UNITED STATES
                       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 year ended December 31, 2000           Commission file Number  000-21750

                             PRIMESOURCE CORPORATION
             (Exact name of registrant as specified in its charter)

Pennsylvania                                                          23-1430030
------------                                                          ----------
(State or Other Jurisdiction of                                (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

4350 Haddonfield Road, Suite 222, Pennsauken, N.J.                         08109
--------------------------------------------------                         -----
(Address of Principal Executive Offices)                              (Zip Code)

                                  (856)488-4888

                          Registrant's Telephone Number

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

None

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

Title of Each Class                    Name of Each Exchange on Which Registered
-------------------                    -----------------------------------------
Common Stock $.01 par value per share                                    Nasdaq


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 ( X ) NO (   )
                                     ---      ---

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 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. ( _ )

As of March 26,  2001 the  aggregate  market  value of the voting  stock held by
nonaffiliates was approximately $25.7 million.

As of March 26,  2001 there were  6,357,806  shares of common  stock  issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The definitive  Proxy Statement to be filed pursuant to Regulation 14A under the
Securities  Exchange Act of 1934 (Item 10- Directors  Only, and Items 11, 12 and
13 of Part III). The index of exhibits is located on page 34 of this document.


<PAGE>



                                     PART I.

Certain  statements  contained in this annual report are  forward-looking.  Such
forward-looking  statements  are  subject  to a  number  of  factors,  including
material  risks,  uncertainties  and  contingencies,  which could  cause  actual
results  to  differ  materially  from  those  set  forth in the  forward-looking
statements.  These risks and uncertainties  include, but are not limited to, the
Company's ability to successfully  implement its business  strategies  including
successfully  integrating business acquisitions,  the effect of general economic
conditions and technological,  competitive and other changes in the industry and
other risks and uncertainties as set forth in the Company's periodic reports and
other filings with the Securities and Exchange Commission.

ITEM I.  BUSINESS

PrimeSource  Corporation (the "Company") is a major national distributor serving
the printing and publishing  industry.  For approximately 135 years, the Company
or its unincorporated predecessor has been servicing this industry. The Company,
which was  incorporated  under the laws of the  Commonwealth  of Pennsylvania in
1954, was acquired as a wholly-owned subsidiary of Tasty Baking Company ("TBC"),
Philadelphia,  Pennsylvania in 1965. On August 1, 1993, TBC spun off 100% of the
ownership of the Company in a dividend  distribution of the Company common stock
to the  shareholders  of TBC.  As a result,  the Company  became an  independent
publicly-owned company whose shares are traded on the Nasdaq National Market.

Since becoming a public company,  the Company has had three significant business
combinations.  In 1994,  Momentum  Corporation with sales of approximately  $165
million  merged into the  Company.  In 1996,  the Company  acquired  five of VGC
Corporation's  branch  operations with sales of  approximately  $55 million.  In
1998, the Company  acquired the graphic imaging group of Bell  Industries,  Inc.
with sales of approximately $135 million.  With these acquisitions,  the Company
has a significant  presence in all of the major regions in the United States. In
addition,  in 2000,  the Company  entered into a joint  venture  with Xeikon,  a
leading manufacturer of on-demand and variable-data digital printing systems, to
form Canopy, LLC ("Canopy").  The Company's ownership interest in Canopy is 74%,
with Xeikon owning the remaining 26%.  Canopy's  business  focuses on the sales,
installation,  training  and  ongoing  service  and  support of Xeikon  printing
systems in the United States and Canada.

The Company is headquartered in Pennsauken,  New Jersey.  The Company utilizes a
decentralized  structure that allows  management broad discretion in the conduct
of their respective  responsibilities,  including management of their suppliers,
customers and  employees.  Management is evaluated  against their  financial and
non-financial  goals  which are  established  on an annual  basis.  The  Company
emphasizes sales growth and return on sales and net assets. The Company believes
it must  strive  to  maximize  its  long-term  return  on  capital  employed  by
quantifying  this objective and applying it at the operating  level.  Management
believes a key factor in the Company's future success is the continued fostering
and perpetuating of this entrepreneurial drive.

The Company presently represents over 500 suppliers,  provides more than 200,000
line items and has a customer  base in excess of 20,000.  No customer  accounted
for more than 5% of the Company's net sales in 2000.

The Company offers  consumables,  such as films,  plates,  blankets,  papers and
chemistries;  scanners, servers, work stations, image setters, computer-to-plate
devices and other digital electronic equipment and the applicable software;  and
press,  bindery  and  other  finishing  machinery.  With the  product  range and
in-house  expertise,  the  Company  feels it is a premiere  provider of printing
solutions.  The printing industry has transitioned and continues to move through
a period of rapid technological change.  Accordingly,  the Company's product mix
continues to evolve;  however,  it remains  positioned  through both product and
process knowledge to fully service this market.


<PAGE>


In addition,  there has been and continues to be a consolidation of the customer
base.  Many  printing  and imaging  customers  want a single  source for design,
prepress preparation, and  printing. Consolidation eliminates duplicate overhead
costs and creates  larger  entities  capable of  supporting  more  sophisticated
management  techniques,  from  strategic  planning  through  actual  production.
Management  expects to  continue to see this  consolidation  of  customers  into
larger operations offering more services to their customers.

While for the most part the Company  sells  primarily  the same  products as its
competitors,  generally at similar prices, the Company attempts to differentiate
itself by  providing a  value-added  approach  with  products  and  training and
technical  support that can make its customers more efficient and effective.  In
addition,  the  Company's  broad  geographic  presence  provides an advantage in
servicing regional and national customers.

There are over 300  independent  dealers in the United States  competing in this
industry  with no dealer  accounting  for more  than 15% of the  total  industry
sales.  The  Company  believes  it is one of the  largest  dealers in the United
States in terms of  annual  sales and  covers a  broader  range of  geographical
markets  in the United  States  than any of its  competitors.  The  Company  has
minimal foreign sales or income.

The Company owns several  trademarks and tradenames.  To the extent  trademarks,
tradenames, or patents are significant to the Company's business, they are owned
by the manufacturers the Company represents.

The  Company  has minimal  backlog.  The nature of its  business is such that it
maintains  substantial  inventories in order to supply its customers immediately
upon receipt of an order.  Approximately  25% of the Company's  inventories  are
consigned  at various  customer  locations.  Usage of consigned  inventories  is
monitored  at least  monthly  through  a  physical  inventory  taken by  Company
personnel.

Company management does not believe that compliance with federal, state or local
laws relating to the protection of the environment  will have a material adverse
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.

The Company  including Canopy employed  approximately  740 employees at December
31, 2000.


<PAGE>

<TABLE>
<CAPTION>

EXECUTIVE OFFICERS OF THE REGISTRANT

                                         BUSINESS EXPERIENCE                    POSITION HELD
NAME                           AGE       LAST FIVE YEARS                        SINCE
------------------------      -----      ----------------------------           ---------------
<S>                             <C>                                             <C>
James F. Mullan                 61       Chairman of the Board,                 2000-Present
Chairman of the Board,                   President and Chief Executive
President and                                Officer of Registrant
Chief Executive Officer                  Chairman of the Board of
                                             Canopy, LLC

                                         President and Chief Executive          1991-2000
                                                   Officer of Registrant

John H. Goddard, Jr.            53       Executive Vice President               2000-Present
Executive Vice President                     of Registrant
                                         President and Chief Executive
                                             Officer of Canopy, LLC

                                         Executive Vice President               1994-2000
                                             of Registrant


William A. DeMarco              55       Vice President and Chief Financial     1994-Present
Vice President and                            Officer of Registrant
Chief Financial Officer



Barry C. Maulding               55       Vice President, General Counsel        1994-Present
Vice President,                               and Corporate Secretary
General Counsel and                           of Registrant
Corporate Secretary
</TABLE>







<PAGE>


ITEM 2.  PROPERTIES

The locations  and primary use of the physical  properties of the Company are as
follows:

                                                                     Approximate
                                                                          Square
Location                                                                 Footage
-----------------------------------                                 ------------
Corporate Headquarters

       Pennsauken, NJ                                                      8,500

Distribution/Sales Facilities

       Atlanta, GA (Norcross)                                             23,200
       Birmingham, AL                                                     37,000
       Boston, MA (Hingham)                                               10,700
       Chicago, IL (Itasca)                                               49,600
       Cincinnati, OH                                                     35,000
       Cleveland, OH                                                       7,800
       Dallas, TX                                                         17,500
       Denver, CO                                                         10,000
       Des Moines, IA (Ankeny)                                            15,000
       Houston, TX (Bellaire)                                             10,300
       Jackson, MS (Richland)                                              1,500
       Kalamazoo, MI                                                      14,700
       Kansas City, KS                                                    16,800
       Lancaster, PA (Lititz)                                             14,300
       Las Vegas, NV                                                       6,200
       Los Angeles, CA                                                    44,900
       Miami, FL (Miramar)                                                14,700
       Milwaukee, WI (New Berlin)                                         23,300
       Minneapolis, MN (Roseville)                                        76,800
       Mobile, AL                                                          8,000
       Nashville, TN                                                      16,000
       New Orleans, LA (Harahan)                                           8,800
       Omaha, NE                                                          15,000
       Orlando, FL                                                        14,400
       Pennsauken, NJ                                                     19,500
       Phoenix, AZ                                                        11,500
       Pittsburgh, PA                                                     15,800
       Portland, OR                                                       12,500
       Sacramento, CA                                                      7,600
       St. Louis, MO                                                      22,000
       San Diego, CA                                                      10,600
       San Jose, CA                                                       35,300
       Seattle, WA (Auburn)                                                9,600




All  of  the  properties  are  held  under  operating  leases,  except  for  the
Birmingham,  Des Moines and St.  Louis  facilities  which are owned.  Management
believes  that the  Company's  properties  are  generally  well  maintained  and
adequate for current operations and foreseeable expansion.  The inability of the
Company to renew any  short-term  real property  lease would not have a material
effect on the Company's results of operations.


<PAGE>


ITEM 3. LEGAL PROCEEDINGS

The  Company  is from time to time  involved  in  litigation  incidental  to the
conduct of its  business.  Management  believes  that none of the  litigation in
which the Company is currently involved would, individually or in the aggregate,
have a material  effect on the  Company's  consolidated  financial  position  or
results of operations and cash flows when resolved in a future period.

The Company,  along with many other  parties,  is a defendant in a  contribution
action to determine  the liability for the state ordered clean up of a landfill.
The Company believes its insurance will cover any costs incurred in this matter.
The Company is also, in general, subject to possible loss contingencies pursuant
to  federal  or  state  environmental  laws  and  regulations.   Although  these
contingencies  could result in future  expenses or  judgments,  such expenses or
judgments  are  not  expected  to  have  a  material  effect  on  the  Company's
consolidated financial position or results of operations.

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

No matter was submitted to a vote of security  holders during the fourth quarter
of the year.


<PAGE>


                                    PART II.

ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market under the symbol
PSRC.

The following  quarterly  stock price and dividend  information  is provided for
2000 and 1999.

                                               Stock Price
                              ----------------------------        Cash Dividends
                                    High               Low             Per Share
--------------------------------------------------------------------------------
2000
-----
   First Quarter               $    6.84        $     5.00            $    .0475
   Second Quarter                   5.62              4.81                 .0475
   Third Quarter                    5.87              4.00                 .0475
   Fourth Quarter                   5.25              4.06                 .0475

1999
-----
   First Quarter               $    7.06        $     5.25            $     .045
   Second Quarter                   8.12              4.84                  .045
   Third Quarter                    8.00              4.50                  .045
   Fourth Quarter                   6.50              4.00                  .045



The payment of future cash  dividends will depend on the level and growth of the
Company's earnings and the Company's needs for cash.

There were approximately 2,800 shareholders of record as of December 31, 2000.

For purposes of computing the aggregate  market value of the voting stock of the
Company held by nonaffiliates, as shown on the cover page of this report, it has
assumed that all the outstanding  shares were held by  nonaffiliates  except for
the shares held by directors and officers of the Company.  However,  this should
not be deemed to constitute an admission  that all directors and officers of the
Company are, in fact,  affiliates  of the  Company,  or that there are not other
persons who may be deemed to be affiliates of the Company.  Further  information
concerning  shareholdings of officers,  directors and principal  shareholders is
included in the Company's  definitive  proxy statement filed with the Securities
and Exchange Commission by April 30, 2001.


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

This information  should be read in conjunction with the Company's  consolidated
financial statements and notes to such statements included herein.

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                          --------------------------------------------------------------
(in thousands, except per share amounts)        2000         1999         1998(1)      1997(2)      1996
--------------------------------------------------------------------------------------------------------
Statement of Income Data
<S>                                        <C>          <C>          <C>          <C>          <C>
Net sales ..............................   $ 547,558    $ 547,417    $ 454,635    $ 415,913    $ 367,755
Cost of sales ..........................     459,110      459,609      375,609      347,788      305,517
--------------------------------------------------------------------------------------------------------
Gross profit ...........................      88,448       87,808       79,026       68,125       62,238
Operating expenses .....................      74,819       73,630       68,643       59,631       54,042
Gain on sale of property and equipment .         384         --           --           --           --
--------------------------------------------------------------------------------------------------------
Income from operations .................      14,013       14,178       10,383        8,494        8,196
Interest expense .......................      (5,913)      (5,484)      (3,605)      (2,913)      (1,915)
Gain on sale of capital lease ..........        --           --           --          3,658         --
Loss on business divestiture ...........        --           --           --           (401)        --
Minority interest ......................         319         --           --           --           --
Other income-net .......................         314           78          297          515          421
--------------------------------------------------------------------------------------------------------
Income before provision for income taxes       8,733        8,772        7,075        9,353        6,702
Provision for income taxes .............       3,655        3,663        2,975        3,862        2,788
--------------------------------------------------------------------------------------------------------

Net income .............................   $   5,078    $   5,109    $   4,100    $   5,491    $   3,914
========================================================================================================
Per Share Data

Net income per basic share .............   $     .79    $     .78    $     .63    $     .84    $     .60
Net income per diluted share ...........         .79          .78          .62          .83          .60
Cash dividends per share ...............         .19          .18          .18          .18          .18
========================================================================================================

Balance Sheet Data

Working capital ........................   $  93,744    $  94,236    $ 100,602    $  69,151    $  67,040
Total assets ...........................     187,116      196,807      190,697      138,491      134,175
Total long-term debt obligations .......      55,600       62,500       75,205       32,788       36,250
Shareholders' equity ...................      62,403       59,545       55,611       52,548       48,183
========================================================================================================
<FN>


(1)    Income for 1998,  includes a one-time  restructure  and other  expense of
       $1,050,000  ($634,000  after tax) relating to the  reorganization  of the
       Company into three regions and the integration of an acquisition.

(2)    Income  for  1997,  includes  a charge  to cost of sales  for  $2,300,000
       ($1,381,000  after  tax)  for  the  write-down  of  electronic  equipment
       inventory,  a  $3,658,000  ($2,183,000  after  tax) gain on the sale of a
       capital  lease and a  $401,000  ($241,000  after  tax) loss on a business
       divestiture.

</FN>
</TABLE>

<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

The following  table sets forth for the years  indicated  certain items from the
accompanying  Consolidated Statements of Income expressed as a percentage of net
sales.

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                ---------------------------
                                                  2000      1999      1998
---------------------------------------------------------------------------

<S>                                              <C>       <C>       <C>
Net sales ..................................     100.0%    100.0%    100.0%
Cost of sales ..............................      83.8      83.9      82.6
--------------------------------------------------------------------------
Gross profit ...............................      16.2      16.1      17.4
Selling, general and administrative expenses      12.8      12.7      14.2
Depreciation and amortization ..............        .6        .6        .6
Provision for doubtful accounts ............        .3        .2        .1
Gain on sale of property and equipment .....        .1        --        --
Restructure and other ......................        --        --        .2
--------------------------------------------------------------------------
Income from operations .....................       2.6       2.6       2.3
Interest expense ...........................      (1.1)     (1.0)      (.8)
Gain on sale of capital lease
Minority interest ..........................        .1        --        --
Other income-net ...........................        --        --        .1
--------------------------------------------------------------------------
Income before provision for income taxes ...       1.6       1.6       1.6
Provision for income taxes .................        .7        .7        .7
--------------------------------------------------------------------------
Net income .................................        .9%       .9%       .9%
==========================================================================
</TABLE>

All periods previously  reported have a reclassification  to comply with revised
accounting  standards,  requiring  freight billed to customers to be included in
sales and  freight out  expenses  to be  included in cost of sales.  Previously,
freight out expense net of freight  billed was included in selling,  general and
administrative  expenses.  This accounting change has no effect on the Company's
current or historical net income or net income per share.

COMPARISON OF 2000 TO 1999

Net income for 2000 was  $5,078,000,  or $.79 per  diluted  share,  compared  to
$5,109,000,  or $.78 per diluted share,  in 1999.  Income in 2000 was negatively
impacted by  additional  costs  incurred by the Company for the expansion of its
digital printing business including the formation of Canopy,  LLC ("Canopy"),  a
joint venture owned 74% by the Company and 26% by Xeikon,  in the second half of
the year.

Sales remained  relatively flat between the two years with sales of $547,558,000
in 2000 and  $547,417,000  in 1999.  During the first  nine  months of the year,
sales  increases  were  positive.  However,  beginning  at the end of the  third
quarter and continuing  through the remainder of the year, sales were negatively
impacted by an overall softness in the printing industry.

Gross  profit as a percent  of sales  increased  from  16.1% in 1999 to 16.2% in
2000. This increase is primarily due to a positive change in product mix between
the two years.
<PAGE>

Selling,  general and administrative expenses increased $586,000 in 2000 or as a
percent of sales  increased  from 12.7% in 1999 to 12.8% in 2000.  In 2000,  the
Company incurred  approximately $1 million of additional expenses as a result of
the  formation of Canopy.  Excluding  this impact,  the expenses as a percent of
sales would have been less than in the prior year.

Depreciation  and  amortization  expense  decreased  from  $3,096,000 in 1999 to
$2,998,000  in  2000.  This  decrease  is due  to a  decline  in  the  Company's
investment in property and equipment.

The  provision  for  doubtful  accounts  increased  from  $1,186,000  in 1999 to
$1,887,000 in 2000. In 2000,  the Company  incurred  higher levels of write-offs
than had been experienced in earlier years.

The Company sold two buildings during the year, one in Minneapolis and the other
in Seattle.  Total  proceeds for the two sales were  approximately  $4.4 million
with a gain of approximately $380,000.

Interest  expense  increased from $5,484,000 in 1999 to $5,913,000 in 2000. This
increase is due to higher  interest  rates  during the year that were  partially
offset by decreased debt levels.

The effective income tax rate remained relatively constant between the two years
at 41.9% in 2000 and 41.8% in 1999.  The  difference  between the  effective tax
rates and the federal  statutory  rate of 34% is primarily  attributable  to the
effect of state income taxes and non-deductible expenses.

The Company  implemented a dividend increase  beginning with the first quarterly
dividend paid in 2000. The quarterly dividend per share was increased from $.045
to $.0475 per share.  In  addition,  because the Company  believes  its stock is
undervalued  in the  marketplace  and the repurchase of the stock at the current
market  levels   represents   an  excellent   value  for  the  Company  and  its
shareholders,  the  Board  of  Directors,  in  March  2000,  authorized  a stock
repurchase  program  to acquire up to  325,000  shares of the  Company's  common
stock. In 2000, the Company acquired and retired 178,406 shares.

For the year 2001, the Company  expects to continue to improve its market share,
and expects  improved  results from Canopy as the market  acceptance for digital
printing increases.  In addition, the Company expects interest costs to decrease
as a result of lower debt levels and lower  interest  rates.  The Company  will,
however, be affected by potential changes in the strength of the economy.

COMPARISON OF 1999 TO 1998

Net income for 1999 was  $5,109,000,  or $.78 per  diluted  share,  compared  to
$4,100,000,  or $.62 per diluted share,  in 1998.  Excluding a one-time  pre-tax
restructure  and other charge of $1.05  million in 1998,  the net income in 1998
was $4,734,000, or $.71 per diluted share.

This  increase  in net income for 1999 was the result of  improved  income  from
operations.  During the year, the Company was able to successfully integrate the
acquisition of Bell Industries'  Graphic Imaging Group ("Bell  acquisition") and
complete the  reorganization  of the Company into three  regions.  Excluding the
1998  one-time  charge,  income  from  operations  increased  24% in  1999  from
$11,433,000 in 1998 to $14,178,000 in 1999.  Including the one-time charge, 1998
income from operations was $10,383,000.

Sales  for  1999  were   $547,417,000,   a  20%  increase  over  1998  sales  of
$454,635,000.   This  sales  increase  is  primarily  the  result  of  the  Bell
acquisition,  increased  national  account  sales  and over a 200%  increase  in
digital press sales.

Gross profit as a percent of sales was 16.1% in 1999  compared to 17.4% in 1998.
This decrease is primarily the result of changes in product and customer mix and
lower manufacturer rebates.

Selling,  general and  administrative  expenses as a percent of sales  decreased
from 14.2% in 1998 to 12.7% in 1999. In 1998, the Company incurred a restructure
and other charge of $1.05 million related to reorganizing the Company into three
regions  and  integrating  the Bell  operations.  This  percentage  decrease  in
selling,   general  and   administrative   expenses   reflects  the   successful
implementation of this reorganization and integration program.
<PAGE>

Depreciation  and  amortization  expense  increased  from  $2,507,000 in 1998 to
$3,096,000 in 1999. This increase is due to additional goodwill  amortization as
a result of the Bell acquisition.

The  provision  for  doubtful  accounts  increased  from  $440,000  in  1998  to
$1,186,000  in 1999.  This  increase is due to  increased  sales in 1999,  plus,
losses that occurred in transitioning accounts acquired in the Bell acquisition.

Interest  expense  increased from $3,605,000 in 1998 to $5,484,000 in 1999. This
increase is attributable to the debt associated with the Bell acquisition.

The effective income tax rate remained relatively constant between the two years
at 41.8% in 1999 and 42% in 1998. The difference between the effective tax rates
and the federal statutory rate of 34% is primarily attributable to the effect of
state income taxes and non-deductible expenses.

Financial Condition and Liquidity

Cash flow provided by operating  activities was  $17,299,000  and $10,196,000 in
2000  and  1999,  respectively,  and  cash  used  in  operating  activities  was
$2,302,000 in 1998. The improvement in 2000 is due to a continual improvement in
working  capital  management.  In both 2000 and 1999,  the  change in assets and
liabilities resulted in a positive cash flow from operations.  In 2000, the cash
flow was $8.8 million compared to $1.4 million in 1999.  Excluding the impact of
changes in assets and liabilities, the cash flow was $8.5, $8.8 and $7.7 million
in 2000, 1999 and 1998, respectively.

Cash flow provided by investing  activities was $1,490,000 in 2000 and cash used
in  investing  activities  was  $487,000  and  $45,618,000  in  1999  and  1998,
respectively.  In 2000,  the Company had proceeds of $4.4 million on the sale of
two  facilities,  one in  Minneapolis  and the other in  Seattle.  In 1998,  the
Company incurred $43.9 million for business acquisitions which was primarily for
the Bell acquisition.  Property and equipment expenditures for each of the three
years ranged between $1.5 and $1.7 million.  The Company had no material capital
expenditure  commitments at December 31, 2000 and expects  capital  expenditures
for 2001 to be approximately $2 million.

Cash flows used in financing  activities were $18,789,000 and $9,709,000 in 2000
and 1999, respectively,  and $47,920,000 provided in 1998. The cash used in 2000
and 1999 was primarily provided by the operating and investing  activities.  The
cash  provided  in 1998  was  used  primarily  for the  Bell  acquisition.  Debt
decreased by $8 and $16.3 million in 2000 and 1999, respectively. Debt increased
by $45.4  million  in 1998,  primarily  due to the  Bell  acquisition.  The book
overdraft  decreased  by $9.1  million  in 2000 and  increased  by $7.7 and $3.6
million in 1999 and 1998,  respectively.  In 2000, the Company received $500,000
cash as part of the minority  interest in Canopy and expended $1 million for the
repurchase of Company stock.

The Company's  primary source of debt financing is a revolving  credit agreement
with a commitment of $75 million and $55.6 million  outstanding  at December 31,
2000. In March 2001,  the existing  revolving  agreement was replaced with a new
$75 million  revolving  credit  agreement  expiring  in March 2004.  The Company
believes this  revolver,  combined with cash from  operations,  is sufficient to
support the current capital requirements of the Company.


<PAGE>


New Accounting Standards

In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for  Derivative  Instruments  and Hedging  Activities."  This
statement  establishes  accounting and reporting  standards for  derivatives and
hedging activities. The new standard requires that all derivative instruments be
reported on the balance sheet at their fair values.  For derivative  instruments
designated  as fair value  hedges,  changes in the fair value of the  derivative
instrument  will  generally be offset on the income  statement by changes in the
fair value of the hedged item.  For  derivative  instruments  designated as cash
flow  hedges,   the  effective  portion  of  any  hedge  is  reported  in  other
comprehensive  income until it is cleared to earnings  during the same period in
which the hedged item affects  earnings.  The ineffective  portion of all hedges
will be recognized in current earnings each period. Changes in the fair value of
derivative  instruments that are not designated as a hedge will be recorded each
period in current earnings.

In July 1999,  the FASB issued SFAS No. 137, and SFAS No. 138 that  deferred the
effective  date for  implementation  of SFAS No. 133 to fiscal  years  beginning
after June 15, 2000 and which  addressed  certain issues causing  implementation
difficulties  for entities  that apply SFAS No. 133,  respectively.  The Company
will adopt SFAS No. 133, including the amendments in SFAS No. 138, on January 1,
2001.  Transactions that the Company has entered into that will be accounted for
under SFAS No.  133, as amended,  are  interest  rate  exchange  agreements  and
foreign  currency forward  exchange  contracts.  Adoption of these new standards
will not  have a  material  effect  on the  Company's  consolidated  results  of
operations, financial position or cash flows.

Market Sensitive Instruments and Risk Management

The Company utilizes  derivative  financial  instruments to reduce interest rate
risks.  The Company does not hold or issue financial  instruments for trading or
speculative  purposes.  The counterparty is a major commercial bank. At December
31, 2000, the Company had one derivative financial instrument,  an interest rate
SWAP  agreement  with a  notional  amount of $17  million.  This SWAP  agreement
effectively  fixes the interest rate on a like amount of the Company's  floating
rate debt at 6.16% plus the  Company's  LIBOR spread in effect at the time.  The
effective  rate was 7.86% at December 31, 2000.  The SWAP expires on November 6,
2001.  A 100 basis point  downward  parallel  shift in the yield curve would not
have a material  effect on the  Company's  results of  operations,  liquidity or
financial condition.

Although  most  purchases  for the Company  are  transacted  in US  dollars,  on
occasion,  the Company purchases  equipment  payable in a foreign currency.  For
payments with extended terms, generally up to six months, the Company will enter
into foreign  currency  forward  exchange  contracts  that  minimize the risk of
foreign exchange rate  fluctuations on such payments.  At December 31, 2000, the
Company had foreign currency forward exchange contracts with a notional value of
approximately $1.1 million.


<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                             PRIMESOURCE CORPORATION

                        Consolidated Statements of Income

                                                                  Years Ended December 31,
                                                       -----------------------------------
(Thousands of dollars, except per share amounts)            2000         1999         1998
------------------------------------------------------------------------------------------

<S>                                                    <C>          <C>          <C>
Net sales ..........................................   $ 547,558    $ 547,417    $ 454,635
Cost of sales ......................................     459,110      459,609      375,609
------------------------------------------------------------------------------------------
Gross profit .......................................      88,448       87,808       79,026
Selling, general, and administrative expenses.......      69,934       69,348       64,646
Depreciation and amortization ......................       2,998        3,096        2,507
Provision for doubtful accounts ....................       1,887        1,186          440
Gain on sale of property and equipment .............         384           --           --
Restructure and other ..............................          --           --        1,050
------------------------------------------------------------------------------------------
Income from operations .............................      14,013       14,178       10,383
Interest expense ...................................      (5,913)      (5,484)      (3,605)
Minority interest ..................................         319           --           --
Other income-net ...................................         314           78          297
------------------------------------------------------------------------------------------
Income before provision for income taxes ...........       8,733        8,772        7,075
Provision for income taxes .........................       3,655        3,663        2,975
------------------------------------------------------------------------------------------

Net income .........................................   $   5,078    $   5,109    $   4,100
==========================================================================================

Net income per share

Basic ..............................................   $     .79    $     .78    $     .63
Diluted ............................................         .79          .78          .62
==========================================================================================

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                             PRIMESOURCE CORPORATION

                           Consolidated Balance Sheets

                                                                               December 31,
                                                                        -------------------
(Thousands of dollars, except share information)                            2000       1999
-------------------------------------------------------------------------------------------
Assets
Current Assets
<S>                                                                     <C>        <C>
Trade receivables, less allowances of $3,250 and $3,127, respectively   $ 80,529   $ 83,012
Other receivables ...................................................      5,897     10,683
Inventories .........................................................     66,866     68,379
Deferred income taxes ...............................................      3,443      3,228
Other ...............................................................        709        843
-------------------------------------------------------------------------------------------
Total Current Assets ................................................    157,444    166,145
Property and equipment, net .........................................      7,680     12,063
Excess of cost over net assets of businesses acquired,
  net of accumulated amortization of $4,114 and $3,043, respectively      18,518     16,427
Deferred income taxes ...............................................        955        977
Long-term receivables ...............................................        508        585
Other assets ........................................................      2,011        610
-------------------------------------------------------------------------------------------
Total Assets ........................................................   $187,116   $196,807
===========================================================================================

Liabilities and Shareholders' Equity

Current Liabilities
Current portion of long-term debt obligations .......................   $     --   $    104
Notes payable .......................................................         --        953
Accounts payable ....................................................     45,010     45,766
Book overdraft ......................................................      7,825     16,937
Accrued payroll and benefits ........................................      4,226      4,241
Other accrued liabilities ...........................................      6,639      3,908
-------------------------------------------------------------------------------------------
Total Current Liabilities ...........................................     63,700     71,909
Long-term debt obligations, net of current portion ..................     55,600     62,500
Accrued pension, Postretirement and other liabilities ...............      1,832      2,853
-------------------------------------------------------------------------------------------
Total Liabilities ...................................................    121,132    137,262
-------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Subsidiary .....................................      3,581         --
Shareholders' Equity
Common stock, $.01 par value, 24,000,000 shares authorized
6,357,806 and 6,536,212 issued and outstanding, respectively ........         64         65
Additional paid-in capital ..........................................     25,023     25,725
Retained earnings ...................................................     37,316     33,755
-------------------------------------------------------------------------------------------
Total Shareholders' Equity ..........................................     62,403     59,545
-------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ..........................   $187,116   $196,807
===========================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                             PRIMESOURCE CORPORATION

                      Consolidated Statements of Cash Flows

                                                                             Years Ended December 31,
                                                                 ------------------------------------
(Thousands of dollars)                                                 2000         1999         1998
-----------------------------------------------------------------------------------------------------
Operating Activities

<S>                                                               <C>          <C>          <C>
Net income ....................................................   $   5,078    $   5,109    $   4,100
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
   Depreciation ...............................................       1,927        2,003        1,957
   Amortization ...............................................       1,071        1,093          550
   Provision for doubtful accounts ............................       1,887        1,186          440
   Pension benefit ............................................        (848)        (959)        (218)
   Restructure and other expense ..............................          --           --          996
   Gain on sale of property and equipment .....................        (384)          --           --
   Other ......................................................        (186)         406         (112)
Changes in assets and liabilities, net of effects from business
combinations:
   Receivables ................................................       5,382      (11,306)      (1,075)
   Inventories ................................................       1,513          732        2,388
   Other current assets .......................................         134          119          278
   Income taxes ...............................................        (227)         843         (668)
   Accounts payable and other accrued liabilities .............       2,261       11,303      (10,803)
   Pension and other postretirement benefits ..................        (309)        (333)        (135)
------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities ...........      17,299       10,196       (2,302)

Investing Activities
Proceeds from sales of property and equipment .................       4,482           67          163
Purchase of property and equipment ............................      (1,642)      (1,452)      (1,743)
Payments for business acquisitions, net of cash acquired ......          --         (100)     (43,946)
Decrease in long-term receivables .............................          77          112          127
Decrease (increase)  in other assets ..........................      (1,401)       1,017         (185)
Other, net ....................................................         (26)        (131)         (34)
------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ...........       1,490         (487)     (45,618)

Financing Activities
Net increase (decrease) in short-term borrowings ..............        (953)      (2,547)       3,500
Proceeds from long-term obligations ...........................     278,800       92,600      144,300
Repayment of long-term obligations ............................    (285,804)    (106,329)    (102,429)
Increase (decrease) in book overdraft .........................      (9,112)       7,742        3,586
Dividends paid ................................................      (1,224)      (1,176)      (1,175)
Proceeds from minority shareholder investment in subsidiary ...         500           --           --
Purchase of common stock ......................................        (996)          --           --
Proceeds from exercise of stock options .......................          --            1          138
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ...........     (18,789)      (9,709)      47,920
-----------------------------------------------------------------------------------------------------
Net change in cash ............................................          --           --           --
Cash at beginning of year .....................................          --           --           --
-----------------------------------------------------------------------------------------------------
Cash at end of year ...........................................   $      --      $    --      $    --
=====================================================================================================

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                             PRIMESOURCE CORPORATION

                 Consolidated Statements of Shareholders' Equity

                                              Common Stock
                                       -------------------- Additional
(Thousands of dollars,                     ($.01 Par Value)    Paid-in  Retained
 except share information)                 Shares   Amount     Capital   Earnings      Total
--------------------------------------------------------------------------------------------
<S>                                     <C>            <C>     <C>        <C>        <C>
Balance, January 1, 1998 ...........    6,516,620      $65     $25,586    $26,897    $52,548
Net income .........................                                        4,100      4,100
Cash dividends paid to
   shareholders ($.18 per share) ...                                       (1,175)    (1,175)
Stock options exercised and related
   tax benefit, net of shares
   received as payment upon exercise       19,398                  138                   138
--------------------------------------------------------------------------------------------
Balance, December 31, 1998 .........    6,536,018       65      25,724     29,822     55,611
Net income .........................                                        5,109      5,109
Cash dividends paid to
   shareholders ($.18 per share) ...                                       (1,176)    (1,176)
Stock options exercised ............          200                    1                     1
Purchase and retirement
   of common stock .................           (6)
---------------------------------------------------------------------------------------------
Balance, December 31, 1999 .........    6,536,212       65      25,725     33,755      59,545
Net income .........................                                        5,078       5,078
Cash dividends paid to
   shareholders ($.19 per share) ...                                       (1,224)     (1,224)
Purchase and retirement
   of common stock .................     (178,406)      (1)       (702)      (293)       (996)
---------------------------------------------------------------------------------------------
Balance, December 31, 2000 .........    6,357,806      $64     $25,023    $37,316     $62,403
=============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>


                             PRIMESOURCE CORPORATION

                   Notes to Consolidated Financial Statements

1.       Summary of Significant Accounting Policies

         Basis of Consolidation

         PrimeSource  Corporation  (the  "Company")  is a  national  distributor
         serving  the  printing  and  publishing  industries.  The  consolidated
         financial  statements  include  the  accounts  of the  Company  and its
         majority-owned subsidiaries.  All significant intercompany transactions
         and accounts have been eliminated.

         Cash and Cash Equivalents

         The Company  considers all highly  liquid  temporary  cash  investments
         purchased  with  a  maturity  of  three  months  or  less  to  be  cash
         equivalents.  The  Company's  cash  management  program  utilizes  zero
         balance  accounts.  Accordingly,  in  general,  the  Company  has no or
         minimal cash balances.  Book overdraft  balances have been reclassified
         to a current liability in the accompanying Consolidated Balance Sheets.

         Inventory Valuation

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
         determined using the last-in, first-out (LIFO) and first-in,  first-out
         (FIFO) methods.

         Property and Equipment

         Property  and  equipment  are carried at cost or  assigned  values as a
         result of  acquisitions.  Costs of major  additions,  replacements  and
         betterments are capitalized,  and maintenance and repairs, which do not
         extend the life of the  respective  assets,  are  expensed as incurred.
         When  property  is  retired  or  otherwise  disposed,  the  cost of the
         property and the related accumulated  depreciation are removed from the
         accounts,  and any  resulting  gains or losses are reflected in current
         operations.  Depreciation is computed by the straight-line  method over
         the estimated  useful lives of the assets which range from three to ten
         years for  machinery and equipment and ten to forty years for buildings
         and improvements.

         Capital  leases are  included  under  property and  equipment  with the
         corresponding  amortization  included  in  depreciation.   The  related
         financial   obligations  under  the  capital  leases  are  included  in
         long-term  obligations.  Capital  leases are amortized  over the useful
         lives of the respective assets.

         Long-lived  assets  are  reviewed  for  impairment  whenever  events or
         changes  in  circumstances  indicate  the  carrying  amount  may not be
         recoverable.  If the sum of the expected future undiscounted cash flows
         is less than the carrying amount of the asset, a loss is recognized for
         the difference between the fair value and carrying value of the asset.

         Excess of Cost Over Net Assets of Businesses Acquired

         The  excess of the total  acquisition  cost over the fair  value of net
         tangible assets  acquired (the "goodwill  acquired") is being amortized
         by the  straight-line  method over periods  ranging from eight to forty
         years. The Company's policy is to record an impairment loss against the
         goodwill  acquired in the period  when it is  determined  the  carrying
         amount of the net assets may not be recoverable.  The Company  performs
         this  evaluation  on a quarterly  basis.  This  determination  includes
         evaluation  of  factors  such as current  market  value,  future  asset
         utilization,  business climate and future net cash flows  (undiscounted
         and  without  interest)  expected  to  result  from  the use of the net
         assets.

         Revenue Recognition

         Revenue is generally  recognized when products are shipped and title is
         passed to the customer.


<PAGE>


         Derivative Financial Instruments

         The  Company  uses  derivative  financial  instruments  to  manage  its
         exposure to interest and foreign currency  exchange rate  fluctuations.
         To manage its exposure to fluctuations  in interest rates,  the Company
         uses  interest  rate  exchange  agreements  ("SWAPS").  These SWAPS are
         matched with  variable rate debt and periodic cash payments are accrued
         on a  settlement  basis  as an  adjustment  to  interest  expense.  Any
         premiums  associated  with these  instruments  are amortized over their
         term and realized gains or losses as a result of the termination of the
         instruments  are deferred and amortized  over the remaining term of the
         underlying  debt.  Unrealized  gains  and  losses  as a result of these
         instruments  are  recognized   when  the  underlying   hedged  item  is
         extinguished or otherwise terminated.

         Although most  purchases for the Company are  transacted in US dollars,
         on  occasion,  the  Company  purchases  equipment  payable in a foreign
         currency. For payments with extended terms, generally up to six months,
         the Company will enter into foreign currency forward exchange contracts
         that minimize the risk of foreign  exchange rate  fluctuations  on such
         payments.

         The Company does not hold or issue any derivative financial instruments
         for trading purposes and is not a party to leveraged  instruments.  The
         credit  risks  associated  with  the  Company's   derivative  financial
         instruments are controlled through the evaluation and monitoring of the
         creditworthiness  of the  counterparties.  Although  the Company may be
         exposed to losses in the event of nonperformance by the counterparties,
         the Company does not expect such losses, if any, to be significant.

         Concentrations of Credit Risk

         Concentrations  of credit risk with  respect to trade  receivables  are
         limited due to a large  customer  base and its  geographic  dispersion.
         Ongoing  credit  evaluations  of  customers'  financial  condition  are
         performed and, generally, no collateral is required.

         Stock-Based Compensation

         The Company  applies the  intrinsic-value-based  method  prescribed  in
         Accounting  Principles  Board  Opinion  No. 25 to account  for  options
         granted to employees to purchase common shares.  Statement of Financial
         Accounting  Standards  ("SFAS") No. 123,  "Accounting  for  Stock-Based
         Compensation"  requires that  companies  electing to continue using the
         intrinsic  value method must make pro forma  disclosures  of net income
         and  net  income  per  share  as  if  the  fair-value-based  method  of
         accounting had been applied.

         Freight

         In accordance with Emerging  Issues Task Force Issue 00-10,  Accounting
         for  Shipping  and  Handling  Costs,  freight  billed to  customers  is
         included  in sales and  freight out  expenses  are  included in cost of
         sales.

         Income Taxes

         Income tax  expense  is based on pretax  financial  accounting  income.
         Deferred tax assets and liabilities are recognized for the expected tax
         consequences of temporary  differences  between the tax basis of assets
         and liabilities and their reported amounts.


<PAGE>


         Net Income Per Common Share

         Basic net income per share is computed  by  dividing  net income by the
         weighted-average number of common shares outstanding during the period.
         Diluted net income per share is computed by dividing  net income by the
         weighted-average  number of common shares outstanding during the period
         adjusted for the number of shares that would have been  outstanding  if
         the dilutive potential common shares had been issued.

         Estimates and Assumptions

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  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.

         Reclassifications

         Certain  reclassifications  of prior  years'  amounts have been made to
         conform to the current year's presentation.

2.       Business Acquisitions

         In  September  1998,  the  Company  acquired  the  net  assets  of Bell
         Industries'  Graphic Imaging Group ("Bell  acquisition")  with thirteen
         locations in the West,  Southwest and Midwest for  approximately  $42.5
         million.  The excess of the  acquisition  costs  over the net  tangible
         assets acquired is included in the  Consolidated  Balance Sheets and is
         being  amortized on a straight-line  basis over 20 years.  Assuming the
         acquisition  had  occurred  at the  beginning  of the  year,  unaudited
         pro-forma  sales and net income for the year ended  December  31, 1998,
         would have been approximately $554.3 million and $4.8 million ($.73 per
         basic share and $.72 per diluted share), respectively.

         In April 1998,  the  Company  acquired  the assets of Joseph  Genstein,
         Inc., a graphics  distributor in the Pittsburgh area, for approximately
         $1.5 million.  In 1999,  an additional  $100,000 was paid in accordance
         with a contingent  incentive provision under the purchase agreement for
         obtaining a specified sales level after the acquisition.  The excess of
         the  acquisition  costs over the net tangible  assets acquired for this
         acquisition is included in the Consolidated Balance Sheets and is being
         amortized on a straight-line basis over 15 years. The pro-forma results
         of this  acquisition  would  not have had a  significant  impact on the
         Company's consolidated results of operations.

         These   acquisitions   have  been   accounted  for  as  purchases  and,
         accordingly,   are  included  in  operations   from  their   respective
         acquisition dates.

3.       Joint Venture

         Effective July 1, 2000,  the Company  entered into a joint venture with
         Xeikon to form Canopy, LLC ("Canopy"). The Company's ownership share is
         74% with Xeikon owning 26%. The Company's  contribution  to the venture
         was a net  asset  investment  consisting  primarily  of  inventory  and
         equipment  of  $11.1  million.   Xeikon's  investment  consisted  of  a
         combination of  cash  and  intangibles  assets  totaling  $3.9 million.
         Intangibles are being amortized over an expected  useful  life of eight
         years.  Canopy's  business  focuses on  the  sales,  installation,  and
         ongoing  service and support of digital color and  monochrome  printing
         systems  in  the  U.S.  and   Canada.   These   systems  are   utilized
         primarily  by  commercial,  database,   packaging,  and   transactional
         printers. Canopy is  a separate  and  distinct  legal  entity  from the
         Company.  For   financial   reporting    purposes,   Canopy's   assets,
         liabilities  and  earnings are  consolidated with those of the Company.
         Xeikon's interest in Canopy is reported in the  financial statements as
         a minority interest.


<PAGE>


4.       Restructure and Other

         In 1998, the Company incurred a restructure and other expense charge of
         $1,050,000.  At December 31, 1999, the remaining balance was a $430,000
         write-down of a building to net  realizable  value.  In February  2000,
         this building was sold.

5.       Cash Flow Information

         Cash  payments  for  interest and income taxes (net of refunds) for the
         years ended December 31, consisted of:

         (Thousands of dollars)       2000     1999     1998
         ---------------------------------------------------

           Interest..............   $4,947   $5,687   $3,368
           Income taxes .............3,928    2,750    3,760
         ===================================================


         Excluded from the  accompanying  Consolidated  Statements of Cash Flows
         for the year ended December 31, 2000 are the fair value of the non-cash
         assets  contributed  by the  minority  shareholder  in the Canopy joint
         venture of  $3,400,000  and for the year ended  December 31, 1998,  the
         assets  acquired  in  the  Bell  acquisition  of  $55,314,000  and  the
         liabilities assumed or created in the same acquisition of $11,368,000.

6.       Inventories

         Inventories,  which are  primarily  finished  goods,  at  December  31,
         consisted of:

         (Thousands of dollars)              2000      1999
         --------------------------------------------------

           Last-in, first-out (LIFO)      $27,763   $32,400
           First-in, first-out (FIFO)      39,103    35,979
           ------------------------------------------------
           Total inventories .......      $66,866   $68,379
         ==================================================

         The current  replacement  costs of  inventories  exceeds LIFO values by
         approximately  $6,095,000 and $5,785,000 at December 31, 2000 and 1999,
         respectively.

7.       Property and Equipment

         Property and equipment, net, at December 31, consisted of:

         (Thousands of dollars)                                2000        1999
         ----------------------------------------------------------------------

            Land .......................................   $    573    $  1,354
            Buildings and improvements .................      3,871       7,300
            Leased property ............................        399         399
            Machinery, equipment and other .............     14,033      13,707
          ---------------------------------------------------------------------
                                                             18,876      22,760
            Less accumulated depreciation and amortization  (11,196)    (10,697)
          ---------------------------------------------------------------------
            Property and equipment, net ................   $  7,680    $ 12,063
          =====================================================================
<PAGE>


8.       Notes Payable and Long-Term Debt Obligations

         The long-term debt obligations of the Company at December 31, consisted
         of:

         (Thousands of dollars)                 2000        1999
         -------------------------------------------------------

          Revolving credit agreement ....   $ 55,600    $ 62,500
          Other miscellaneous obligations         --         104
         -------------------------------------------------------
                                              55,600      62,604
          Less current portion ..........         --        (104)
         -------------------------------------------------------
          Net long-term obligations .....   $ 55,600    $ 62,500
         =======================================================


         At December 31, 2000,  the Company had a $75 million  revolving  credit
         agreement  that would  have  expired in May 2001.  In March  2001,  the
         Company  replaced  this  revolver  with a new revolver  that expires in
         March  2004, at which  time the  entire outstanding  balance  under the
         revolver will come due.  Under the terms of this new  agreement,  which
         includes  five  banks,  the Company can borrow at the prime rate or the
         London  Interbank  Offered Rate  ("LIBOR")  plus between 1.25% to 2.25%
         depending  on  certain  specified   performance  levels.  The  debt  is
         collateralized by the accounts receivable and inventory of the Company.
         If the new  agreement  had been in  place at  December  31,  2000,  the
         applicable LIBOR rate would have been LIBOR plus 2%. As a result of the
         new  financing,  the debt  outstanding  at  December  31, 2000 has been
         classified as long term.

         The Company had two short-term bank lines with a total  availability of
         $7.5  million  that  expired  during the year ended  December 31, 2000.
         Based on  anticipated  debt  levels,  the Company  believes  the amount
         available under the revolving credit agreement will be adequate to meet
         its ongoing debt  requirements and does not plan to replace these lines
         or establish any additional lines of credit.

         The revolving  loan agreement in place on December 31, 2000 and the new
         replacement  revolving  loan  agreement  provide,  among  other  terms,
         various  requirements  for net worth  and  leverage  and  fixed  charge
         coverage ratios.  The Company was in compliance with these requirements
         under the revolving  credit agreement in place on December 31, 2000 and
         would  have also been in  compliance  if the new  revolver  had been in
         place.

         In 1997, the Company  entered into an interest rate SWAP agreement with
         a notional amount of $17 million. This SWAP agreement effectively fixes
         the interest rate on a like amount of the Company's  floating rate debt
         at 6.16% plus the  Company's  LIBOR  spread in effect at the time.  The
         effective  rate was 7.86% at December  31,  2000.  The SWAP  expires on
         November 6, 2001.  The fair value of the SWAP  agreement,  based on the
         quoted settlement cost to close the contract at December 31, 2000, is a
         liability of $35,000.


<PAGE>


9.       Provision for Income Taxes

         The income tax provision for the years ended December 31, consisted of:

         (Thousands of dollars)           2000       1999       1998
         -----------------------------------------------------------
         Current:
          Federal ..................   $ 2,899    $ 2,762    $ 2,450
          State ....................       785        754        644
         -----------------------------------------------------------
                                         3,684      3,516      3,094
          Deferred:
          Federal ..................       (23)       115        (93)
          State ....................        (6)        32        (26)
         -----------------------------------------------------------
                                           (29)       147       (119)
         -----------------------------------------------------------
          Provision for income taxes   $ 3,655    $ 3,663    $ 2,975
         ===========================================================

         Reconciliation  of the  provision  for  income  taxes  computed  at the
         federal  statutory rate of 34% to the actual provision for income taxes
         for the years ended December 31, consisted of:

<TABLE>
<CAPTION>
         (Thousands of dollars)                                      2000       1999       1998
         --------------------------------------------------------------------------------------

<S>                                                               <C>        <C>        <C>
          Statutory tax provision .............................   $ 2,969    $ 2,982    $ 2,406
          State income taxes, net of federal income tax benefit       518        519        408
          Expenses for which there are no tax benefits ........       191        179        190
          Other, net ..........................................       (23)       (17)       (29)
         --------------------------------------------------------------------------------------
          Provision for income taxes ..........................   $ 3,655    $ 3,663    $ 2,975
         ======================================================================================
</TABLE>

         Deferred  income  taxes  represent  the  future  tax   consequences  of
         differences  between the tax basis of assets and  liabilities and their
         financial reporting amounts at each year-end. Significant components of
         the  Company's  deferred  tax  assets  (liabilities)  at  December  31,
         consisted of:

         (Thousands of dollars)                            2000       1999
         -----------------------------------------------------------------

          Provision for doubtful accounts ...........   $ 1,278    $ 1,238
          Inventory reserves ........................       937        857
          Postretirement benefits other than pensions       675        707
          Vacation accrual ..........................       501        424
          Goodwill ..................................       255        277
          Pension and employee benefit costs ........        30        385
          Depreciation ..............................       (72)      (495)
          Other, net ................................       794        812
         -----------------------------------------------------------------
          Total deferred tax assets .................   $ 4,398    $ 4,205
         =================================================================




<PAGE>


10.      Net Income Per Share

         The following is a reconciliation of the average shares of common stock
         used to  compute  basic  net  income  per share to the  shares  used to
         compute  diluted  net  income  per  share as shown on the  Consolidated
         Statements of Income for the years ended December 31:

<TABLE>
<CAPTION>
                                                              2000        1999        1998
         ---------------------------------------------------------------------------------
         Average shares of common stock outstanding
<S>                                                      <C>         <C>         <C>
          used to compute basic net income per share .   6,422,015   6,536,098   6,526,805
          Dilutive effect of stock options ...........         231      12,842     122,611
         ---------------------------------------------------------------------------------
          Average shares of common stock outstanding
          used to compute diluted net income per share   6,422,246   6,548,940   6,649,416
         ---------------------------------------------------------------------------------

         Net income per share:
         Basic.............................................. $ .79       $ .78       $ .63
         Diluted............................................   .79         .78         .62
        ----------------------------------------------------------------------------------
</TABLE>

          At  December  31,  2000,  there were  outstanding  options to purchase
          569,621  shares of common stock at a range of prices between $5.75 and
          $11.18.  The dilutive effect of stock options is based on the treasury
          method that computes the equivalent  dilutive shares as the difference
          between the option shares and the amount of assumed common shares that
          could be purchased  from the  proceeds  from the exercise of the stock
          options at the then  current  market  price.  To the extent the option
          price  exceeds  the  current  common  stock  price,  the  options  are
          excluded,   as  the  effect  of  including   these  options  would  be
          anti-dilutive,  reducing the number of shares.  The  calculation for a
          year is based on the weighted-average  dilutive shares during the year
          reflecting  both changes in  outstanding  options  during the year and
          changes in the common stock's market price.  At December 31, 2000, the
          option prices were above the common stock's market price, thus none of
          the option shares were included in the calculation.

11.      Defined Benefit Pension Plans

         The  Company   has  a  defined   benefit   pension   plan  that  covers
         substantially all of the Company's  employees.  In general, an employee
         becomes vested after completing five years of service,  and the benefit
         is based on the  employee's  total  years of service  and  compensation
         during the ten years preceding  retirement.  Contributions  to the plan
         are based on funding standards  established by the Employee  Retirement
         Income   Security  Act  of  1974.  In  addition,   the  Company  has  a
         supplemental  executive  retirement plan for certain Company executives
         that provides certain additional benefits.

         The components of the net periodic  pension benefit for the years ended
         December 31, were:

         (Thousands of dollars)                   2000        1999        1998
         ---------------------------------------------------------------------
          Service cost .....................   $ 1,172     $   995     $   982
          Interest cost ....................     2,137       1,874       1,872
          Expected return on plan assets ...    (3,771)     (3,538)     (2,980)
          Amortization of prior service cost        15          (9)         (9)
          Transition cost amortization .....         5           5           5
          Recognized net actuarial gain ....      (406)       (286)        (88)
         ---------------------------------------------------------------------
          Net periodic pension benefit .....   $  (848)    $  (959)    $  (218)
         =====================================================================

          Assumptions:

          Discount rate ....................      7.25%       7.50%       6.50%
          Expected return on plan assets ...     10.00%      10.00%      10.00%
          Rate of compensation increase.....      4.00%       4.00%       4.00%
          ====================================================================



<PAGE>


         The change in the financial status of the plans and amounts  recognized
         in the Company's Consolidated Balance Sheets at December 31, were:

         (Thousands of dollars)                                2000        1999
         ----------------------------------------------------------------------
          Change in benefit obligation:
          Benefit obligation at beginning of year ......   $ 27,284    $ 30,805
          Service cost .................................      1,172         995
          Interest cost ................................      2,137       1,874
          Actuarial loss (gain) ........................      2,847      (4,811)
          Benefits paid ................................     (1,624)     (1,579)
         ----------------------------------------------------------------------
          Benefit obligation at end of year ............   $ 31,816    $ 27,284
         ----------------------------------------------------------------------

          Change in Plan assets:

          Fair value of plan assets at beginning of year   $ 38,526    $ 36,111
          Actual return (loss) on plan assets ..........        (35)      3,937
          Employer contributions .......................         64          57
          Benefits paid ................................     (1,624)     (1,579)
         ----------------------------------------------------------------------
          Fair value of plan assets at end of year .....   $ 36,931    $ 38,526
         ----------------------------------------------------------------------
          Reconciliation of funded status:
          Funded status ................................   $  5,115    $ 11,242
          Unrecognized net actuarial gain ..............     (4,462)    (11,279)
          Unrecognized prior service cost ..............         26        (200)
          Unrecognized transition obligation ...........          5           9
         ----------------------------------------------------------------------
          Accrued pension liability ....................   $    684    $   (228)
         ======================================================================

         The plans' assets are invested in undivided  interests in several funds
         structured  to  duplicate  the  performance  of various  stock and bond
         indexes.  The accrued pension liability is included in accrued pension,
         postretirement  and  other  liabilities  on  the  Consolidated  Balance
         Sheets.

12.      Defined Contribution Pension Plans

         The  Company  has a defined  contribution  pension  plan in the form of
         qualified IRC 401(k) plan.  Participation  in this plan is available to
         substantially  all  employees.  Company  contributions  to the plan are
         based on a  percentage  of the  employee  contributions  not to  exceed
         certain  maximum levels.  The cost of this plan was $262,000,  $275,000
         and $290,000 for the years 2000, 1999, and 1998, respectively.

13.      Postretirement Benefits Other Than Pensions

         The Company has two retiree health benefit plans, the Phillips & Jacobs
         Retiree  Health Plan (the "P/J  Retiree  Plan") that  primarily  covers
         retirees and employees who previously  participated in the Tasty Baking
         Company's  Retiree  Medical Plan prior to the  Company's  spin-off from
         Tasty Baking  Company in 1993,  and the Momentum  Retiree  Medical Plan
         (the  "Momentum  Retiree  Plan"),  that primarily  covers  retirees and
         employees who were previously employed by Momentum Corporation prior to
         the merger with the  Company in 1994.  Both plans  provide  health care
         benefits through a health care  administrator and contracts with health
         service  providers.  In addition,  the P/J Retiree Plan  provides  life
         insurance  benefits  through an  insurance  company.  The Company  life
         insurance  premium  contribution  is limited to $20,000 of coverage per
         retiree,  with the retiree  paying the premium for any coverage  beyond
         the $20,000.  The Company's policy is to fund the plans as benefits are
         paid.

         The plans are contributory with ceilings on the Company's contribution.
         In addition,  under the Momentum Retiree Plan, employees who were under
         the age of 55 on December  31, 1992  receive no  contribution  from the
         Company under the plan.


<PAGE>

         Net  periodic  postretirement  benefit  expense  for  the  years  ended
         December 31, included the following components:

         (Thousands of dollars)                          2000     1999     1998
         ----------------------------------------------------------------------
          Service cost ..............................   $  15    $  20    $  20
          Interest cost .............................     109       98       80
          Recognized net actuarial gain .............     (19)     (31)     (76)
         ----------------------------------------------------------------------
          Net periodic postretirement benefit expense   $ 105    $  87    $  24
         ======================================================================


         The change in the financial status of the plans and amounts  recognized
         in the Company's Consolidated Balance Sheets at December 31, were:

         (Thousands of dollars)                           2000       1999
         ----------------------------------------------------------------
         Change in benefit obligation:
          Benefit obligation at beginning of year ..   $ 1,419    $ 1,526
          Service cost .............................        15         20
          Interest cost ............................       109         98
          Actuarial loss (gain) ....................       125         (9)
          Benefits paid ............................      (185)      (216)
         ----------------------------------------------------------------
          Benefit obligation at end of year ........   $ 1,483    $ 1,419
         ----------------------------------------------------------------

          Fair value of plan assets ................      --         --
         ----------------------------------------------------------------
          Reconciliation of funded status:

          Funded status ............................   $(1,483)   $(1,419)
          Unrecognized net actuarial gain ..........      (221)      (366)
          ---------------------------------------------------------------
          Postretirement benefits other than pension   $(1,704)   $(1,785)
          ===============================================================

         Assumptions:
         Discount rate
           2000            7.25%
           1999            7.50%
           1998            6.50%

         Medical Trend     6.74% in 2000 grading to 5% in 7 years

         Due to the ceilings on Company  contributions,  the effect of increases
         in health  care cost trend  rates do not have a material  effect on the
         liability or expense.

14.      Stock Compensation

         Stock Options

         The Company's  stock  incentive plans provide for the awarding of stock
         options to  directors,  officers and other key  employees.  All granted
         options,  which vest over a four year  period,  lapse at the earlier of
         the  expiration  of the  option  term (not more than ten years from the
         grant  date)  or  within  three  months  following  the  date on  which
         employment with the Company terminates.


<PAGE>


         Changes in options  outstanding  for the three years ended December 31,
         2000 are:

                                                                  Option Prices
                                                        -----------------------
                                                         Weighted
                                              Options     Average         Range
          ---------------------------------------------------------------------
          Outstanding at January 1, 1998 .    498,381    $   6.89   $6.11-11.18
          ---------------------------------------------------------------------
          Granted ........................    101,500        7.41    6.81-11.18
          Exercised ......................    (20,194)       6.25    6.11- 6.97
          Canceled .......................    (16,085)       7.58    6.11-11.18
          ---------------------------------------------------------------------
          Outstanding at December 31, 1998    563,602        6.99    6.11-11.18
          ---------------------------------------------------------------------
          Granted ........................     75,000        5.75          5.75
          Exercised ......................       (200)       6.11          6.11
          Canceled .......................    (48,910)       6.46    6.11-11.18
          ---------------------------------------------------------------------
          Outstanding at December 31, 1999    589,492        6.88    5.75-11.18
          ---------------------------------------------------------------------
          Canceled .......................    (19,871)       6.50    6.11-11.18
          ---------------------------------------------------------------------
          Outstanding at December 31, 2000    569,621    $   6.89   $5.75-11.18
          =====================================================================

         At December 31, 2000,  there were 451,371  options  exercisable  with a
         weighted-average option price of $6.86 and a range from $5.75 to $11.18
         and 200,976 options available for grant. The weighted-average remaining
         contractual  life of outstanding  options at December 31, 2000 and 1999
         was 6 and 6.8 years, respectively.

         The Company has not recognized  compensation expense in connection with
         stock option grants. Had compensation  expense been determined based on
         the fair value on the grant date of options  granted after December 31,
         1994,  the Company's net income and net income per share on a pro forma
         basis  would have been  reduced  for the years  ended  December  31, as
         follows:

         (Thousands of dollars,
          except per share data)        2000     1999     1998
         -----------------------------------------------------

         Net Income:
         As reported............      $5,078   $5,109   $4,100
         Pro forma .............       4,943    4,906    3,917
         =====================================================
         Net Income Per Share:
         As reported
          Basic ................      $  .79   $  .78   $  .63
          Diluted ..............         .79      .78      .62
         Pro forma
          Basic ................         .77      .75      .60
          Diluted ..............         .77      .75      .59
         =====================================================

         There were no options granted in 2000. The weighted-average  fair value
         per share for options  granted was $1.62 in 1999 and $2.67 in 1998. The
         fair value was estimated using the Black-Scholes  option-pricing model.
         For options  granted in 1999, a dividend  yield rate of 3.1%,  expected
         stock  volatility of 27% and risk-free  interest rate of 6.7% were used
         in estimating the value.  For options granted in 1998, a dividend yield
         rate of 2.8%,  expected stock volatility of 45% and risk-free  interest
         rate of 4.6% were used.

         Restricted Stock Awards

         The  Company's  stock  incentive  plans  provide  for the  awarding  of
         restricted  stock to officers and key employees.  The fair market value
         of the stock at the date of grant  establishes the compensation  amount
         that is  amortized  to  operations  over  the  restriction  period.  At
         December 31, 2000,  all awards were fully  amortized  and an additional
         61,280 shares were available for future awards.


<PAGE>


15.      Leases

         The  Company  leases  certain   distribution  and  office   facilities,
         machinery and equipment, and vehicles under various noncancelable lease
         agreements.  The Company expects that in the normal course of business,
         leases that expire will be renewed or replaced by other leases.

          Minimum annual rentals payable under  noncancelable  operating  leases
          with a remaining term of more than one year from December 31, 2000 are
          as follows:

         Years Ending December 31,
         (Thousands of dollars)

          2001.........................  $ 2,710
          2002.........................    2,589
          2003.........................    1,839
          2004.........................    1,284
          2005.........................      831
          Thereafter...................    5,102
          --------------------------------------
          Total minimum lease payments   $14,355
          ======================================

         Rent expense,  net of noncancelable  sublease income of $24,000 in 2000
         and 1999 and $10,000 in 1998, was $3,458,000, $3,203,000 and $2,851,000
         for 2000, 1999, and 1998, respectively.

16.      New Accounting Standards

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
         Activities."  This  statement  establishes   accounting  and  reporting
         standards  for  derivatives  and hedging  activities.  The new standard
         requires  that all  derivative  instruments  be reported on the balance
         sheet at their fair values.  For derivative  instruments  designated as
         fair  value  hedges,  changes  in the  fair  value  of  the  derivative
         instrument will generally be offset on the income  statement by changes
         in the fair  value  of the  hedged  item.  For  derivative  instruments
         designated as cash flow hedges,  the effective  portion of any hedge is
         reported in other comprehensive  income until it is cleared to earnings
         during the same period in which the hedged item affects  earnings.  The
         ineffective  portion  of all  hedges  will  be  recognized  in  current
         earnings  each  period.   Changes  in  the  fair  value  of  derivative
         instruments  that are not  designated  as a hedge will be recorded each
         period in current earnings.

         In July  1999,  the FASB  issued  SFAS No.  137,  and SFAS No. 138 that
         deferred  the  effective  date for  implementation  of SFAS No.  133 to
         fiscal years beginning after June 15, 2000 and which addressed  certain
         issues causing implementation difficulties for entities that apply SFAS
         No. 133,  respectively.  The Company will adopt SFAS No. 133, including
         the amendments in SFAS No. 138, on January 1, 2001.  Transactions  that
         the Company has entered into that will be accounted  for under SFAS No.
         133, as amended,  are interest  rate  exchange  agreements  and foreign
         currency  forward exchange  contracts.  Adoption of these new standards
         will not have a material effect on the Company's  consolidated  results
         of operations, financial position or cash flows.

17.      Commitments and Contingencies

         The Company is subject to various  legal  proceedings  and claims which
         have arisen in the ordinary  course of its  business.  The Company does
         not believe  that the ultimate  resolution  of such matters will have a
         material  effect on the Company's  consolidated  financial  position or
         results of operations.

         The Company, along  with  many  other  parties, is  a  defendant  in  a
         contribution  action to determine  the  liability for the state ordered
         clean up of a landfill.  The Company  believes its insurance will cover
         any costs  incurred in this  matter.  The Company is also,  in general,
         subject to  possible  loss  contingencies  pursuant to federal or state
         environmental laws and regulations.  Although these contingencies could
         result in future expenses or judgments,  such expenses or judgments are
         not expected to have a material  effect on the  Company's  consolidated
         financial position or results of operations.


<PAGE>

18.      Quarterly Financial Information (unaudited)

         Summarized  unaudited  quarterly  financial  data for the  years  ended
         December 31, 2000 and 1999 are:

<TABLE>
<CAPTION>
         (Thousands of dollars
          except per share data)              First     Second      Third     Fourth      Total
          -------------------------------------------------------------------------------------
         Year Ended December 31, 2000
<S>                                        <C>        <C>        <C>        <C>        <C>
          Net sales ..................     $141,519   $135,683   $134,034   $136,322   $547,558
          Gross profit ...............       22,197     22,223     21,982     22,046     88,448
          Net income .................        1,361      1,397      1,139      1,181      5,078
          Net income per share (1)
            Basic ....................     $    .21   $    .22   $    .18   $    .19   $    .79
            Diluted ..................          .21        .22        .18        .19        .79

          Year Ended December 31, 1999

          Net sales ..................     $139,988   $133,895   $133,054   $140,480   $547,417
          Gross profit ...............       22,212     22,028     21,254     22,314     87,808
          Net income .................        1,235      1,295      1,170      1,409      5,109
          Net income per share (1)
            Basic ....................     $    .19   $    .20   $    .18   $    .22   $    .78
            Diluted ..................          .19        .20        .18        .22        .78
<FN>

         (1)  Due to changes in the weighted average number of basic and diluted
              shares during the periods and  rounding,  the sum of the quarterly
              net  incomes per share will not  necessarily  be equal to the full
              years' income per share.
</FN>
</TABLE>

19.      Subsequent Event

         On February 2, 2001,  the Board of Directors  of the Company  adopted a
         Shareholder  Rights  Plan  declaring  a dividend  of one right for each
         share of the Company's common stock outstanding.  In the event a person
         or group  acquires or seeks to acquire  15% or more of the  outstanding
         common stock of the Company, the rights may be exercised (except by the
         acquiring  person whose rights are canceled)  for $20.  Upon  exercise,
         each right  entitles  the holder to purchase  from the  Company  common
         stock of the Company or the  acquiring  company  having a market  value
         equivalent  to two times the $20  exercise  price.  Subject  to certain
         conditions,  the rights are  redeemable  by the Board of Directors  for
         $.005 per right and are  exchangeable  for shares of common stock.  The
         rights have no voting power and expire on February 1, 2011.


<PAGE>


                        Report of Independent Accountants

To the Shareholders and the Board of Directors of PrimeSource Corporation:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing under item 14(a)(1)  present  fairly,  in all material  respects,  the
financial  position  of  PrimeSource   Corporation  and  its  subsidiaries  (the
"Company")  at December 31, 2000 and 1999,  and the results of their  operations
and their cash flows for each of the three  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 index appearing  under item 14(a)(2)  present 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 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 the opinion  expressed
above.

PricewaterhouseCoopers LLP

February 23, 2001,  except for the second paragraph of Note 8 for which the date
is March 8, 2001


<PAGE>




                                    PART III.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated  by reference from the definitive  proxy statement to be filed with
the Securities  and Exchange  Commission by April 30, 2001,  except  information
regarding executive officers which appears under Part I.

ITEM 11.  EXECUTIVE COMPENSATION

Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2001.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2001.


<PAGE>


                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)   Financial Statements

         The following  financial  statements have been included as part of this
         report:

                                                     Form 10-K
                                                          Page
                                                     ---------
          Consolidated Statements of Income .............   13
          Consolidated Balance Sheets ...................   14
          Consolidated Statements of Cash Flows .........   15
          Consolidated Statements of Shareholders' Equity   16
          Notes to Consolidated Financial Statements ....   17
          Report of Independent Accountants .............   29

(a)(2)   Financial Statement Schedule

         (a)  The following financial statement schedule is submitted herewith:
              -Schedule II Valuation of Qualifying Accounts and Reserves

               All other schedules for which provision is made in the applicable
               accounting regulations of the Securities and Exchange  Commission
               are  not  required   under  the   related   instructions  or  are
               inapplicable, and therefore have been omitted.

         (a)(3) Exhibits

         The  required  exhibits  are included at the back of this Form 10-K and
         are  described in the Exhibit  Index  immediately  preceding  the first
         exhibit.

(b)      Reports on Form 8-K
         The  Registrant  did not file a report on Form 8-K during  the  quarter
         ended December 31, 2000.


<PAGE>


                    PRIMESOURCE CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
          SCHEDULE II -- VALUATION OF QUALIFYING ACCOUNTS AND RESERVES

Column A                                 Column B                Column C              Column D       Column E
---------------------------------     -----------   ----------------------------   ------------   ------------
Classification                         Balance at                     Charged to                       Balance
                                        Beginning     Charged to           Other     Deductions         at End
(thousands of dollars)                  of Period       Expenses        Accounts     Write-offs      of Period
--------------------------------------------------------------------------------------------------------------

For the year ended December 31, 2000
<S>                                       <C>             <C>           <C>             <C>            <C>
   Allowance for doubtful accounts.....   $ 3,127         $1,887                        $(1,764) (A)   $ 3,250
   Amortization of goodwill............     3,043          1,071                                         4,114
   Inventory reserves..................     3,289            647                           (306) (B)     3,630
--------------------------------------------------------------------------------------------------------------
                                          $ 9,459         $3,605                        $(2,070)       $10,994
--------------------------------------------------------------------------------------------------------------

For the year ended December 31, 1999
   Allowance for doubtful accounts.....   $ 3,419         $1,186                        $(1,478) (A)   $ 3,127
   Amortization of goodwill............     1,958          1,085                                         3,043
   Inventory reserves..................     5,414            352                         (2,477) (B)     3,289
--------------------------------------------------------------------------------------------------------------
                                          $10,791         $2,623                        $(3,955)       $ 9,459
--------------------------------------------------------------------------------------------------------------


For the year ended December 31, 1998
   Allowance for doubtful accounts.....   $ 1,913         $  440          $1,295 (C)    $  (229) (A)   $ 3,419
   Amortization of goodwill............     1,435            523                                         1,958
   Inventory reserves..................     4,664            233           2,000 (C)     (1,483) (B)     5,414
--------------------------------------------------------------------------------------------------------------
                                          $ 8,012         $1,196          $3,295        $(1,712)       $10,791
--------------------------------------------------------------------------------------------------------------
<FN>


(A) Doubtful accounts written off, net of any recoveries.

(B) The disposal of obsolete inventory, net of any recoveries.

(C)  Related to the acquisition of Bell Industries' Graphic Imaging Group.
</FN>
</TABLE>



<PAGE>


                    PRIMESOURCE CORPORATION AND SUBSIDIARIES

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.

Dated March 27, 2001
                                /s/ James F. Mullan
                                ----------------------
                                 James F. Mullan
                                 President and
                                 Chief Executive Officer
                                (principal executive officer)



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  person on the behalf of the  registrant
and in the capacity and on the date indicated.

Dated March 27, 2001
                                /s/ William A. DeMarco
                                ------------------------
                                 William A. DeMarco
                                 Vice President, Chief Financial Officer
                                (principal financial and accounting officer)


DIRECTORS
                                                        /s/ William A. DeMarco
                                                        ----------------------
Fred C. Aldridge, Jr.}                                   William A. DeMarco
Philip J. Baur, Jr.}                                     Attorney in fact
Richard E. Engebrecht}                                   Power of Attorney
John H. Goddard, Jr.}                                    dated March 13, 2001
Gary MacLeod}
James F. Mullan}
Klaus D. Oebel}                                          Date March 27, 2001
Edward N. Patrone}
John M. Pettine}








<PAGE>


                                  Exhibit Index

Exhibit Number and Description

The  following  Exhibit  Numbers  refer to  Regulation  S-K, Item 601. All other
exhibits are omitted  because they  are  inapplicable. (Exhibits  identified  in
parentheses  are  on file with  the Securities   and Exchange Commission and are
incorporated herein by reference as exhibits hereto.)


(2.1)      Agreement and Plan of Reorganization  dated as of May 27, 1994 by and
           between  MOMENTUM  CORPORATION  and  PHILLIPS & JACOBS,  INCORPORATED
           (filed   as  Annex  A  to  the   Proxy/Prospectus   included   within
           registration  statement  No.  33-54913  on  Form  S-4  filed  by  the
           Registrant on August 4, 1994)

(2.2)      Form of Plan of  Merger (filed as  Annex B  to  the  Proxy/Prospectus
           included within registration statement No. 33-54913 on Form S-4 filed
           by the Registrant on August 4, 1994)

(2.3)      Asset  Purchase  Agreement  By And Among VGC Corp.,  VGC Holding USA,
           Inc., NV Koninklijke KNP BT and  PrimeSource  dated November 1, 1996,
           for  the  purchase  of  the  operating  assets  (excluding   accounts
           receivable) of VGC  Corporation's  branch  operations in Minneapolis,
           Minnesota;   Milwaukee,  Wisconsin;  Des  Moines,  Iowa;  and  Omaha,
           Nebraska.  (filed as exhibit 2 to Form 8-K dated  November  13, 1996,
           File No. 0-21750)

(2.4)      Asset  Purchase  Agreement By And Among Momentum  Corporation  And TK
           Gray,  Inc.  And Its  Shareholders  dated  April  15,  1994,  for the
           purchase  of  substantially  all of the  assets  and  certain  of the
           liabilities of TK Gray, Inc. (filed as exhibit 2(i) to Form 8-K dated
           May 2, 1994, File No. 0-18112)

(2.5)      Asset  Purchase  Agreement between  PrimeSource  Corporation and Bell
           Industries,  Inc.  dated  August  28,  1998  for  the   purchase   of
           substantially  all the assets and certain  liabilities of the Graphic
           Imaging Group of Bell Industries, Inc.(filed as exhibit 2 to Form 8-K
           dated September 28, 1998, File No. 000-21750)

(3.1)      Amended  and  Restated  Articles of  Incorporation of  the Registrant
           (filed  as   Annex  C  to  the   Proxy/Prospectus   included   within
           registration  statement  No. 33-54913  on  Form  S-4  filed  by   the
           Registrant on August 4, 1994)

(3.2)      Restated  By-laws of the Registrant effective March 2, 1999 (filed as
           Exhibit 3.2 to Form 10-K, File No. 000-21750, dated March 29, 2000)

(4.1)      Form of  Common  Stock  Certificate  (filed  with  Form 10  filed  by
           Registrant  on May 12, 1993,  (File No.  0-21750 and as  subsequently
           amended on Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993
           and Form 8 filed on July 13, 1993)

(4.2)      Form of Common Stock Certificate, effective  September 1, 1994 (filed
           as Exhibit 4.2 to Form 10-K, File No.  0-21750,  dated
           March 30, 1995)

(4.3)      RIGHTS AGREEMENT by and between PrimeSource  Corporation and American
           Stock Transfer & Trust Company dated as of February 1, 2001 (filed as
           Exhibit  4.1 to  Form  8-K  filed  on  February  9,  2001,  File  No.
           000-21750)

(10.1)     Form of Phillips & Jacobs, Inc. 1993 Long Term Incentive Plan  (filed
           as Exhibit 10.1 to Form 10-K, File No.0-21750, dated March 30, 1995)*


<PAGE>

(10.2)     Form of  Phillips & Jacobs,  Incorporated  Indemnification  Agreement
           (filed with Form 10 filed by  Registrant  on May 12, 1993,  (File No.
           0-21750) and as subsequently amended on Form 8 filed on May 28, 1993,
           Form 8 filed on July 6, 1993 and Form 8 filed on July 13, 1993)*

(10.3)     Form  of  Supplemental  Executive  Retirement  Plan  as  amended  and
           effective March 1, 2000 (filed as Exhibit 10.3 to Form 10-K, File No.
           000-21750, dated March 29, 2000)*

(10.4)     Employment Agreement between the  Registrant  and W.A. DeMarco  dated
           December 31,  1996  (filed  as  Exhibit  10.5   to  Form  10-K,  File
           No.0-21750, dated March 28, 1997)*

(10.5)     Employment  Agreement  between the Registrant  and J.F.  Mullan dated
           December  31,  1996 (filed  as  Exhibit  10.6 to  Form 10-K, File No.
           0-21750, dated March 28, 1997)*

(10.6)     Form of Tax Matters Agreement (filed with Form 10 filed by Registrant
           on May 12, 1993,  (File No. 0-21750) and as  subsequently  amended on
           Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993 and Form 8
           filed on July 13, 1993)

(10.7)     Amendment  No. 1 to  Agreement  among   Employers  Participating   in
           Certain  Qualified  Plans (filed  as  Exhibit  10.14  to  the  Proxy/
           Prospectus included within  registration  statement  No.  33-54913 on
           Form S-4 filed by the  Registrant on August 4, 1994)*

(10.8)     1993 Replacement  Option Plan (P&J  Spin-off)  for  Directors  (filed
           as  Annex I to  the  Proxy/Prospectus  included  within  registration
           statement No. 33-54913 on Form S-4 filed by  the Registrant on August
           4, 1994)*

(10.9)     PrimeSource  Corporation  401(k)  Savings Plan  (Amended and Restated
           Effective  January 1, 1997) (filed as Exhibit 10.9 to Form 10-K, File
           No. 000-21750, dated March 29, 2000)*

(10.10)    Restated  Momentum  Distribution  Inc.  Supplemental  Benefits  Plan,
           effective April 22, 1991 (filed as  Exhibit 10.13  to Form 10-K, File
           No. 0-18112 dated March 30 1993)*

(10.11)    Employment  Agreement  between the  Registrant  and John  H. Goddard,
           Jr. dated December 24, 1996 (filed  as Exhibit  10.14  to  Form 10-K,
           File No. 0-21750 dated March 25, 1998)*

(10.12)    Form of Indemnification  Agreement for Directors and certain officers
           effective  September 1, 1994 and  executed in  January 1996 (filed as
           Exhibit 10.22 to Form 10-K, File No. 0-21750, dated March 26, 1996)*

(10.13)    PrimeSource Corporation  Pension Plan (filed as Exhibit 10.23 to Form
           10-K, File No. 0-21750, dated March 26, 1996)*

(10.14)    Credit Agreement dated as of November 1,1996 by and among PrimeSource
           Corporation,  Dixie  Type & Supply   Company,  Inc.,  Onondaga  Litho
           Supply Co., Inc. and The Banks Party  Hereto and PNC  Bank,  National
           Association,  As Agent (filed as Exhibit 10.18 to Form 10-K, File No.
           0-21750, dated March 28, 1997)


<PAGE>

(10.15)    Employment  Agreement between the Registrant and Edward  Padley dated
           December 31, 1997 (filed  as  Exhibit  10.19 to Form  10-K, File  No.
           0-21750 dated March 25, 1998)*

(10.16)    Employment Agreement between the Registrant and D.James Purcell dated
           December 31,  1997(filed  as  Exhibit  10.20  to  Form 10-K, File No.
           0-21750 dated March 25, 1998)*

 10.17     Credit  Agreement  dated  March 8, 2001  by  and  among   PrimeSource
           Corporation and the Banks Party Hereto and PNC, National Association,
           as Agent and PNC Capital Markets, Inc. as Lead Arranger.

 21        Subsidiaries of the Registrant

 23        Consent of PricewaterhouseCoopers LLP, Independent Accountants

 27.1      Financial Data Schedule for the year ended December 31, 2000

 27.2      Restated Financial  Data  Schedule  for the year  ended  December 31,
           1999**

 27.3      Restated  Financial  Data  Schedule  for the year ended  December 31,
           1998 **

 27.4      Restated Financial Data Schedule for  the nine-months ended September
           30, 2000 **

 27.5      Restated  Financial Data  Schedule for the six-months  ended June 30,
           2000 **

 27.6      Restated Financial Data Schedule for the three-months ended March 31,
           2000 **

 27.7      Restated Financial Data Schedule for the nine-months ended  September
           30, 1999 **

 27.8      Restated  Financial Data  Schedule for  the six-months ended June 30,
           1999 **

 27.9      Restated Financial Data Schedule for the three-months ended March 31,
           1999 **

 99        Undertakings


*  Management contracts and/or compensatory plans, contracts or arrangements in
   which a director and/or a named executive officer participates.

** Financial Data Schedules were restated to to comply with a revised accounting
   standard requiring  freight  billed to customers to be  included in sales and
   freight out  expenses to be  included in  cost of sales.  Previously, freight
   out expense  net of  freight  billed  was  included in  selling,  general and
   administrative  expenses.  This  accounting  change  has  no   effect on  the
   Registrant's current or historical net income or net income per share.