001, to increase the
existing subordinated debenture to $40,000 in conjunction with refinancing the
Company's senior debt. See discussion above and Note 11, Long-Term Debt.



                                       43
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


6.   INCOME TAXES:

The Company's income tax provision (benefit) for the three years ended December
31, 2001 was as follows:

<TABLE>
<CAPTION>
                                Successor                            Predecessor
                                ---------        ------------------------------------------------
                               Three Months      Nine Months
                                  Ended            Ended                      Years Ended
                                                                        -------------------------
                                 12/31/01         9/30/01               12/31/00        12/31/99
                                 --------         -------               --------        ---------
<S>                              <C>             <C>                     <C>            <C>
Continuing operations            $  (298)        $  1,229                $ 4,910        $ (9,815)
Discontinued operations               --               --                 (7,503)           (873)
Extraordinary item--early
  extinguishment of debt              --               --                     --            (126)
                                 --------        --------               --------        ---------
Total tax provision (benefit)    $  (298)        $  1,229               $  2,593        $(10,814)
                                 ========        ========               ========        =========
</TABLE>

The components of the Company's provision (benefit) for income taxes from
continuing operations for the three years ended December 31, 2001 was as
follows:

<TABLE>
<CAPTION>
                                Successor                           Predecessor
                                ---------            --------------------------------------------
                               Three Months          Nine Months
                                  Ended                 Ended                  Years Ended
                                                                        -------------------------
                                 12/31/01              9/30/01          12/31/00        12/31/99
                                 --------              -------          --------        ---------
<S>                                <C>                  <C>             <C>              <C>
  CURRENT:
  -------
   Federal & State                 $   --               $ (292)         $  2,522         $(6,826)
   Foreign                             --                  185              (159)            206
                                    -----               -------        ---------         -------
     Total current                     --                 (107)            2,363          (6,620)
                                    -----               -------        ---------         -------
  DEFERRED:
  --------
   Federal & State                   (298)                 268               317          (3,404)
   Foreign                             --                   --                --             209
                                   -------              ------         ---------         -------
     Total deferred                  (298)                 268               317          (3,195)
                                   -------              ------         ---------         -------

  Valuation allowance                  --                1,068             2,230              --
                                   -------              ------          --------         -------
     Provision (benefit)
         for income taxes          $ (298)              $1,229          $  4,910         $(9,815)
                                   =======              ======         =========         =======
</TABLE>

The Company has U.S. federal net operating loss ("NOL") carryforwards for tax
purposes, totaling $55,564 as of December 31, 2001, that are available to offset
future taxable income. These carryforwards expire in 2020. No valuation
allowance has been provided against the federal NOL.

The Company has state net operating loss carryforwards with an aggregate tax
benefit of $8,083 which expire from 2002 to 2019. A valuation allowance of
$7,465 has been established for these deferred tax assets.

The Company has federal unused capital losses totaling $37,494 as of December
31, 2001, that are available to offset future capital gains. These carryforwards
expire in 2006. A valuation allowance of $12,254 has been established for these
deferred tax assets.

Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of the assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.



                                       44
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


6.   INCOME TAXES, CONTINUED:

The table below reflects the significant components of the Company's net
deferred tax assets and liabilities at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                            SUCCESSOR                              PREDECESSOR
                                                         AS OF 12/31/01                           AS OF 12/31/00
                                                  ---------------------------------------  ---------------------------------------
                                                      CURRENT           NON CURRENT            CURRENT          NON CURRENT
                                                      -------           -----------            -------          -----------
<S>                                                        <C>              <C>                    <C>             <C>
  Deferred Tax Assets:
    Inventory                                         $ 4,870                   --             $ 6,254                 --
    Bad debt reserve                                      385                   --               1,018                 --
    Deferred compensation                                 487              $ 2,526               2,407            $ 2,433
    Federal net operating loss                             --               18,892                  --             10,064
    State net operating loss                               --                8,083                  --              6,317
    Tax credit carryforwards                               --                1,318                  --                986
    Transaction costs                                      --                1,045                  --                882
    Federal capital loss
     carryforwards                                         --               12,748                  --                 --
    All other items                                     3,394                  801               4,804                576
                                                  --------------------------------------------------------------------------------
     Gross deferred tax assets                          9,136               45,413              14,483             21,258

  Valuation allowance for deferred tax assets              --              (19,970)                 --             (6,140)
                                                  --------------------------------------------------------------------------------
    Net deferred tax assets                            $9,136             $ 25,443             $14,483            $15,118
                                                  ================================================================================
  Deferred Tax liability:

    Property and equipment                                 --              $ 4,113                  --            $ 1,376
    All other items                                       $31                  490               $ 594                253
                                                  --------------------------------------------------------------------------------
     Gross deferred tax liabilities                       $31              $ 4,603                $594            $ 1,629
                                                  ================================================================================
</TABLE>

Realization of the net deferred tax assets is dependent on generating sufficient
taxable income prior to their expiration. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of net deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward periods are reduced.



                                       45
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


6.  INCOME TAXES, CONTINUED:

Below is a reconciliation of statutory income tax rates to the effective income
tax rates for the periods indicated:

<TABLE>
<CAPTION>
                                                       SUCCESSOR                     PREDECESSOR
                                                     ------------    -----------------------------------
                                                     THREE MONTHS    NINE MONTHS
                                                        ENDED           ENDED            YEARS ENDED
                                                                                         -----------
                                                        12/31/01       9/30/01      12/31/00         12/31/99
                                                     -----------       -------     ---------         ---------
<S>                                                      <C>          <C>               <C>            <C>
Statutory federal income tax rate                        (34.0%)      (34.0%)           34.0%          (35.0%)
Foreign income tax rates in excess of
 U.S. federal income tax rates                              --           --             (0.7%)           0.9%
State and local income taxes, net of
 U.S. federal income tax benefit                           0.2%        (6.7%)            2.7%           (1.7%)
Non-deductible expenses                                   24.5%     1,294.8%            13.3%          (10.6%)
Non taxable income - Kar transaction                        --           --            (34.1%)            --
                                                         -----      -------            -----           -----
Effective income tax rate                                (9.3%)     1,254.1%            15.2%          (46.4%)
                                                        ======      =======            =====           =====
</TABLE>

7.   EXTRAORDINARY LOSSES:

In 1999, in connection with the early extinguishment of debt, the Company
expensed capitalized financing costs of $361 and recorded an extraordinary loss
of $235 (net of deferred tax benefits of $126). (See Note 10, Revolving Credit
Line.)

8.   PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                               Estimated                Successor      Predecessor
                                                                                        ---------      -----------
                                                              Useful Life                 as of            as of
                                                                (Years)                  12/31/01        12/31/00
                                                                ---------                --------        --------
<S>                                                                <C>                   <C>              <C>
Buildings and leasehold improvements                               10                    $ 3,649          $ 6,394
Machinery and equipment                                           3-10                    53,535           65,368
Furniture and fixtures                                            3-5                      1,131            8,731
                                                                  ----                   -------          -------
  Property and equipment, gross                                                           58,315           80,493
Less accumulated depreciation                                                              3,030           22,179
                                                                                         -------          -------
  Property and equipment, net                                                            $55,285          $58,314
                                                                                         =======          =======
</TABLE>


9.   NOTES PAYABLE:

Notes payable on the December 31, 2000 consolidated balance sheet consisted of
casualty insurance financing of $624. The interest rate on the outstanding notes
payable borrowings at December 31, 2000 was 7.47%. This note was fully repaid
as of December 31, 2001.

On April 7, 2000, in connection with the acquisition of Axxess, the Company
issued a $12,000 unsecured subordinated note. In connection with the sale of
Harding on April 13, 2000, the Company repaid $9,600 of this unsecured
subordinated note. As of December 31, 2000, the Company's consolidated balance
sheet included $2,677 in the current portion of unsecured subordinated notes
related to the Axxess acquisition of which $277 represented accrued interest.
The balance of $2,400 was repaid on April 6, 2001, along with accrued interest
of $385.



                                       46
<PAGE>
                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


10.  REVOLVING CREDIT LINE:

On December 15, 1999, the Company refinanced its $60,000 senior notes and
$90,000 bank revolving credit with $155,000 in senior secured credit facilities
(the "Refinancing") consisting of $130,000 in revolving bank credit (the
"Revolver") and a $25,000 term loan (the "Term Loan"). This credit agreement had
a five-year term (the "Credit Agreement") whose Revolver availability was based
on the Company's receivables and inventory balances (the "Borrowing Base")
evaluated on a monthly basis. The Company and its domestic and foreign corporate
subsidiaries were borrowers and guarantors ("Credit Parties") under the Credit
Agreement. Each credit party assigned, pledged and granted a security interest
in and to all its assets as collateral. The Credit Agreement provided borrowings
at interest rates based on the London Interbank Offered Rates ("LIBOR") plus a
margin of between 2.50% and 3.00% (the "LIBOR Margin") in accordance with debt
covenants as stated in the Credit Agreement, or prime. On April 7, 2000, the
Company amended the Credit Agreement to reduce the Revolver to $115,000. On
December 28, 2000, the Company further amended the Credit Agreement in
connection with the Subordinated Debt Issuance (see Note 11, Long-Term Debt) and
as a result the LIBOR Margin on the Revolver was amended to between 2.25% and
3.25% in accordance with the Company's fixed charge coverage ratio.

On September 28, 2001, the Company, through its Hillman subsidiary, refinanced
its Revolver and Term Loan with $105,000 in senior secured credit facilities
(the "New Refinancing") consisting of $50,000 revolving credit (the "New
Revolver"), a $20,000 term loan (the "Term Loan A", see Note 11, Long-Term
Debt), and a $35,000 term loan (the "Term Loan B", see Note 11, Long-Term Debt).
This new credit agreement has a five-year term for the Revolver and Term Loan A
and a seven-year term for the Term Loan B (the "New Credit Agreement"). The New
Credit Agreement provides borrowings at interest rates based on LIBOR plus a
LIBOR margin of between 3.25% and 3.75%, or prime (the "Base Rate") plus a
margin of between 2.0% and 2.5% (the "Base Rate Margin"). In accordance with the
New Credit Agreement, letter of credit commitment fees are based on the average
daily face amount of each outstanding letter of credit multiplied by three and
one quarter percent (3.25%) per annum. Also, the Company pays an unused
commitment fee of 0.5% per annum on the unused New Revolver balance.

As of December 31, 2001, the Company had $10,723 available under the New
Revolver. The Company had $88,499 of outstanding debt at December 31, 2001,
consisting of revolver borrowings of $34,052, outstanding Term Loans of $54,125
(Term Loan A of $19,250 and Term Loan B of $34,875) and capital lease
obligations of $322. The Company had letter of credit commitments outstanding of
$5,225 at December 31, 2001. The Revolver balance was $55,111 at December 31,
2000, as reflected on the Company's consolidated balance sheet.

The New Credit Agreement, among other provisions, contains financial covenants
requiring the maintenance of specific coverage ratios and levels of financial
position, restricts the incurrence of additional debt, and the sale of assets,
and permits acquisitions only with the consent of the lenders. If the Company
sells a significant amount of assets as defined in the New Credit Agreement, it
must make a repayment in an amount equal to the net proceeds of such sale. Such
repayments shall be applied to the Term Loans and at any time after the Term
Loans have been prepaid in full, such repayments shall then be applied to reduce
the outstanding principal balance of the New Revolver.

As of December 31, 2001, the New Revolver borrowings consist of $30,000
currently at a six (6) month LIBOR rate of 5.63% and $4,052 at a Base Rate of
6.75%. Interest is required to be paid monthly for the revolver balance on Base
Rate borrowings and each three-month period for the revolver balance on LIBOR
borrowings. The Company's weighted-average interest rate for borrowings under
its revolving credit facilities was 6.93%, 9.23%, and 7.11% for the years ended
December 31, 2001, 2000, and 1999, respectively.



                                       47
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


11.  LONG-TERM DEBT:

On December 15, 1999, the Company as part of the Credit Agreement entered into a
five-year $25,000 Term Loan which was collateralized in accordance with the
provisions of the Credit Agreement (See Note 10, Revolving Credit Line). Upon
closing of the Credit Agreement, the Company made a principal payment of $3,500
on the Term Loan. During 2000, the Company repaid $19,000 of the Term Loan,
reducing the balance to $2,500 of which $375 is reflected in the current portion
of senior term loans and $2,125 is reflected in long-term senior term loans on
the Company's consolidated balance sheet at December 31, 2000.

On September 28, 2001, the Company, as part of the New Credit Agreement entered
into a five-year $20,000 Term Loan A and a seven-year $35,000 Term Loan B
(collectively, the "Term Loans"). The New Credit Agreement provides borrowings
at interest rates based on LIBOR plus a margin of between 3.25% and 3.75% or
prime plus a margin of between 2.0% and 2.5%. During 2001 the Company made
principal payments of $750 on Term Loan A and $125 on Term Loan B, reducing the
balance to $19,250 on Term Loan A and $34,875 on Term Loan B of which $3,813 is
reflected in the current portion of senior term loans and $50,312 is reflected
in long-term senior term loans on the Company's consolidated balance sheet at
December 31, 2001.

As of December 31, 2001, the Company's Term Loans are currently on three (3)
month LIBORS scheduled to mature on January 11, 2002. The LIBOR Rate is 5.69%
for Term Loan A and 6.19% for Term Loan B. Interest is required to be paid upon
maturity of the LIBOR loans. Principal payments are required to be paid
quarterly commencing on December 31, 2001, and on the last day of each March,
June, September and December thereafter. The amortization schedule by year is as
set forth below:

<TABLE>
<CAPTION>
                                            Term Loan A                Term Loan B
                                            -----------                ------------
<S>               <C>                          <C>                        <C>
                  2002                         $3,313                     $   500
                  2003                          4,250                         500
                  2004                          4,250                         500
                  2005                          4,250                         500
                  2006                          3,187                       4,438
                  2007                            N/A                      16,250
                  2008                            N/A                      12,187
</TABLE>

As of December 31, 2001, the estimated fair value of the Company's Term Loans is
approximately $41,312 as determined in accordance with SFAS 107. The Company
discounted the future cash flows of its Term Loans based on borrowing rates for
debt with similar terms and remaining maturities. The fair value estimate is
made at a specific point in time, is subjective in nature and involves
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimate.

On April 7, 2000, in connection with the acquisition of Axxess, the Company
through its Hillman Group subsidiary issued an $11,000 unsecured subordinated
note (the "Axxess Subordinated Note") which was payable in seven equal quarterly
installments commencing the earlier of i) the first calendar quarter after
payment in full of the Term Loan or ii) March 31, 2004. Interest on the Axxess
Subordinated Note ranged from prime plus 1% to prime plus 5% with a maximum rate
at any time of 15%. Interest was payable upon maturity and compounded annually.
As of December 31, 2000, the Company's consolidated balance sheet included
$11,857 in long term unsecured subordinated notes related to the Axxess
acquisition of which $857 represented accrued interest.



                                       48
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


11.  LONG-TERM DEBT, CONTINUED:

On June 29, 2001, Allied Capital purchased the Axxess Subordinated Note from its
holders for $8,500. To induce Allied Capital to purchase the note, SunSource
entered into a letter agreement in which the Company agreed to conditions that,
during such time that Allied Capital owned the note: 1) limited additional debt
that the Company could incur, 2) restricted prepayment of the guaranteed
preferred beneficial interests, 3) required the Company to use its best efforts
to obtain the consent of its senior lenders to allow the repurchase of this note
and allow a concurrent investment by Allied Capital in the Company, and 4)
prohibited the Hillman Group from transferring or assigning its obligation under
the note. On September 28, 2001, in conjunction with the New Refinancing, the
Company repaid the Axxess Subordinated Note held by Allied Capital in the amount
of $8,803.

On December 28, 2000, the Company issued $30,000 of unsecured subordinated notes
(the "Subordinated Debt Issuance") which matures December 28, 2006. The Company
issued Allied Capital, the holder of the subordinated notes, the right to
purchase 285,000 shares of the Company's common stock at a nominal value. In
accordance with APB 14 - Accounting for Convertible Debt and Debt Issued with
Stock Purchased Warrants, the Company recorded the Subordinated Debt Issuance
and stock purchase rights issued to Allied Capital at a fair value of $29,103
which was included in long term unsecured subordinated notes as of December 31,
2000.

On September 28, 2001 the Company amended the Subordinated Debt Issuance to
increase the existing subordinated debenture to $40,000 maturing on September
29, 2009 (the "Amended Subordinated Debt Issuance"). The additional $10,000 in
cash proceeds generated from the Amended Subordinated Debt Issuance was used in
part to repay the Axxess Subordinated Note held by Allied Capital in the amount
of $8,803 in conjunction with the New Refinancing. Interest on the Amended
Subordinated Debt Issuance is at a fixed rate of 18.0% per annum, with cash
interest payments 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. The outstanding
principal balance of the Amended Subordinated Debt Issuance is included in long
term unsecured subordinated notes on the Company's consolidated balance sheet at
December 31, 2001 in the amount of $40,240 of which $240 represents the PIK
amount.



                                       49
<PAGE>
                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


12.  LEASES:

Certain warehouse and office space and equipment are leased under capital and
operating leases with terms in excess of one year. Future minimum lease payments
under noncancellable leases consisted of the following at December 31, 2001:

<TABLE>
<CAPTION>
                                                                       Capital  Operating
                                                                       Leases    Leases
                                                                       ------    ------
<S>                                                                    <C>       <C>
   2002                                                                $   99    $ 6,212
   2003                                                                    76      4,729
   2004                                                                    61      3,860
   2005                                                                    53      3,828
   2006                                                                    47      3,768
   Later years                                                             58      5,135
                                                                        -----    -------
     Total minimum lease payments                                      $  394    $27,532
                                                                                 =======
   Less amounts representing interest                                     (72)
                                                                        -----
     Present value of net minimum lease payments
     (including $74 currently payable)                                 $  322
                                                                        =====
</TABLE>

Total rental expense for all operating leases from continuing operations
amounted to $10,080 in 2001, $11,407 in 2000, and $12,562 in 1999. Certain
leases are subject to terms of renewal and escalation clauses.

13.  DEFERRED COMPENSATION PLANS:

The Company maintains a deferred compensation plan for key employees (the
"Nonqualified Deferred Compensation Plan") which allows for deferral of cash
compensation from salary and annual bonuses. The Nonqualified Deferred
Compensation Plan also includes awards that were made under previous long-term
incentive plans of SunSource. Executive deferrals can grow at mutual fund
investment rates.

The Company had established a rabbi trust which held insurance policies to
assist in funding the liabilities of the deferred compensation plan (the "Rabbi
Trust"). On December 29, 2000, the Company surrendered the insurance policies
and transferred all investments to mutual fund investment accounts. Upon
termination of the insurance policies, the Company incurred a cash surrender
charge of $506 in December 2000. The insurance policies had a net cash surrender
value aggregating $11,530 at December 29, 2000. The Company's consolidated
balance sheet as of December 31, 2000 included $10,955 of the cash surrender
value of the insurance policies in restricted cash and $575 in other current
assets.

As of December 31, 2001, the Company's consolidated balance sheet included
$8,649 in restricted investments representing the assets held in mutual funds to
fund deferred compensation liabilities due to the Company's current and former
employees. The current portion of the restricted investments was $1,187 as of
December 31, 2001.

Except for the cash surrender charge in December 2000, there were no other
amounts charged to income for the three years ended December 31, 2001 under the
Company's deferred compensation plans. During the three years ended December 31,
2001, distributions from the deferred compensation plans aggregated $4,539 in
2001, $2,714 in 2000, and $252 in 1999. The Company's deferred compensation
liabilities amounted to $8,649 as of December 31, 2001 and $12,411 as of
December 31, 2000. The current portion of these deferred compensation
liabilities were $1,187 and $4,543 as of December 31, 2001 and 2000,
respectively, on the consolidated balance sheets.



                                       50
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


14.  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S JUNIOR
     SUBORDINATED DEBENTURES:

The Trust was organized in connection with the conversion of the Company to
corporate form in September 1997 for the purpose of (a) issuing its Trust
Preferred Securities to the Company in consideration for the deposit by the
Company of Junior Subordinated Debentures in the Trust as trust assets, and its
Trust Common Securities to the Company in exchange for cash and investing the
proceeds thereof in an equivalent amount of Junior Subordinated Debentures and
(b) engaging in such other activities as are necessary or incidental thereto.

The Trust had no operating history prior to the issuance of the Trust Preferred
Securities. The terms of the Junior Subordinated Debentures include those stated
in the indenture between the Company and the indenture trustee, and those made
part of the Indenture by the Trust Indenture Act (the "Indenture").

The Company has guaranteed on a subordinated basis the payment of distributions
on the Trust Preferred Securities and payments on liquidation of the Trust and
redemption of Trust Preferred Securities (the "Preferred Securities Guarantee").
The sole assets of the Trust are the Junior Subordinated Debentures and the
obligations of the Company under the Indenture, the Preferred Securities
Guarantee and the Junior Subordinated Debentures in the aggregate constitute a
full and unconditional guarantee by the Company of the Trust's obligations under
the Trust Preferred Securities.

The Trust Preferred Securities have equity characteristics but creditor's rights
and are therefore classified between liabilities and stockholders' equity on the
balance sheet. On September 26, 2001, the Trust Preferred Securities were
recorded at fair value of $102,072 based on the price of the Trust Preferred
Securities of $24.20 upon close of trading on the American Stock Exchange as of
that date. The Trust Preferred Securities have a liquidation value of $25.00
per security. The discount on the Trust Preferred Securities as of September
26, 2001 to their liquidation value of $105,446, or $3,374 is amortized over
the remaining life of the Trust Preferred Securities. The fair value of the
Trust Preferred Securities on December 31, 2001 was $105,907 based on the
closing price on the American Stock Exchange of $25.11 per security on that
date.

The interest payments on the Junior Subordinated Debentures underlying the Trust
Preferred Securities, aggregating $12,232 per year, are deductible for federal
income tax purposes under current law and will remain an obligation of the
Company until the Trust Preferred Securities are redeemed or upon their maturity
in 2027.

15.  STOCKHOLDERS' EQUITY:

COMMON SHARES ISSUED TO CERTAIN NON-EMPLOYEE DIRECTORS:

Under the Company's Stock Compensation Plan for Non-Employee Directors, certain
non-employee directors were issued 16,807 common shares in the first nine months
of 2001, which resulted in a compensation charge of $58.



                                       51
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


15.  STOCKHOLDERS' EQUITY, CONTINUED:

STOCK OPTIONS:

During the three years ended December 31, 2001, the Company has provided
employees equity incentive compensation in the form of grants of incentive stock
options, non-qualified stock options and restricted stock in accordance with the
Company's Equity Compensation Plan (the "Existing Equity Plan"). The aggregate
numbers of common shares that may be issued or transferred under the Existing
Equity Plan is 2,150,000 common shares. Immediately prior to the Merger
Transaction, the Company had 1,120,000 stock options outstanding which were
granted in accordance with the Existing Equity Plan.

On September 26, 2001, in conjunction with the Merger Transaction, 131,500 of
these options were converted to common shares and 545,500 stock options were
cancelled. During the fourth quarter of 2001, 3,540 of these stock options were
exercised. The balance of the outstanding stock options will remain in effect
pursuant to the same terms and conditions of the Existing Equity Plan except
that these roll-over options aggregating 439,460 became fully vested in
connection with the Merger Transaction. The roll-over options are summarized
below:

<TABLE>
<CAPTION>
Grant Date                 Number of Options Outstanding          Exercise Price Per Share
----------                 -----------------------------          ------------------------
<S>  <C>                                     <C>                                <C>
May  1, 2000                                 22,500                             $3.825
May  1, 2000                                223,500                             $4.500
May 23, 2001                                 22,500                             $3.400
May 23, 2001                                170,960                             $4.000
                                            -------
         Total                              439,460
                                            =======
</TABLE>

In conjunction with the Merger Transaction, the Company has reserved 1,337,316
stock options for issuance under the SunSource Inc. 2001 Stock Incentive Plan
(the "New Equity Plan"). Under the New Equity Plan, the stock options are
intended to vest over four years with 25% of the options vesting on each
anniversary of the merger through the end of year four. No awards have been made
under New Equity Plan as of December 31, 2001.

DIVIDENDS:

During the fourth quarter of 2001, in connection with the proceeds from the sale
of STS, the Company distributed a cash dividend of $17,718 to the shareholders
of the Company's common stock.

16.  RETIREMENT BENEFITS:

Certain employees of STS and the Company's divested operations are covered by
defined benefit pension plans and post-retirement benefit plans. In December
1999, the Board of Directors of the Company approved a proposal to freeze the
benefit accruals under the Technology Services defined benefit retirement plan
(the "STS Plan"). As a result, the Company recorded a curtailment gain of $5,608
in accordance with Statement of Financial Accounting Standards No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits.

In December 2000, the Board of Directors approved a proposal to merge the STS
Plan with another Company owned plan which was held for certain divested
operations, and terminate the merged plans as of December 31, 2000. As a result,
the Company recorded a pre-tax loss on termination of the merged pension plans
of $4,279 in December 2000.



                                       52
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


16.  RETIREMENT BENEFITS, CONTINUED:

The $4,279 loss on termination of the defined benefit pension plans represents
an estimated surplus upon termination of the defined benefit pension plans of
$3,700, less a write-off of a prepaid pension asset of $7,424, and a charge for
estimated excise taxes of $555. The approved proposal also provides for a
contribution of 25% or $925 of the $3,700 estimated surplus upon termination to
the STS deferred contribution plan. During 2000, the Company recorded a net
periodic benefit of $1,500 related to expected investment returns on the surplus
assets of the STS Plan.

As of December 31, 2000, the Company's consolidated balance sheet included a
prepaid pension asset of $3,700 as determined above, of which $2,775 was
included in other current assets and $925 was in other assets. As of December
31, 2001, the prepaid pension asset included in other current assets remained
at $2,775 on the Company's consolidated balance sheet. The $925 in other assets
was sold to the buyer of Technology Services with the sale of substantially all
of the assets of that subsidiary on September 28, 2001. The Company expects the
termination process of the defined benefit pension plans to be completed during
the second half of 2002.

The Technology Services subsidiary also had a post-retirement benefit plan. The
benefit obligation of this plan was assumed by the buyer of Technology Services
when the subsidiary was sold on September 28, 2001. The Company's net
post-retirement cost for the nine months ended September 30, 2001 was $58. The
net post-retirement cost for the years ended December 31, 2000 and 1999 was $136
and $132, respectively.

Costs (income) charged to operations under all retirement benefit plans for the
three years ended December 31, 2001 was as follows:

<TABLE>
<CAPTION>
                                                                2001     2000     1999
                                                                ----     ----     ----
<S>                                                          <C>      <C>      <C>
         Defined contribution plans                          $ 2,541  $ 2,475  $ 2,154
         Defined benefit plans                                    58    2,293   (6,818)
                                                             -------  -------  -------
                  Total                                      $ 2,599  $ 4,768  $(4,664)
                                                             =======  =======  =======
</TABLE>


17.  COMMITMENTS AND CONTINGENCIES:

Letters of credit are issued by the Company during the ordinary course of
business through major domestic banks as required by certain vendor contracts,
legal proceedings and divestiture activities. As of December 31, 2001, the
Company had outstanding letters of credit in the aggregate amount of $5,225
related to these activities.

As of December 31, 2001, the Company has guaranteed lease obligations of
approximately $117, principally relating to businesses previously divested. The
Company is not currently aware of any existing conditions which would cause a
financial loss related to these guarantees.

Under the Company's insurance programs, commercial umbrella coverage is obtained
for catastrophic exposure and aggregate losses in excess of normal claims.
Beginning in 1991, the Company has retained risk on certain expected losses from
both asserted and unasserted claims related to worker's compensation, general
liability and automobile as well as the health benefits of certain employees.
Provisions for losses expected under these programs are recorded based on an
analysis of historical insurance claim data and certain actuarial assumptions.
As of December 31, 2001, the Company has provided insurers letters of credit
aggregating $3,225 related to certain insurance programs.



                                       53
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


17.  COMMITMENTS AND CONTINGENCIES, CONTINUED:

Litigation originally instituted on February 27, 1996 is pending in the Court of
Common Pleas of Montgomery County, Pennsylvania in which Dorman Products of
America, Ltd. ("Dorman"), and its parent, R&B, Inc. ("R&B"), allege that
misrepresentations of certain facts were made by the Company, upon which R&B
allegedly based its offer to purchase the assets of the Dorman Products division
of the Company.

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 adverse
effect on the consolidated financial position, operations or cash flows of the
Company.

18.  STATEMENTS OF CASH FLOWS:

Supplemental disclosures of cash flow information are presented below:

<TABLE>
<CAPTION>
                                                      SUCCESSOR                       PREDECESSOR
                                                     ------------     --------------------------------------------
                                                     THREE MONTHS     NINE MONTHS
                                                        ENDED            ENDED                 YEARS ENDED
                                                       DEC. 31,        SEPT. 30,               DECEMBER 31,
                                                        2001             2001              2000             1999
                                                     -----------      ---------         ---------        ---------
<S>                                                  <C>               <C>              <C>              <C>
Cash paid (refunded)during the period for:
 Interest                                            $   1,983         $   9,263        $   9,186        $   9,694
                                                     ---------         =========        =========        =========
 Income taxes                                        $     (49)        $     304        $  (4,174)       $   1,687
                                                     ----------        =========        =========        =========
Non-cash operating activities:
 Issuance of shares of common
   stock to certain non-employee
   directors                                         $      --         $      58        $     105        $     119
                                                     ---------         ---------        ---------        ---------
Investing activities:
 Acquisitions (see Note 4, Acquisitions and Divestitures):
   Fair value of assets acquired,
    including goodwill                               $      --         $   5,003        $ 127,425        $      --
   Less unsecured subordinated
    notes issued                                            --                --           23,000               --
   Less liabilities assumed                                 --                --           15,555               --
                                                     ---------         ---------        ---------        ---------
    Cash paid for acquired businesses                $      --         $   5,003        $  88,870        $      --
                                                     =========         =========        =========        =========
Non-cash financing activities:
 Accrued and unpaid
   distributions on trust preferred
   securities and common shares                     $      --         $    1,019        $   1,019         $  1,019
                                                    ---------         ----------        ---------         --------
</TABLE>



                                       54
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


19.  QUARTERLY DATA (UNAUDITED):

<TABLE>
<CAPTION>
                                            Successor                Predecessor
                                            ---------    -----------------------------------
    2001                                     Fourth        Third       Second       First
    ----                                    --------     --------     --------    --------
<S>                                        <C>          <C>          <C>         <C>
Net sales                                  $ 60,040     $114,767     $116,611    $109,929
Gross profit                                 34,442       49,216       49,379      44,969
Income (loss) from
 continuing operations                      ( 2,909)       1,088          214      (2,629)
Income (loss) from
 discontinued operations                         --           --           --          --
Net income (loss)                            (2,909)       1,088          214      (2,629)
</TABLE>


<TABLE>
<CAPTION>
                                                             Predecessor
                                   -----------------------------------------------
         2000                       Fourth        Third       Second       First
         ----                      --------     --------     --------    --------
<S>                                <C>          <C>          <C>         <C>
Net sales (a)                      $102,721     $116,111     $124,394    $119,612
Gross profit (a)                     39,660       47,353       48,813      48,834
Income (loss) from
 continuing operations (a)          (13,346)        (470)        (511)     41,617
Income (loss) from
 discontinued operations (a)        ( 4,564)        (478)        (475)      2,907
Extraordinary loss                       --           --           --          --
Net income (loss)                   (17,910)        (948)        (986)     44,524
</TABLE>


(a)  Includes certain amounts reclassified in 2000 to conform to current
accounting.


20.  CONCENTRATION OF CREDIT RISK:

Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents and trade
receivables. The Company places its cash and cash equivalents with high credit
quality financial institutions. Concentrations of credit risk with respect to
sales and trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographic areas. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. One customer accounted for less than 12% of the Company's
total sales for ongoing operations and 7.8% of the Company's total accounts
receivable for ongoing operations on December 31, 2001. No other customers
accounted for more than 10% of the Company's total sales in 2001.

Concentration of credit risk with respect to purchases and trade payables are
limited due to the large number of vendors comprising the Company's vendor base,
with dispersion across different industries and geographic areas. One vendor
accounted for less than 13% of the Company's total purchases for ongoing
operations and 10% of the Company's total trade payables for ongoing operations
on December 31, 2001. No other vendors accounted for more than 10% of the
Company's total purchases in 2001.



                                       55
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


21.  SEGMENT INFORMATION:

The Successor is organized as a single business segment and the Predecessor has
two reportable segments (see Note 1, Basis of Presentation--Nature of
Operations) which were disaggregated based on the products and services
provided, markets served, marketing strategies and delivery methods.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intersegment sales are immaterial.
The Company measures segment profitability and allocates 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. The Company also measures the segments on
performance on their tangible asset base. The table below provides the Company's
segment disclosures and is followed by reconciliations of the segment amounts to
the consolidated amounts where appropriate:

<TABLE>
<CAPTION>
                                                     SUCCESSOR                      PREDECESSOR
                                                   -------------     -----------------------------------------
                                                    THREE MONTHS     NINE MONTHS
                                                        ENDED          ENDED              YEARS ENDED
                                                                                    --------------------------
                                                     12/31/01          9/30/01      12/31/00         12/31/99
                                                     ----------        --------     --------         --------
<S>                                                  <C>               <C>         <C>              <C>
NET SALES
Technology Services (STS)                            $     --          $152,561    $ 228,730        $ 250,394
Hillman Group                                          60,040           188,746      210,938          151,884
                                                     --------         ---------     --------        ---------
 Segment net sales                                     60,040           341,307      439,669          402,278
Net sales from contributed
subsidiaries, sold businesses and
terminated contracts                                       --                --       23,170          140,999
                                                     --------         ---------    ---------        ---------
  Consolidated net sales                             $ 60,040         $ 341,307    $ 462,838        $ 543,277
                                                     ========         =========    =========        =========

GROSS PROFIT

Technology Services (STS)                           $     --           $ 37,023    $  52,313        $  56,421
Hillman Group                                         34,442            106,541      117,295           81,045
                                                    --------           --------    ---------        ---------
 Segment gross profit                                 34,442            143,564      169,608          137,466
Gross profit from contributed
subsidiaries, sold businesses and
terminated contracts                                      --                 --       15,052           88,688
                                                    --------          ---------    ---------        ---------
  Consolidated gross profit                         $ 34,442          $ 143,564    $ 184,660        $ 226,154
                                                    ========          =========    =========        =========
EBITDA

Technology Services (STS)                           $     --          $  (1,205)   $  (6,652)        $(11,800)
Hillman Group                                         10,367             35,007       34,053           15,816
                                                    --------          ---------    ---------        ---------
 Segment EBITDA                                     $ 10,367          $  33,802    $  27,401        $   4,016
                                                    ========          =========    =========        =========

TANGIBLE ASSETS

Technology Services (STS)                           $     --          $     N/A    $  62,132        $  81,812
Hillman Group                                        140,279                N/A      128,198           56,963
                                                    --------          ---------    ---------        ---------
 Segment tangible assets                            $140,279          $     N/A    $ 190,330        $ 138,775
                                                    ========          =========    =========        =========
</TABLE>


                                       56
<PAGE>
                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


21.  SEGMENT INFORMATION, CONTINUED:

<TABLE>
<CAPTION>
                                                     SUCCESSOR                      PREDECESSOR
                                                     ---------       -----------------------------------------
                                                   THREE MONTHS      NINE MONTHS
                                                      ENDED              ENDED             YEARS ENDED
                                                                                    --------------------------
                                                     12/31/01          9/30/01      12/31/00          12/31/99
                                                     --------          --------     --------          --------
CAPITAL EXPENDITURES
<S>                                                  <C>              <C>          <C>               <C>
Technology Services (STS)                            $     --         $     427    $     937         $   1,097
Hillman Group                                           2,796            11,752        7,376             2,271
                                                     --------         ---------    ---------         ---------
 Segment capital expenditures                           2,796            12,179        8,313             3,368
Capital expenditures from
 contributed subsidiaries,
 sold businesses and
 terminated contracts                                      --                --           27             1,179
Corporate capital expenditures                             --                --            5               183
                                                     --------          --------    ---------         ---------
  Consolidated capital
    expenditures                                    $   2,796         $  12,179    $   8,345         $   4,730
                                                    =========         =========    =========         =========
DEPRECIATION

Technology Services (STS)                            $     --         $   1,616    $   2,070         $   1,607
Hillman Group                                           3,030             7,946        7,161             1,408
                                                     --------         ---------    ---------         ---------
 Segment depreciation                                   3,030             9,562        9,231             3,015
Depreciation from contributed
 subsidiaries, sold businesses
 and terminated contracts                                 --                 --          181             1,127
Corporate depreciation                                    --                 31           43               102
                                                  ----------          ---------    ---------         ---------
  Consolidated depreciation                        $   3,030          $   9,593    $   9,455         $   4,244
                                                   =========          =========    =========         =========

GEOGRAPHIC SEGMENT DATA:
Net Sales
United States                                       $ 60,040           $331,642   $ 444,036          $ 510,862
Canada                                                    --              9,665      18,802             32,415
                                                    --------           --------    --------          ---------
   Consolidated net sales                           $ 60,040           $341,307   $ 462,838          $ 543,277
                                                    ========           ========   =========          =========
</TABLE>


                                       57
<PAGE>


                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


21.  SEGMENT INFORMATION, CONTINUED:

<TABLE>
<CAPTION>
                                                     SUCCESSOR                      PREDECESSOR
                                                     ---------         --------------------------------------
                                                      THREE             NINE
                                                      MONTHS            MONTHS
                                                      ENDED             ENDED               YEARS ENDED
                                                                                      -----------------------
                                                     12/31/01          9/30/01        12/31/00       12/31/99
                                                     ----------        --------       --------       --------

<S>                                                   <C>              <C>          <C>                 <C>
RECONCILIATION OF SEGMENT PROFIT TO
 INCOME (LOSS) FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES
Segment profit - EBITDA                               $ 10,367         $ 33,802     $   27,401          4,016
EBITDA from contributed
subsidiaries, sold businesses and
terminated contracts                                        --               --          2,823         16,840
Depreciation                                            (3,030)          (9,593)        (9,455)        (4,244)
Amortization                                            (1,588)          (2,895)        (3,369)        (1,840)
Management fee expense                                    (250)              --             --             --
Corporate expenses                                        (864)          (4,079)        (8,956)        (9,161)
                                                      --------         --------       --------         ------
Income before non-recurring charges                      4,635           17,235          8,444          5,611
Non-recurring charges:
 Gain on curtailment/termination of
   pension plan                                             --               --         (4,279)         5,608
 Restructuring charges and asset
   write-off                                                --               --             --        (10,248)
                                                      --------         --------        -------         ------
Income from operations                                   4,635           17,235          4,165            971
Equity in earnings of affiliate                         (1,168)           1,063          2,438             --
Interest expense, net                                   (3,616)         ( 9,222)       (11,286)        (9,875)

Distribution on guaranteed
 preferred beneficial interests                         (3,058)         ( 9,174)       (12,232)       (12,232)
Gain on contribution of subsidiaries                        --               --         49,115             --
                                                      --------         --------        -------        -------
 Income(loss)from continuing operations
 before income taxes                                  $ (3,207)        $    (98)     $  32,200       $(21,136)
                                                      ========         ========       ========        =======

RECONCILIATION OF SEGMENT TANGIBLE
 ASSETS TO TOTAL ASSETS:

Segment tangible assets                              $  140,279             N/A      $ 190,330      $ 138,775
Tangible assets from contributed
subsidiaries, sold businesses
and terminated contracts                                     --             N/A             --         46,428
Goodwill                                                120,585             N/A         63,914         51,392
Other intangible assets                                  12,553             N/A         14,035            762
Deferred income taxes                                    34,579             N/A         28,417         15,571
Cash value of life insurance                                 --             N/A             --         14,190
Assets held for sale                                        146             N/A          1,767         37,079
Other corporate assets                                   36,422             N/A         24,126         17,429
                                                     ----------           -----      ---------        -------
 Consolidated total assets                           $  344,564        $    N/A      $ 322,589       $321,626
                                                     ==========        ========      =========       ========
</TABLE>



                                       58
<PAGE>
                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (FORMERLY SUNSOURCE INC. AND SUBSIDIARIES)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)


22.  SALE LEASEBACK TRANSACTION:

On September 30, 1999, the Company sold certain real property of its Kar
Products business for $5,025 which was leased back from the same purchaser under
two separate lease agreements over periods of five and seven years,
respectively. The related leases were being accounted for as operating leases,
and the resulting gains aggregating $2,132 were being amortized over the
respective lives of the leases. On March 2, 2000, the Company contributed the
interests in its Kar Products business to a newly-formed partnership affiliated
with Glencoe. See Note 4, Acquisitions and Divestitures.



                                       59
<PAGE>

                  THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
                   (formerly SunSource Inc. and Subsidiaries)

                        Schedule II - VALUATION ACCOUNTS

                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                   Deducted From Assets in Balance Sheet
                                             -------------------------------------------------------------
                                                                            Accumulated     Accumulated
                                             Allowance for  Allowance for   Amortization    Amortization
                                                Doubtful   Obsolete/Excess  of Goodwill     of Deferred
                                                Accounts    Inventories    and Intangibles  Financing Fees
                                                --------    -----------    ---------------  --------------
<S>                                              <C>           <C>           <C>               <C>
Balance, December 31, 1998 -- Predecessor        $2,152        $3,399        $18,822           $161
Additions charged to cost
and expenses                                      1,453         4,938          1,840            153
Deductions due to:
 Sale of division                                   209           429            876              -
 Others                                           1,332 (A)     1,140 (A)          -            285 (C)
                                                 ------        ------         ------         ------
Balance, December 31, 1999 -- Predecessor         2,064         6,768         19,786             29
Additions charged to cost
and expenses                                        756         2,132          3,369            961
Additions for Axxess acquisition                    212         1,201              -              -
Deductions due to:
 Sale of division                                   368           657          8,927              -
 Others                                           1,264 (A)     3,086 (A)          -              -
                                                 ------        ------         ------         ------
Balance, December 31, 2000 -- Predecessor         1,400         6,358         14,228            990
Additions charged to cost
and expenses                                        430         1,699          2,895          1,047
Deductions due to:
 Others                                             228 (A)     1,068 (A)          -          1,804 (C)
                                                 ------        ------         ------         ------
Balance, September 30, 2001 - Predecessor         1,602         6,989         17,123            233
Additions charged to cost
and expenses                                        495            (4)         1,588            237
Deductions due to:
 Sale of division                                 1,038         3,436          8,816              -
 Merger Transaction                                                            8,307 (B)        233 (B)
 Others                                             522 (A)      (378)(A)          -              -
                                                 ------        ------         ------         ------
Balance, December 31, 2001 - Successor             $537        $3,927         $1,588           $237
                                                 ======        ======         ======         ======
</TABLE>

Notes:

(A)  Includes write-off of accounts receivable (net of bad debt recoveries) and
     inventories.

(B)  Adjustment to write-off pre-merger accumulated amortization.

(C)  Write-off of deferred financing fee as a result of early extinguishment of
     debt related to the Company's bank revolving credit.

                                       60
<PAGE>


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

There were no changes in or disagreements on accounting and financial disclosure
during the year ended December 31, 2001.



                                       61
<PAGE>

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following is a summary of the biographies for at least the last five years
of the continuing directors and officers. Each of the directors have served as
such since September 2001 except for James Powell who has served since February
20, 2002.

<TABLE>
<CAPTION>
DIRECTORS
                                                    PRINCIPAL OCCUPATION; FIVE-YEAR EMPLOYMENT
                  NAME AND AGE                                HISTORY; OTHER DIRECTORSHIPS
                  ------------                                ----------------------------
<S>                                                <C>
Maurice P. Andrien, Jr., (60)                       President, Chief Executive Officer and Chairman of The Hillman Companies,
                                                    Inc., Cincinnati, Ohio (f/k/a SunSource Inc., Philadelphia,
                                                    Pennsylvania).  From April 1999 to November 2001 Mr. Andrien was
                                                    President and Chief Executive officer of SunSource Inc.  From June 1998
                                                    to April 1999, Mr. Andrien was President and Chief Operating Officer of
                                                    Unican Security Systems, Ltd., Montreal, Quebec, Canada.  From April 1992
                                                    to June 1998, Mr. Andrien was President and Chief Executive Officer of
                                                    Curtis Industries, Inc., Mayfield Heights, Ohio.

Max W. Hillman, Jr. (55)                            Chief Executive Officer of The Hillman Group, Inc., Cincinnati, Ohio.
                                                    From April 2000 to November 2001, Mr. Hillman was Co-Chief Executive
                                                    Officer of The Hillman Group, Inc.  From 1999 to April 2000, Mr. Hillman
                                                    held the position of Chief Executive Officer of The Hillman Group, Inc.
                                                    From 1991 to 1999, Mr. Hillman was a Group Vice President for The Hillman
                                                    Group, Inc.

Stephen W. Miller (55)                              Vice Chairman of The Hillman Group, Inc., Cincinnati, Ohio.  From April
                                                    2000 to November 2001, Mr. Miller was Co-Chief Executive Officer of The
                                                    Hillman Group, Inc. From January 1994 to April 2000, Mr. Miller held the
                                                    positions of Chief Executive Officer, Chairman of the Board and President
                                                    of Axxess Technologies, Inc., Tempe, Arizona.

James C. Powell (41)                                Principal of Allied Capital Corporation, Washington, D.C. Mr. Powell
                                                    has been Responsible for co-investment activities for Allied Capital
                                                    since 2000.  Prior to joining Allied Capital, Mr. Powell was employed
                                                    for twelve years at Bank of America Securities LLC, most recently as a
                                                    Managing Director responsible for the sale of private debt securities.
</TABLE>


                                       62
<PAGE>


<TABLE>
<CAPTION>
DIRECTORS
                                                    PRINCIPAL OCCUPATION; FIVE-YEAR EMPLOYMENT
                  NAME AND AGE                                HISTORY; OTHER DIRECTORSHIPS
                  ------------                                ----------------------------
<S>                                                <C>
Daniel L. Russell (37)                              Principal of Allied Capital Corporation, Washington D.C. Mr.Russell
                                                    serves as a Principal in Allied Capital's private finance group.
                                                    Prior to joining Allied Capital in 1998, Mr. Russell spent six years
                                                    with KPMG Peat Marwick LLP in the firm's financial services group,
                                                    including serving as a Senior Manager. Mr. Russell is a director
                                                    of Nobel Learning Communities, Inc.


William L. Walton (52)                              Chairman, Chief Executive Officer and President of Allied Capital
                                                    Corporation, Washington, D.C., since 1997.  Mr. Walton has
                                                    served on the Allied Capital Board of Directors since 1986 and was named
                                                    Chairman and CEO in February 1997. Mr. Walton previously served as Managing
                                                    Director of New York-based Butler Capital Corporation, a mezzanine buyout firm,
                                                    and was the personal venture capital advisor for William S. Paley, founder and
                                                    Chairman of CBS. In addition, he was a Senior Vice President in Lehman Brothers
                                                    Kuhn Loeb's Investment Banking Group.  Mr. Walton also founded and managed two
                                                    start-up businesses, SuccessLab, Inc. and Language Odyssey, in the emerging
                                                    education industry (1992-1996).  Mr. Walton is a director of Riggs National
                                                    Corporation and the National Venture Capital Association.

G. Cabell Williams, III (47)                        Managing Director of Allied Capital Corporation, Washington, D.C.
                                                    Mr. Williams has been employed by Allied Capital in the private finance group
                                                    since 1981. Mr. Williams has served in many capacities during his tenure at
                                                    Allied Capital since 1981.
</TABLE>

All directors hold office until their successors are duly elected and qualified.

The executive officers of the Company (including the executive officers of The
Hillman Group, Inc.) are set forth below:

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
                                                             POSITION WITH THE COMPANY; FIVE-YEAR EMPLOYMENT
                   NAME AND AGE                                         HISTORY
                   ------------                                         -------
<S>                                                <C>
Maurice P. Andrien, Jr., (60)                       President, Chief Executive Officer and Chairman of The Hillman Companies,
                                                    Inc., Cincinnati, Ohio (f/k/a SunSource Inc., Philadelphia,
                                                    Pennsylvania). See page 62 for five-year employment history.

Joseph M. Corvino (47)                              Senior Vice President, Chief Financial Officer and Secretary of The
                                                    Hillman Companies, Inc., Cincinnati, Ohio (f/k/a SunSource Inc.,
                                                    Philadelphia, Pennsylvania).  From December 1995 to November 2001, Mr.
                                                    Corvino was Vice President-Finance, Chief Financial Officer, Treasurer
                                                    and Secretary of SunSource Inc.

Max W. Hillman, Jr. (55)                            Chief Executive Officer of The Hillman Group, Inc., Cincinnati, Ohio.
                                                    See page 62 for five-year employment history.
</TABLE>



                                       63
<PAGE>

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
                                                             POSITION WITH THE COMPANY; FIVE-YEAR EMPLOYMENT
                   NAME AND AGE                                         HISTORY
                   ------------                                         -------
<S>                                                <C>
Richard P. Hillman (53)                             President of The Hillman Group, Inc., Cincinnati, Ohio.  Mr. Hillman has
                                                    held such position since 1991.

Stephen W. Miller (55)                              Vice Chairman of The Hillman Group, Inc., Cincinnati, Ohio.  See page 62
                                                    for five-year employment history.

James P. Waters (40)                                Vice President and Assistant Secretary of The Hillman Companies, Inc.,
                                                    Cincinnati, Ohio (f/k/a SunSource Inc., Philadelphia, Pennsylvania) and
                                                    Vice President, Chief Financial Officer and Secretary of The Hillman
                                                    Group, Inc., Cincinnati, Ohio.  From September 1999 to November 2001, Mr.
                                                    Waters was Vice President and Chief Financial Officer of The Hillman
                                                    Group, Inc.  From November 1997 to September 1999, Mr. Waters was Vice
                                                    President of Finance for Curtis Industries, Inc., Mayfield Heights,
                                                    Ohio.  From May 1993 to November 1997, Mr. Waters was Director of Finance
                                                    for Curtis Industries, Inc., Mayfield Heights, Ohio.
</TABLE>


All executive officers hold office at the pleasure of the board of directors.



                                       64
<PAGE>

ITEM 11 - EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all cash compensation paid and accrued for
services rendered during the three years ended December 31, 2001, by each of the
Chief Executive Officer, and the four other most highly compensated executive
officers of the Company and its subsidiaries whose remuneration exceeded
$100,000 and two individuals who served as executive officers during the last
completed fiscal year but were not serving as such as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                              LONG-TERM COMPENSATION
                                                                              ----------------------
                                                                           RESTRICTED        SECURITIES
                                                                             STOCK           UNDERLYING
NAME AND                                   ANNUAL COMPENSATION               AWARDS           OPTIONS        ALL OTHER
                                           -------------------
PRINCIPAL POSITION                   YEAR   SALARY (1)    BONUS (2)            $                 #         COMPENSATION
------------------                   ----   ----------    ---------            -                 -         ------------
<S>                                  <C>       <C>          <C>               <C>                 <C>            <C>      <C>
Maurice P. Andrien, Jr.              2001      $ 473,352    $299,928                 -            60,000         $ 20,903 (5)
President, Chairman & CEO            2000        462,608     284,000         $ 450,000 (4)        70,000          344,157 (6)
SunSource Inc.                   (3) 1999        319,944     180,000                 -            50,000           25,360 (7)

Joseph M. Corvino                    2001        262,600     101,404                 -            30,000            5,111 (8)
Senior Vice Pres. & CFO              2000        252,600      75,000                 -            35,000            3,843 (8)
SunSource Inc.                       1999        245,748      76,000                 -            20,000            3,771 (8)

Max W. Hillman, Jr.                  2001        361,216     193,262                 -            25,000           12,206 (9)
CEO                                  2000        324,778     154,414                 -            42,500                -
The Hillman Group, Inc.              1999        313,998      55,847                 -            25,000            3,530 (9)

Stephen W. Miller                    2001        362,604     193,163  (11))          -            25,000                -
Vice Chairman                   (10) 2000        242,786     200,000                 -            25,000                -
The Hillman Group, Inc.

Donald T. Marshall (12)              2001        370,291           -                 -           -                 35,992 (13)
Former Chairman                      2000        468,056           -                 -           -                 30,380 (13)
SunSource Inc.                       1999        537,592           -                 -           185,000           42,609 (13)

Richard P. Hillman                   2001        230,161      49,967                 -            10,000                -
President                            2000        222,077      53,340                 -            10,000                -
The Hillman Group, Inc.              1999        188,440      68,362                 -             8,000                -

Justin M. Jacobi (14)                2001        225,450           -                 -                 -                -
Former President & COO               2000         50,100           -                 -            40,000                -
SunSource Technology Services, LLC.
</TABLE>

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

     (1)  Represents base salary plus other types of miscellaneous compensation.

     (2)  Represents earned bonus for services rendered in each year.

     (3)  Represents compensation paid or distributed from April 27, 1999,
          commencement of employment, through December 31, 1999.

     (4)  On January 26, 2000, the Compensation Committee of the Board of
          Directors amended an original grant instrument by reducing the number
          of stock options from 150,000 to 50,000 and issued 100,000 shares of
          restricted stock. The restricted shares were issued at a fair market
          value of $4.50 per share (see Compensation of the President, Chief
          Executive Officer and Chairman of the Board of the Company on page
          67).

     (5)  Includes term life insurance premiums and tax gross-up of $13,008,
          country club fees of $5,395 and miscellaneous compensation of $2,500
          paid by the Company in 2001. Excludes $1,000,000 credit to deferred
          compensation plan as a result of the change of control of the Company
          on September 26, 2001 to Allied Capital Corporation in accordance with
          the terms of Mr. Andrien's employment agreement dated as of April 27,
          1999.

     (6)  Includes compensation for the forgiveness of a loan in the amount of
          $217,058 by the Company associated with the restricted stock issued on
          January 26, 2000 (see note 5 above), relocation expenses of $110,666,
          country club fees of $13,953 and miscellaneous items of $2,480 paid by
          the Company in 2000.



                                       65
<PAGE>

     (7)  Includes relocation expenses of $23,960 and miscellaneous compensation
          of $1,400 paid by the Company in 1999.

     (8)  Includes term life insurance premiums and tax gross-up of $1,800,
          $616, and $616 paid by the Company in 2001, 2000 and 1999,
          respectively; health club fees of $811, $747, and $755 paid by the
          Company in 2001, 2000 and 1999, respectively; and miscellaneous
          compensation of $2,500, $2,480 and $2,400 paid by the Company in
          2001, 2000 and 1999, respectively.

     (9)  Includes country club fees paid by the Company in 2001 and 1999.

     (10) Represents compensation paid or distributed from April 7, 2000 through
          December 31, 2000 only as a result of the acquisition of Axxess
          Technologies, Inc.

     (11) Excludes special performance bonus of $800,000 earned in 2001 related
          to the acquisition of Axxess Technologies, Inc.

     (12) Retired as Chairman of the Board in September 2001.

     (13) Includes term life insurance premiums and tax gross-up of $31,836,
          $26,479, and $24,533 paid by the Company in 2001, 2000, and 1999,
          respectively; country club fees of $4,156, $3,901 and $16,176 paid by
          the Company in 2001, 2000 and 1999, respectively; and miscellaneous
          compensation of $1,900 paid by the Company in 1999.

     (14) Represents compensation paid or distributed from November 1, 2000,
          through September 30, 2001.

                              OPTION GRANTS IN 2001

<TABLE>
<CAPTION>
                                INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------
                                                                                                   POTENTIAL REALIZABLE VALUE AT
                              SECURITIES           PERCENT OF                                           ASSUMED ANNUAL RATES OF
                             UNDERLYING           TOTAL OPTIONS                                        STOCK PRICE APPRECIATION
                               OPTIONS              GRANTED TO     EXERCISE                             FOR OPTION TERM (3)
                               GRANTED             EMPLOYEES IN     PRICE       EXPIRATION     ------------------------------------
NAME                          (#)(1)              FISCAL YEAR      ($/SH)          DATE        0% ($)        5% ($)         10% ($)
----                       --------------      ----------------   ---------     ----------     ------        ------         -------
<S>                               <C>               <C>             <C>          <C> <C>        <C>         <C>            <C>
Maurice P. Andrien, Jr.           60,000            25.5%           $4.00        5/1/2011       $ __        $132,319       $325,907

Joseph M. Corvino                 10,000 (2)         4.3%           $3.40        5/1/2011      6,000          28,053         60,318
                                  20,000             8.5%           $4.00        5/1/2011         __          44,106        108,636

Max W. Hillman, Jr.               12,500 (2)         5.3%           $3.40        5/1/2011      7,500          35,066         75,397
                                  12,500             5.3%           $4.00        5/1/2011         __          27,566         67,897

Stephen W. Miller                 25,000            10.6%           $4.00        5/1/2011         __          55,133        135,795

Richard P. Hillman                10,000             4.3%           $4.00        5/1/2011         __          22,053         54,318

Donald T. Marshall                    --               --              --              --         --              --             --

Justin M. Jacobi                      --               --              --              --         --              --             --
</TABLE>

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

     (1)  Each option granted has a ten-year term and is fully vested.

     (2)  Each option was granted at 85% of the fair market value.

     (3)  The amounts shown under these columns are calculated at the 0%, 5% and
          10% annual rates set by the Securities and Exchange Commission and are
          not intended to forecast future appreciation of the Company's stock
          price.



                                       66
<PAGE>

                       AGGREGATED OPTION EXERCISES IN 2001
                        AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth information for each named executive officer
with regard to stock option exercises during 2001 and the aggregate stock
options held at December 31, 2001.

<TABLE>
<CAPTION>
                                                                             NUMBER OF
                                                                            UNDERLYING
                                                                            UNEXERCISED            VALUE OF UNEXERCISED
                                                                              OPTIONS              IN-THE-MONEY OPTIONS
                                         SHARES                            AT FY-END (#)               AT FY-END ($)
               NAME                    ACQUIRED BY        VALUE            EXERCISABLE/                EXERCISABLE/
               ----                     EXERCISE         REALIZED        UNEXERCISABLE (1)           UNEXERCISABLE (2)
                                        --------         --------        -----------------           -----------------
<S>                                       <C>              <C>              <C>                        <C>
Maurice P. Andrien, Jr.                    --               --             130,000 / 0                 $1,348,750 / 0
Joseph M. Corvino                          --               --              65,000 / 0                    674,375 / 0
Max W. Hillman, Jr.                        --               --              67,500 / 0                    700,312 / 0
Stephen W. Miller                          --               --              50,000 / 0                    518,750 / 0
Richard P. Hillman                         --               --              20,000 / 0                    207,500 / 0
Donald T. Marshall                         --               --                   0 / 0                          0 / 0
Justin M. Jacobi                           --               --                   0 / 0                          0 / 0
</TABLE>

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

     (1)  Represents the number of shares subject to outstanding options.

     (2)  Based on a price of $10.375 per share, the per share value of the
          Company's Common Stock at the time of the merger with Allied Capital
          Corporation on September 26, 2001, minus the associated exercise
          price. This price does not reflect the sale of STS assets that took
          place on September 28, 2001.

     EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
                                  ARRANGEMENTS

Upon a change in control of the Company's Nonqualified Deferred Compensation
Plan (the "Deferred Compensation Plan"), payment would be provided for all
amounts, including accrued investment earnings.

Compensation of the President, Chief Executive Officer and Chairman of the Board
of the Company

Mr. Andrien became the Chairman of the Board of the Company ("Chairman") on
September 26, 2001. Mr. Andrien has been President and Chief Executive Officer
of the Company since April 27, 1999. Mr. Andrien entered into a four-year
employment agreement with the Company effective as of the merger with Allied
Capital Corporation on September 26, 2001, which term will renew on a
year-to-year basis after the initial term, unless the agreement is terminated
earlier or not renewed. Within the terms of Mr. Andrien's initial employment
agreement with the Company, dated April 27, 1999, a change in control credit of
$1,000,000 was made in Mr. Andrien's name to the Deferred Compensation Plan upon
the Company's merger with Allied Capital Corporation. The agreement provides for
an annual base salary of $343,000, a 2001 bonus of up to 100% of base salary in
accordance with performance targets established in January, 2001, and subsequent
annual bonuses of up to 100% of base salary for the remainder of the term,
subject to performance in accordance with performance criteria determined by the
Board each calendar year. During the term, Mr. Andrien will be eligible to
participate in the SunSource Inc. 2001 Stock Incentive Plan (the "New Equity
Plan"), the 1998 Equity Compensation Plan (the "Existing Equity Plan") and the
Deferred Compensation Plan. Mr. Andrien's employment agreement contains a
Non-Solicitation covenant for two years following termination of employment with
the Company. If Mr. Andrien is terminated without cause in the absence of a
change in control involving the Company, then the agreement requires the Company
to pay Mr. Andrien his normal base salary and bonus compensation for a period of
two years following the termination date. If the Company should undergo a change
in control within the terms of the agreement, Mr. Andrien will receive the lump
sum equivalent of one year's base compensation and bonus.



                                       67
<PAGE>
A grant of 150,000 non-qualified stock options, at fair market value, was made
to Mr. Andrien upon his initial employment with the Company, on April 27, 1999
under the Existing Equity Plan (the "Equity Plan"). The options were fully
exercisable at the date of grant. External industry conditions and certain
internal events that were in progress at the time of Mr. Andrien's hire resulted
in significant reduction of the intended value of the grant. On January 26, 2000
the Compensation Committee of The Board of Directors amended the grant by
reducing the number of stock options from 150,000 to 50,000 and issued a grant
of 100,000 shares of restricted stock. One-third of the restricted shares vested
six months from the date of grant. Vesting of the remaining two-thirds of the
restricted shares was based on achievement of certain performance goals. All
unvested restricted shares became fully vested upon the merger with Allied
Capital Corporation on September 26, 2001.

Compensation of the Senior Vice President of the Company

Mr. Corvino became the Senior Vice President of the Company on September 26,
2001. Mr. Corvino entered into a four-year employment agreement with the Company
effective as of the merger with Allied Capital Corporation on September 26,
2001, which term will renew on a year-to-year basis after the initial term,
unless the agreement is terminated earlier or not renewed. The agreement
provides for an annual base salary of $250,000, 2001 bonus compensation in
accordance with performance targets established in January, 2001, and subsequent
annual bonuses of up to 80% of base salary for the remainder of the term,
subject to performance in accordance with performance criteria determined by the
Board each calendar year. During the term, Mr. Corvino will be eligible to
participate in the Company's New Equity Plan, Existing Equity Plan and Deferred
Compensation Plan. Mr. Corvino's employment agreement contains a
Non-Solicitation covenant for two years following termination of employment with
the Company. If Mr. Corvino is terminated without cause in the absence of a
change in control involving the Company, then the agreement requires the Company
to pay Mr. Corvino his normal base salary and bonus compensation for a period of
two years following the termination date. If the Company should undergo a change
in control within the terms of the agreement, Mr. Corvino will receive the lump
sum equivalent of one year's base compensation and bonus.

Compensation of the Chief Executive Officer of The Hillman Group, Inc.

Mr. Hillman became the Chief Executive Officer of The Hillman Group, Inc. on
September 26, 2001. Mr. Hillman entered into a four-year employment agreement
with the Company effective as of the merger with Allied Capital Corporation on
September 26, 2001, which term will renew on a year-to-year basis after the
initial term, unless this agreement is terminated earlier or not renewed. The
agreement provides for an annual base salary of $350,000, 2001 bonus
compensation in accordance with performance targets established in January,
2001, and subsequent annual bonuses of up to 124% of base salary for the
remainder of the term, subject to performance in accordance with performance
criteria determined by the Board each calendar year. During the term, Mr.
Hillman will be eligible to participate in the Company's New Equity Plan,
Existing Equity Plan and Deferred Compensation Plan. Mr. Hillman's employment
agreement contains Non-Compete and Non-Solicitation covenants for two years
following termination of employment with the Company. If Mr. Hillman is
terminated without cause in the absence of a change in control involving the
Company, then the agreement requires the Company to pay Mr. Hillman his normal
base salary and bonus compensation for a period of two years following the
termination date. If the Company should undergo a change in control within the
terms of the agreement, Mr. Hillman will receive the lump sum equivalent of one
year's base compensation and bonus.



                                       68
<PAGE>

Compensation of the Vice Chairman of The Hillman Group, Inc.

Mr. Miller became the Vice Chairman of The Hillman Group, Inc. on September 26,
2001. Mr. Miller entered into a one-year employment agreement with the Company
effective as of the merger with Allied Capital Corporation on September 26,
2001, which term will renew on a year-to-year basis after the initial term,
unless this agreement is terminated earlier or not renewed. The agreement
provides for an annual base salary of $350,000, 2001 bonus compensation in
accordance with performance targets established in January, 2001, and subsequent
annual bonuses of up to 124% of base salary for the remainder of the term,
subject to performance in accordance with performance criteria determined by the
Board each calendar year. During the term, Mr. Miller will be eligible to
participate in the Company's New Equity Plan, Existing Equity Plan and Deferred
Compensation Plan. Mr. Miller's employment agreement contains a two-year
Non-Compete and a one-year Non-Solicitation covenant following termination of
employment with the Company. If Mr. Miller is terminated without cause in the
absence of a change in control involving the Company, then the agreement
requires the Company to pay Mr. Miller the normal base salary and bonus
compensation that would have been payable until the second anniversary of the
effective date of the agreement. On the second anniversary of the agreement
effective date, Mr. Miller will receive a Transition Success Bonus of $188,500,
provided his duties are performed as expected under the agreement.

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

                           OWNERSHIP OF COMMON SHARES

     The following table shows for (i) each director, (ii) each executive
officer named in the summary compensation table, and (iii) all officers and
directors as a group, the beneficial ownership of Common Shares as of December
31, 2001.

<TABLE>
<CAPTION>
                                                                               COMMON SHARES
NAME OF BENEFICIAL OWNER                                                    OWNED BENEFICIALLY        PERCENT OF CLASS
------------------------                                                    ------------------        ----------------
<S>                                                                               <C>                       <C>
DIRECTORS AND EXECUTIVE OFFICERS
Maurice P. Andrien, Jr.                                                           19,880                     *
Joseph M. Corvino                                                                  8,711                     *
Max W. Hillman, Jr.                                                               55,422                     *
Stephen W. Miller                                                                 20,000                     *
James P. Waters                                                                    2,410                     *
All Directors and Executive Officers as a Group (9 persons)                      106,423                    1.5%

The firm identified in the table below has reported that it beneficially owned
at December 31, 2001 more than 5% of the outstanding shares of the Common Stock:

OTHER 5% OWNERS :

Allied Capital Corporation 1919 Pennsylvania Avenue, N.W.                         6,890,937                96.5%
Washington, D.C. 20006
</TABLE>

---------------
*    Less than 1%



                                       69
<PAGE>

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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 Corporation and Easton Hunt Capital
Partners, L.P. for the purpose of acquiring the STS Business. The purchase price
consisted of preferred stock of STS OP which will continue to be held by the
Hillman Group, Inc.

On September 26, 2001, the Company was acquired by Allied Capital Corporation
pursuant to the terms and conditions of an Agreement and Plan of Merger dated as
of June 18, 2001 (the "Merger Transaction"). In connection with the Merger
Transaction, the Company is obligated to pay management fees to a subsidiary of
Allied Capital Corporation for management services rendered in the amount of
$250,000 for calendar year 2001 and $1,800,000 for each calendar year
thereafter. The Company has recorded a management fee charge of $250,000 on its
Statement of Operations for the three months ended December 31, 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. There has not
been any payment of management fees by the Company since the Merger Transaction.

On June 29, 2001, Allied Capital Corporation purchased an unsecured subordinated
note, with an outstanding principal balance of approximately $12,500,000 from a
SunSource Inc. creditor for $8,500,000. In connection with the Merger
Transaction and the Company's debt refinancing, Allied Capital Corporation
exchanged the note for $8,500,000 of the Company's subordinated debt.

On December 28, 2000, the Company issued $30,000,000 of unsecured subordinated
notes to Allied Capital Corporation which was amended on September 28, 2001, to
increase the existing subordinated debenture to $40,000,000 in conjunction with
refinancing the Company's senior debt and to exchange the subordinated note
indicated above.



                                       70
<PAGE>

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
          ON FORM 10-K.


          (A)  DOCUMENTS FILED AS A PART OF THE REPORT:

               1.   FINANCIAL STATEMENTS.

                    The information concerning financial statements called for
by Item 14 of Form 10-K is set forth in Part II, Item 8 of this annual report on
Form 10-K.

               2.   FINANCIAL STATEMENT SCHEDULES.

                    The information concerning financial statement schedules
called for by Item 14 of Form 10-K is set forth in Part II, Item 8 of this
annual report on Form 10-K.

               3.   REPORTS ON FORM 8-K.

                    A Current Report on Form 8-K was filed on October 10, 2001
reporting a change of control of registrant under Item 1 of Form 8-K (See
exhibit 2.1 hereto)

                    A Current Report on Form 8-K was filed on October 15, 2001
reporting a disposition of assets under Item 2 of Form 8-K (See exhibit 2.1
hereto)

                    A Current Report on Form 8-K was filed on March 22, 2002
reporting an other event under Item 5 of Form 8-K (See Exhibit 3.4 hereto)

               4.   EXHIBITS, INCLUDING THOSE INCORPORATED BY
                    REFERENCE.

                    The following is a list of exhibits filed as part of this
annual report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.

       2.1    Agreement and Plan of Merger dated as of June 18, 2001 by and
              among Allied Capital corporation, Allied Capital Lock Acquisition
              Corporation and SunSource Inc. (10) (Exhibit 2.1)

       2.2    Asset Purchase Agreement dated September 28, 2001, by and between
              SunSource Technology Services, LLC, and STS Operating, Inc. (12)
              (Exhibit 2.1)

       2.3    Amended and Restated Agreement and Plan of Merger dated as of
              April 7, 2000 among SunSource Inc., The Hillman Group, Inc., the
              Hillman Group Acquisition Corp., Axxess Technologies, Inc., and
              certain security holders of Axxess (6) (Exhibit 2.1)

       2.4    Asset Purchase Agreement dated as of April 12, 2000, among VVP
              America, Inc., VVP America Acquisition, L.L.C., SunSource Inc.,
              SunSource Investment Company, Inc., Harding Glass, Inc., and
              SunSub A Inc. (6) (Exhibit 2.2)

       2.5    Financial Statements of Axxess Technologies, Inc., as of December
              31, 1999 and 1998. (7) (Item 7)

       2.6    Contribution Agreement by and among SunSource Inc., SunSource
              Industrial Services Company, Inc., KAR Products Inc., A & H
              Holding Company, Inc., SunSource Canada Investment Company, A. &
              H. Bolt & Nut Company Limited and GC-Sun Holdings, L.P. dated as
              of February 10, 2000 (5) (Exhibit 2.1)

       2.7    Amendment No. 1 to Contribution Agreement by and among SunSource
              Inc., SunSource Industrial Services Company, Inc., Kar Products
              LLC (as successor by merger to Kar



                                       71
<PAGE>

              Products, Inc.), A&H Holding Company, Inc., SunSource Canada
              Investment Company, A. & H. Bolt & Nut Company Limited and GC-Sun
              Holdings, L.P. dated as of March 2, 2000. (5) (Exhibit 2.2)

       2.8    Asset Purchase Agreement by and among Lawson Products, Inc.,
              ACS/SIMCO, Inc. and SunSource Inc. and certain subsidiaries dated
              as of July 1, 1999. (8) (Exhibit 2.3)

       2.9    Agreement and Plan of Conversion dated as of July 31, 1997 (2)
              (Exhibit 2.1)


       3.1    Amended and Restated bylaws as adopted by the Corporation's
              stockholders as of September 26, 2001 (13) (Exhibit 3.1)

       3.2    Amended and Restated Certificate of Incorporation of the Company
              (3) (Exhibit 3.1)

       3.3**  Amendment to Amended and Restated Certificate of Incorporation of
              the Company.

       4.1    Form of Stockholders Agreement (11) (Exhibit d5)

       4.2    Amended and Restated Declaration of Trust (3) (Exhibit 4.1)

       4.3    Indenture between the Company and the Bank of New York (3)
              (Exhibit 4.2)

       4.4    Preferred Securities Guarantee (3) (Exhibit 4.3)

       4.5    Rights Agreement between the Company and the Registrar and
              Transfer Company (3) (Exhibit 10.5)

       10.1   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 a Co-Agent and the other financial
              institutions party hereto as lenders. (13) (Exhibit 10.1)



                                       72
<PAGE>

       10.2   First Amended and Restated Investment Agreement by and among
              SunSource Inc., SunSource Investment Company, Inc., The Hillman
              Group, Inc., and Allied Capital Corporation dated September 28,
              2001. (13) (Exhibit 10.2)

       10.3   SunSource Inc. 2001 Stock Incentive Plan. (13) (Exhibit 10.3)

       10.4   Termination Agreement dated as of June 18,2001 by and among
              SunSource, Lehman Brothers, Donald T. Marshall, John P. McDonnell,
              Norman V. Edmonson, Harold Cornelius, Max W. Hillman, Joseph P.
              Corvino and the respective S corporations of Marshall, McDonnell,
              Edmonson, Cornelius, Hillman and Corvino. (11) (Exhibit d6)

       10.5*  Employment Agreement by and between SunSource Inc. and Maurice P.
              Andrien, Jr. entered into June 18, 2001. (11) (Exhibit e1)

       10.6*  Employment Agreement by and between SunSource Inc. and Stephen W.
              Miller entered into June 18, 2001 (11) (Exhibit e2)

       10.7*  Employment Agreement by and between SunSource Inc. and Joseph M.
              Corvino entered into June 18, 2001. (13) (Exhibit 10.7)

       10.8*  Employment Agreement by and between SunSource Inc. and Max. W.
              Hillman entered into June 18, 2001. (13) (Exhibit 10.8)

       10.9*  SunSource Inc. Nonqualified Deferred Compensation Plan dated as of
              August 1, 2000. (9) (Exhibit 10.1)




                                       73
<PAGE>

       10.10  Investment Agreement entered into as of December 28, 2000 by and
              among SunSource Technology Services, Inc., SunSource Investment
              Company, Inc., SunSub A, Inc., the Hillman Group, Inc., Axxess
              Technologies, Inc., SunSource Corporate Group, Inc., SunSource
              Industrial Services, Inc., SunSource inventory Management Company,
              Inc., A&H Holding Co., SunSub C, Inc., SunSub Holdings, L.L.C. and
              Allied Capital Corporation. (9) (Exhibit 10.8)

       10.11  1998 Equity Compensation Plan - Amendment to Nonqualified Stock
              Option Grant dated as of January 26, 2000. (8)(Exhibit 10.1)

       10.12  1998 Equity Compensation Plan - Restricted Stock Grant dated as of
              January 26, 2000. (8) (Exhibit 10.2)

       10.13  Employment Agreement between SunSource Inc. and Donald T. Marshall
              dated as of April 28, 1999. (8) (Exhibit 10.5)





                                       74
<PAGE>



       10.14* SunSource Inc. 1998 Equity Compensation Plan (1) Exhibit 10.1

       10.15* SunSource Inc. Stock Compensation Plan for Non-Employee Directors
              (1) Exhibit 10.2

                         SUBSIDIARIES OF THE REGISTRANT

**21.1 Subsidiaries (As of December 31, 2001)

**21.2 Subsidiaries (As of March 25, 2002)

                       CONSENT OF INDEPENDENT ACCOUNTANTS

**23.1 Consent of PricewaterhouseCoopers LLP

  ________________________


       (1)    Filed as an exhibit to Quarterly Report on Form 10-Q for the
              Quarter ended March 31, 1998.

       (2)    Filed as an exhibit to Registration Statement No. 333-19077 on
              Form S-4.

       (3)    Filed as an exhibit to Registration Statement No. 333-44733 on
              Form S-2.

       (4)    Filed on March 31, 1994, as an exhibit to Annual Report on Form
              10-K for the year ended December 31, 1993.

       (5)    Filed on March 17, 2000 as an exhibit to Current Report on Form
              8-K.



                                       75
<PAGE>

       (6)    Filed on April 24, 2000 as an exhibit to Current Report on Form
              8-K.

       (7)    Filed on May 11, 2000 as Item 7 to Current Report on Amendment No.
              1 to Form 8-K originally filed on April 24, 2000.

       (8)    Filed on March 30, 2000 as an exhibit to Annual Report on Form
              10-K for the year ended December 31, 1999.

       (9)    Filed on April 2, 2001 as an exhibit to Annual Report on form 10-K
              for the year ended December 31, 2000.

       (10)   Filed on June 21, 2001 as an exhibit to the Current Report on form
              8-K filed on June 21, 2001.

       (11)   Filed as a exhibit to Schedule 13E-3 filed on July 11, 2001, as
              amended.

       (12)   Filed as an exhibit to the Current Report on Form 8-K filed on
              October 15, 2001.

       (13)   Filed as an exhibit to Quarterly Report on form 10-Q for the
              Quarter ended September 30, 2001.

              * Management contract or compensatory plan or arrangement required
       to be filed as an Exhibit pursuant to Item 14(c) of this report.

              ** Filed herewith.

REPORTS ON FORM 8-K.

       Current Report on Form 8-K was filed on June 21, 2001 reporting an
       unscheduled material event under Item 5 of Form 8-K (See exhibit 2.1
       hereto)

       A Current Report on Form 8-K was filed on October 10, 2001 reporting a
       change of control of registrant under Item 1 of form 8-K (See exhibit 2.1
       hereto)

       A Current Report on Form 8-K was filed on October 15, 2001 reporting a
       disposition of assets under Item 2 of Form 8-K (See exhibit 2.1 hereto)

       A Current Report on Form 8-K was filed on March 22, 2002 reporting an
       other event under Item 5 of Form 8-K (See exhibit 3.4 hereto)



                                       76
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date:  March 25, 2002                   By:/s/ Maurice P. Andrien, Jr.
                                        ------------------------------
                                               Maurice P. Andrien, Jr.
                                        Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Each person in so signing also makes, constitutes and appoints Maurice P.
Andrien, Jr., and Joseph M. Corvino, and each of them, his true and lawful
attorney-in-fact, in his name, place and stead to execute and cause to be filed
with the Securities and Exchange Commission any or all amendments to this
report.

<TABLE>
<CAPTION>
         Signature                                   Capacity                           Date
         ---------                                   --------                           ----
<S>                                       <C>                                   <C>
/s/ Maurice P. Andrien, Jr.                Principal Executive                   March 25, 2002
------------------------------
Maurice P. Andrien, Jr.                    Officer and Director




/s/ Joseph M. Corvino                      Principal Financial                   March 25, 2002
------------------------------
Joseph M. Corvino                          Officer




/s/ Edward L. Tofani                       Principal Accounting                  March 25, 2002
------------------------------
Edward L. Tofani                           Officer




/s/ Max W. Hillman, Jr.                    Director                              March 25, 2002
------------------------------
Max W. Hillman, Jr.
</TABLE>






                                       77
<PAGE>




<TABLE>
<CAPTION>
         Signature                                   Capacity                           Date
         ---------                                   --------                           ----
<S>                                       <C>                                   <C>
/s/ Stephen W. Miller                     Director                               March 25, 2002
------------------------------
Stephen W. Miller

/s/ James C. Powell                       Director                               March 25, 2002
------------------------------
James C.  Powell

/s/ Daniel L. Russell                     Director                               March 25, 2002
------------------------------
Daniel L. Russell

/s/ William L. Walton                     Director                               March 25, 2002
------------------------------
William L. Walton

/s/ G. Cabell Williams, III               Director                               March 25, 2002
------------------------------
G. Cabell Williams, III
</TABLE>



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