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, 1996            Commission file Number  0-21750

                             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)

                                  (609)488-4888
                          Registrant's Telephone Number


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

Title of Each Class                   Name of Each Exchange on Which Registered
None                                                                      N/A

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

Common Stock $.01 par value per share

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. ( X )


As of March 14,  1997 the  aggregate  market  value of the voting  stock held by
nonaffiliates was approximately  $50.5 million.  

As of March 14,  1997 there were  6,514,779  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 33 of this document.


<PAGE>



                                     PART I.

ITEM I.  BUSINESS

PrimeSource  Corporation,  previously  Phillips  &  Jacobs,  Incorporated,  (the
"Company") is a major national  distributor and systems  integrator  serving the
printing,  publishing and graphic arts industries.  For approximately 130 years,
the  Company  or  its  unincorporated   predecessor  has  been  servicing  these
industries.   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 Stock Market's National Market.

On  September  1, 1994,  Momentum  Corporation,  with two  operating  divisions,
Momentum and TK Gray, merged with the Company. Momentum Corporation had acquired
the TK Gray division, a regional  distributor based in Minneapolis,  on March 1,
1994. Annual sales for Momentum  Corporation were approximately $165 million per
year.  This  merger  increased  the  Company's  coverage  from  less than 40% to
approximately 75% of the United States market.

In addition to the  Momentum  merger,  the Company has acquired  other  graphics
distribution  companies.  In 1996, the Company acquired VGC Corporation's branch
operations in St. Louis, Missouri; Minneapolis, Minnesota; Milwaukee, Wisconsin;
Des Moines,  Iowa; and Omaha,  Nebraska.  Except for the Omaha operation,  these
operations were combined with existing  Company  businesses in these  locations.
Sales  from this  acquisition  are  expected  to  approximate  $55  million.  In
addition,  in 1996 and 1995,  smaller  acquisitions  were made in  Michigan  and
Texas.  The  Company  believes  there  will  be a  continuing  consolidation  of
distributors in the industry and the Company's  business  strategy will continue
to include  pursuing  such  acquisitions  which will either expand the Company's
presence in key markets  and/or  offer new products and services to the printing
and imaging industries.

In 1996,  the  Company  completed  a  program  of  restructuring  the  Company's
infrastructure to align the business units  geographically and where appropriate
centralize functions and expertise. This included a restructuring charge in 1995
for the  consolidation  of five  distribution  centers,  the  realignment of two
others and the centralization of certain financial and information  services. In
1997,  the  Company's  management  information  system  will  allow  all  of the
operations to interface between themselves and with customers and manufacturers,
producing a more efficient and effective distribution model.

The Company is  headquartered  in  Pennsauken,  New Jersey and currently has six
operating  divisions  consisting  of CM Graphics,  Dixie Type & Supply,  Jetcom,
Momentum,  P/J North, P/J South and TK Gray and one operating subsidiary,  Dixie
Type & Supply, Co. Inc., with a total of 27 distribution  locations.  Consistent
with the  changes  in the  Company's  infrastructure,  beginning  in  1997,  the
division locations will begin operating under the PrimeSource name.

The Company  maintains a  decentralized  management  structure  which allows the
operating  divisions  broad  discretion  in  the  conduct  of  their  respective
businesses,   including   responsibility  for  management  of  their  suppliers,
customers and  employees.  Management is evaluated  against their  financial and
non-financial goals which are established on an annual basis. Beginning in 1996,
the Company began to emphasize  return on net assets under its financial  goals.
In order to provide  shareholder  value,  the Company believes it must strive to
maximize its long-term return on the  shareholders'  investment.  By quantifying
this objective and applying it at the operating  level,  the Company believes it
can best meet this goal. This emphasis contributed to improved earnings on lower
levels of employed  capital in 1996, and  accordingly,  freed capital for growth
internally and through  acquisitions.  Management  believes that this concept of
fostering and perpetuating  the  entrepreneurial  drive of operating  management
will continue to be a key factor in the Company's future success.

The Company  presently  represents  over 500 suppliers,  sells and supports more
than 50,000  products and has a customer  base in excess of 25,000.  No customer
accounted for more than 3% of the Company's net sales in 1996.


<PAGE>

Consumable   products,   which  include  film,   plates,   proofing   materials,
photographic  chemicals,  printing blankets and pressroom  chemistry,  presently
represent  approximately  75% of total sales.  The remaining 25% is derived from
sales of printing presses,  electronic  imaging equipment,  desktop  publishing,
electronic color proofing  equipment,  scanning systems,  and other hardware and
software  products.  The  industry  is  moving  from  an  analog  to  a  digital
environment. As a result of this transition, management expects sales of certain
types of sensitized  film and paper products to continue  trending  down,  while
sales of certain  high-technology  products  and  equipment  used in the digital
process to increase.

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,
pre-press 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 more sophisticated operations offering more services to their customers.

While  the  Company  sells  primarily  the  same  products  as its  competitors,
generally at similar prices,  the Company  attempts to  differentiate  itself by
focusing on providing training,  technical support, and products which will make
its customers  more efficient and effective.  In addition,  the Company's  broad
geographic  presence  provides an advantage  in servicing  regional and national
customers. Based on the changes which are occurring in the industry,  management
believes this broad national  presence,  combined with the emphasis on technical
support, will provide significant added-value to its 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 that it is one of the largest  dealers 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.  Consignment  has  become  a common
practice in this industry during the last decade. 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 employed 651 employees at December 31, 1996.



<PAGE>

<TABLE>

EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>

                                                  BUSINESS EXPERIENCE                              POSITION HELD
NAME                                   AGE          LAST FIVE YEARS                                    SINCE
-------------------------------------------    ----------------------------                     -------------------
<S>                                   <C>      <C>                                                   <C>         
James F. Mullan                       57       President and Chief Executive                           1991-Present
President and                                      Officer of Registrant
Chief Executive Officer

John H. Goddard, Jr.                  49       Executive Vice President                            September, 1994-
Executive Vice President                           of Registrant                                            Present
                                               President, Chief Executive Officer                         1992-1994
                                                   of Momentum Corporation
                                               Senior Vice President of Momentum Corporation              1990-1992


William A. DeMarco                    51       Vice President and Chief Financial Officer          September, 1994-
Vice President and                                 of Registrant                                            Present
Chief Financial Officer                        Vice President of Finance, Treasurer, and                  1993-1994
                                                   Secretary of Registrant
                                               Vice President of Finance and Operations                   1992-1993
                                                   of Phillips & Jacobs, Incorporated


Barry C. Maulding                     51       Vice President, General Counsel                     September, 1994-
Vice President,                                    and Corporate Secretary                                  Present
General Counsel and                                of Registrant
Corporate Secretary                            Vice President Administration,                             1993-1994
                                                   General  Counsel and Corporate
                                                   Secretary of Momentum Corporation
                                               General Counsel, Director of Administration and            1992-1993
                                                   Corporate Secretary of Momentum Corporation

</TABLE>




<PAGE>


ITEM 2.  PROPERTIES

The  locations  and  primary  use  of the  physical  properties  of  PrimeSource
Corporation and its subsidiary are as follows:

<TABLE>
<CAPTION>

                                                Approximate
                                                     Square
Location                                            Footage                Primary Facility Use
----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>                       
Atlanta, GA (Norcross)                               23,200                Distribution/Div. Office
Baltimore, MD (Columbia)                              2,300                Sales Office
Birmingham, AL                                       37,000                Distribution/Subsidiary Office
Boston, MA (Hingham)                                 13,500                Distribution
Chicago, IL (Itasca)                                 49,600                Distribution
Cincinnati, OH                                       35,000                Distribution/Div. Office
Dallas, TX                                           17,500                Distribution
Des Moines, IA (Ankeny)                              14,000                Distribution
Detroit, MI (Plymouth)                               11,600                Sales Office
Greenville, SC                                          600                Sales Office
Houston, TX                                           7,000                Distribution
Jackson, MS                                           6,000                Distribution
Kansas City, KS                                      16,800                Distribution
Kalamazoo, MI                                        20,000                Distribution
Lititz, PA                                           14,000                Distribution/Div. Office
Los Angeles, CA (Cerritos)                           11,800                Distribution
Miami, FL (Miramar)                                  14,700                Distribution
Milwaukee, WI (New Berlin)                           16,300                Distribution
Minneapolis, MN (three facilities)                   57,100                Distribution
Minneapolis, MN (Mendota Heights)                    53,600                Distribution/Div. Office
Mobile, AL                                            8,000                Distribution
Nashville, TN                                        16,000                Distribution
New Orleans, LA (Harahan)                            14,400                Distribution
Omaha, NE                                            10,000                Distribution
Orlando, FL                                          14,400                Distribution
Pennsauken, NJ                                        7,400                Corporate Headquarters
Pennsauken, NJ                                       32,000                Distribution
Philadelphia, PA                                     14,000                Pressroom Products
Philadelphia, PA (Cherry Hill, NJ)                    1,400                Sales/Div. Office
Pittsburgh, PA                                       10,480                Distribution
Portland, OR                                          7,800                Distribution
San Francisco, CA (South San Francisco)              10,000                Distribution
Seattle, WA (Tukwila)                                20,000                Distribution/Div. Office
St. Louis, MO                                        22,900                Distribution
Winston-Salem, NC                                       400                Pressroom Products Sales
</TABLE>


All  of  the  properties  are  held  under  operating  leases,  except  for  the
Birmingham,  Minneapolis (Mendota Heights), New Orleans, Philadelphia (pressroom
products facility), St. Louis and Seattle facilities which are owned and the Los
Angeles facility which is accounted for as a capital lease.  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
quarterly or annual operating results when resolved in a future period.

The  Company, along  with  many  other  potentially  responsible  parties,  is a
defendant in a  declaratory  action to determine an  allocation of costs for the
investigation  and remediation of a Superfund cleanup site. 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 Stock Market's  National Market
under the symbol PSRC.

The following  quarterly  stock price and dividend  information  is provided for
1995 and 1996.
<TABLE>
<CAPTION>

                                             Stock Price        Cash Dividends
                                  High               Low             Per Share
------------------------------------------------------------------------------                                   
1995
<S>                            <C>                <C>                  <C>    
   First Quarter               $ 11.00            $ 8.75               $ .1125
   Second Quarter                 9.50              7.75                 .1125
   Third Quarter                  9.50              8.00                 .1125
   Fourth Quarter                 9.25              5.50                 .0450

1996
   First Quarter                  6.50              5.00                 .0450
   Second Quarter                 7.50              5.00                 .0450
   Third Quarter                  7.50              5.75                 .0450
   Fourth Quarter                 8.13              6.00                 .0450

</TABLE>

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 3,700 shareholders of record as of December 31, 1996.





<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

The following selected historical  consolidated  financial data has been derived
from  consolidated  financial  statements.  On August 1, 1993,  the  Company was
spun-off from Tasty Baking Company ("TBC"). Accordingly, the historical data for
1993 and  1992,  which  include  the  operations  of the  Company  when it was a
subsidiary  of TBC, may not  necessarily  reflect the results of  operations  or
financial  position  that  would  have been  obtained  had the  Company  been an
independent publicly-held company during these entire periods. The operations of
Momentum  Corporation  (Momentum  and  TK  Gray  divisions)  are  included  from
September 1, 1994, the date Momentum merged with the Company.  This  information
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements included herein.
<TABLE>
<CAPTION>

                                                                                       Years Ended December 31,
(in thousands, except per share amounts)          1996           1995          1994          1993          1992
---------------------------------------------------------------------------------------------------------------
Statement of Income Data
<S>                                        <C>            <C>          <C>            <C>          <C>         
Net Sales                                  $   366,657    $   357,077   $   238,154   $   167,744   $   158,748
Cost of sales                                  301,428        293,790       194,346       135,094       129,835
---------------------------------------------------------------------------------------------------------------
Gross profit                                    65,229         63,287        43,808        32,650        28,913
Operating expenses                              57,033         58,615(1)     37,362        26,572(2)     22,843
---------------------------------------------------------------------------------------------------------------
Income from operations                           8,196          4,672         6,446         6,078         6,070
Interest expense                               (1,915)         (2,235)       (1,113)         (531)         (515)
Other income-net                                   421            441           408           251           201
---------------------------------------------------------------------------------------------------------------
Income before provision for income
    taxes and cumulative effect of changes
    in accounting principles                     6,702          2,878        5, 741         5,798         5,756
Provision for income taxes                       2,788          1,232        2, 210         2,399         2,248
---------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
    changes in accounting principles             3,914          1,646        3, 531         3,399         3,508
Cumulative effect on prior years of
    changes in accounting principles                                                       (1,306) (3)
---------------------------------------------------------------------------------------------------------------
Net income                                 $     3,914    $     1,646   $     3,531   $     2,093 $       3,508
===============================================================================================================

Per Share Data
Income before cumulative effect of
    changes in accounting principles       $       .60    $       .25   $       .71    $      .83   $       .86
Net income                                         .60            .25           .71           .51           .86
Average number  of shares outstanding (4)        6,558          6,567         4,964         4,098         4,057
===============================================================================================================


Balance Sheet Data
Working capital                            $    67,040    $    65,168   $    60,987    $   28,631   $    16,858
Total assets                                   134,175        119,804       120,760        52,427        45,651
Total long-term obligations                     36,250         32,202        29,094        12,747         2,943
Shareholders' equity                            48,183         45,572        46,169        20,654        20,120
===============================================================================================================
<FN>
(1)    Includes a one-time  restructuring  expense of $1,315,000 ($794,000 after
       tax) relating to the  consolidation  of five  distribution  centers,  the
       realignment of two others,  and the  centralization  of certain financial
       and information services.

(2)    Includes a one-time  charge of $609,000  ($519,000  after tax)  resulting
       from costs associated with the spin-off from TBC consisting  primarily of
       legal, accounting and other professional fees.

(3)    One-time  after tax charge of  $1,306,000  for the  cumulative  effect of
       changes in  methods of  accounting  for income  taxes and  postretirement
       benefits other than pensions.

(4)    Average  number of shares  outstanding  information  for 1993 and 1992 is
       based on the average  number of shares of TBC common  shares  outstanding
       for each of these years  converted  to Company  shares using the spin-off
       ratio of two Company shares for every three shares of TBC common stock.
</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
Consolidated Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>

                                                              Years Ended December 31,
                                                      1996         1995          1994
--------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>   
Net sales                                            100.0%       100.0%        100.0%
Cost of sales                                         82.2         82.3          81.6
--------------------------------------------------------------------------------------
Gross profit                                          17.8         17.7          18.4
Selling, general, and administrative expenses         14.8         15.2          14.9
Depreciation                                            .5           .5            .6
Provision for doubtful accounts                         .3           .3            .2
Restructure expense                                                  .4
--------------------------------------------------------------------------------------
Income from operations                                 2.2          1.3           2.7
Interest expense                                       (.5)         (.6)          (.5)
Other income-net                                        .1           .1            .2
--------------------------------------------------------------------------------------

Income before provision for income taxes               1.8           .8           2.4
Provision for income taxes                              .7           .3            .9
--------------------------------------------------------------------------------------
Net income                                             1.1%          .5%          1.5%
======================================================================================
</TABLE>


COMPARISON OF 1996 TO 1995

Net income for 1996 was $3,914,000, or $.60 per share compared to $1,646,000, or
$.25 per share for 1995.  The  results  for 1995  include a  one-time  charge of
$1,315,000  ($794,000  after  related tax benefit) for  restructuring  expenses.
Excluding  this  restructure  expense,  net  income  for 1995  would  have  been
$2,440,000 ($.37 per share).

Net  sales in 1996  were  $366,657,000  compared  to  $357,077,000  in 1995,  an
increase of 3%. This sales  increase is primarily the result of the  acquisition
of five VGC Corporation locations, one in August 1996 and four in November 1996.
Retained  annual sales from this  acquisition  are expected to  approximate  $55
million. Excluding the impact of the VGC acquisition, sales were flat during the
year, with modest  decreases in the first half of the year and modest  increases
in the  second  half.  Sales  were  negatively  impacted  during the year by the
Company's  decision  to  terminate  relationships  with  certain  customers  who
represented potential credit risks, or whose gross profit levels did not justify
the required  investment in working capital.  Gross profit as a percent of sales
remained stable between the two years, at 17.8% in 1996 and 17.7% in 1995.

Selling,  general,  and administrative  expenses as a percent of sales decreased
from  15.2% in 1995 to 14.8% in 1996.  As  previously  indicated,  in 1995,  the
Company incurred a restructuring charge of $1,315,000. This expense was incurred
in the  consolidation  of five  distribution  centers,  the  realignment  of two
others,  and the  centralization of certain financial and information  services.
The efficiencies in aligning  operations by geographical  area and consolidating
duplicate facilities and functions,  combined with other cost reduction programs
resulted in a containment of expenses in 1996.

In 1996,  the  provision  for doubtful  accounts  decreased  from  $1,090,000 to
$865,000. This decrease is primarily the result of the Company implementing more
stringent credit requirements.
<PAGE>

Interest expense  decreased from $2,235,000 in 1995 to $1,915,000 in 1996. Prior
to the  acquisition  of VGC in November,  interest  expense was lower during the
year as a result of a decrease  in the  Company's  debt  levels due to  improved
utilization  of working  capital.  With the  acquisition of VGC, the debt levels
increased, which will reflect in higher interest costs in future periods.

The effective income tax rate decreased from 42.8% in 1995 to 41.6% in 1996. The
lower rate in 1996 is primarily due to  non-deductible  expenses  being a lesser
percent of income in 1996 compared to 1995. The difference between the effective
tax rates and the  federal  statutory  rate of 34% for both  years is  primarily
attributable to the effect of state income taxes and non-deductible expenses.

The Company  anticipates  further sales and increased  earnings through internal
growth  and  acquisitions.  The  Company  believes  there  will  continue  to be
consolidation within the distribution channel as well as the customer base and a
continued  transition  from analog to digital  technology  in the  graphic  arts
industry.  With the benefit of its national presence and its continued  emphasis
on serving  customer  needs,  the Company  believes it is in a good  position to
provide added value and differentiate itself in the market place.


COMPARISON OF 1995 TO 1994

Net income for 1995 was $1,646,000 or $.25 per share, compared to $3,531,000, or
$.71 per share,  in 1994.  The  results  for 1995  include a one-time  charge of
$1,315,000  ($794,000  after  related tax benefit) for  restructuring  expenses.
Excluding  this  restructure  expense,  net  income  for 1995  would  have  been
$2,440,000 ($.37 per share).

The results include a full year of operations of Momentum Corporation  (Momentum
and TK Gray  divisions)  for 1995 and four months of  operations  in 1994,  from
September 1, 1994, the date Momentum merged into the Company in a stock exchange
of .71 share of the Company common stock for each share of Momentum  Corporation
common stock.  The total number of  additional  shares issued as a result of the
merger was approximately 2,385,000.

Net  sales in 1995  were  $357,077,000  compared  to  $238,154,000  in 1994,  an
increase  of 50%.  Including  a full year's  sales of the  Momentum  and TK Gray
divisions for 1994, the sales increase was 3%.

Gross  profit as a percent  of sales  decreased  from  18.4% in 1994 to 17.7% in
1995.  This decrease was  primarily  due to changes in product mix,  competitive
pressures and declines in manufacturers' rebates.

Selling,  general,  and administrative  expenses as a percent of sales increased
from  14.9% in 1994 to 15.2% in 1995.  This  increase  is  primarily  due to the
inclusion of Momentum for an entire year in 1995, which had a higher  percentage
of operating expenses to sales.

In 1995,  the  provision  for  doubtful  accounts  increased  from  $626,000  to
$1,090,000.  This  increase is primarily due to the inclusion of Momentum for an
entire year.

Interest  expense  increased from $1,113,000 in 1994 to $2,235,000 in 1995. This
increase is primarily  due to the debt  assumed  with the Momentum  merger along
with higher interest rates in 1995.

The effective income tax rate increased from 38.5% in 1994 to 42.8% in 1995. The
higher rate in 1995 is primarily due to  non-deductible  expenses being a larger
percent of income in 1995 compared to 1994. The difference between the effective
tax rates and the  federal  statutory  rate of 34% for both  years is  primarily
attributable to the effect of state income taxes and non-deductible expenses.




<PAGE>


FINANCIAL CONDITION AND LIQUIDITY

Cash provided from operating  activities was  $11,548,000 and $3,024,000 in 1996
and  1995,  respectively,  and cash  used in  operating  activities  in 1994 was
$5,171,000.  The  improvement  in  1996  compared  to  1995  and  1994 is due to
increased cash generated from operating income and better utilization of working
capital.  Excluding  the  effect of  changes  in assets  and  liabilities,  cash
provided from operations  increased from $6.2 and $6.3 million in 1995 and 1994,
respectively,  to $7.2  million  in  1996.  Excluding  the  effect  of  business
acquisitions  and  dispositions,  working  capital  levels  decreased,  creating
additional cash in 1996 of approximately $4.3 million,  compared to increases in
working capital levels in 1995 and 1994 of approximately $3.1 and $11.5 million,
respectively.

The decrease in working capital levels, in part, reflects the Company's emphasis
in 1996 of measuring  performance  based on return on net assets. As a result of
this  focus,  the  turnover  of  inventory  increased  and the number of days of
receivables  outstanding decreased.  In addition, the Company terminated certain
businesses in 1996 that did not produce an adequate  return on net assets.  This
improvement  was partially  offset by increases in accounts  receivable from new
sales  from the VGC  acquisition.  The  Company  did not  acquire  the  accounts
receivable with this acquisition.

Cash  flows used in  investing  activities  were  $14,471,000,  $1,062,000,  and
$1,327,000 in 1996, 1995, and 1994, respectively.  In 1996, the Company incurred
a net  cash  expenditure  on the  acquisition  and sale of  businesses  of $12.2
million,  primarily in the acquisition of VGC. The balance of the activities for
1996 and for 1995 and 1994 were  primarily for the  acquisition  of property and
equipment.  The Company  had no  material  capital  expenditure  commitments  at
December  31,  1996.  Capital  expenditures  for  1997  are  anticipated  to  be
approximately $2 million.  In addition,  the Company's  business  strategy is to
continue to acquire regional  distributors  within the Company's current markets
or  companies  that offer new  products and services to the printing and imaging
industries.

Cash  flows  from  financing   activities  were  $2,923,000  provided  in  1996,
$2,580,000 used in 1995, and $6,883,000  provided in 1994. In 1996, $4.4 million
was  provided  from debt  financing.  These funds were used to finance the $14.4
million of business acquisitions, net of cash generated primarily from operating
activities.  In 1995 and 1994,  debt  decreased $.1 million and  increased  $8.9
million,  respectively.  The other primary component of financing activities was
dividend  payments  of $1.2,  $2.5  and $2.1  million  in 1996,  1995 and  1994,
respectively.

The Company's  primary source of debt financing is a revolving  credit agreement
with a  commitment  of $50  million of which  $17.5  million  was  available  at
December 31, 1996. The Company believes this source of borrowing,  combined with
cash from operations,  is sufficient to support the current capital requirements
of the Company.


<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
                                    PRIMESOURCE CORPORATION AND SUBSIDIARIES
                                       Consolidated Statements of Income

<CAPTION>
                                                                                    Years Ended December 31,
                                                       -----------------------------------------------------
(Thousands of dollars, except per share amounts)                1996                1995                1994
------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>                <C>           
Net sales                                              $     366,657       $     357,077      $      238,154
Cost of sales                                                301,428             293,790             194,346
------------------------------------------------------------------------------------------------------------
Gross profit                                                  65,229              63,287              43,808
Selling, general, and administrative expenses                 54,268              54,204              35,367
Depreciation                                                   1,900               2,006               1,369
Provision for doubtful accounts                                  865               1,090                 626
Restructure expense                                                                1,315
------------------------------------------------------------------------------------------------------------
Income from operations                                         8,196               4,672               6,446
Interest expense                                              (1,915)             (2,235)             (1,113)
Other income-net                                                 421                 441                 408
------------------------------------------------------------------------------------------------------------
Income before provision for income taxes                       6,702               2,878               5,741
Provision for income taxes                                     2,788               1,232               2,210
------------------------------------------------------------------------------------------------------------

Net income                                             $       3,914       $       1,646      $        3,531
============================================================================================================

Average number of shares outstanding                       6,557,989           6,567,066           4,963,534

Net income per share                                   $         .60       $         .25      $          .71
============================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>


<PAGE>

<TABLE>

                                          PRIMESOURCE CORPORATION AND SUBSIDIARIES
                                                 Consolidated Balance Sheets

<CAPTION>
                                                                                                       December 31,
                                                                                -----------------------------------
(Thousands of dollars)                                                                     1996                1995
-------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S>                                                                            <C>                <C>             
Trade receivables, less allowances of $1,787 and $1,372, respectively           $        54,044    $         50,434
Income taxes receivable                                                                                       1,047
Other receivables                                                                         6,612               5,993
Inventories                                                                              48,741              41,581
Deferred income taxes                                                                     1,982               1,537
Other                                                                                       671                 929
-------------------------------------------------------------------------------------------------------------------
Total  Current Assets                                                                   112,050             101,521
Property and equipment, net                                                              13,719              10,358
Excess of cost over net assets of businesses acquired,
  net of accumulated amortization of $1,102 and $825, respectively                        4,487               4,942
Deferred income taxes                                                                     1,763               1,486
Long-term receivables                                                                       895                 862
Other assets                                                                              1,261                 635
-------------------------------------------------------------------------------------------------------------------
Total Assets                                                                    $       134,175    $        119,804
===================================================================================================================

Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term obligations                                        $         1,550    $          1,206
Accounts payable                                                                         33,628              28,624
Accrued payroll and benefits                                                              2,587               2,417
Other accrued liabilities                                                                 7,245               4,106
-------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                                45,010              36,353
Long-term obligations, net of current portion                                            36,250              32,202
Accrued pension and other liabilities                                                     2,577               3,421
Postretirement benefits other than pension                                                2,155               2,256
-------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                        85,992              74,232
-------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value, 24,000,000 shares authorized
6,514,779 and 6,527,295 issued, respectively                                                 65                  65
Additional paid-in capital                                                               25,533              25,543
Retained earnings                                                                        22,628              20,036
Unamortized restricted stock awards                                                         (43)                (72)
-------------------------------------------------------------------------------------------------------------------
Total  Shareholders' Equity                                                              48,183              45,572
-------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                                      $       134,175    $        119,804
===================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>


<PAGE>


<TABLE>
                                          PRIMESOURCE CORPORATION AND SUBSIDIARIES
                                            Consolidated Statements of Cash Flows

<CAPTION>
                                                                                           Years Ended December 31,
                                                                  -------------------------------------------------
(Thousands of dollars)                                                      1996             1995              1994
-------------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                               <C>               <C>              <C>           
Net income                                                        $        3,914    $       1,646    $        3,531
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
   Depreciation                                                            1,900            2,006             1,369
   Amortization                                                              520              657               372
   Provision for doubtful accounts                                           865            1,090               626
   Other                                                                      28              756               421
Changes in assets and liabilities, net of effects   
from business combinations/disposition:
   Receivables                                                            (4,751)          (6,658)           (4,838)
   Inventories                                                             1,485            2,499            (7,826)
   Other current assets                                                      258             (173)              163
   Income taxes receivable, accrued and deferred                           1,768            2,064              (669)
   Accounts payable and other accrued liabilities                          6,764              288             2,445
   Payment of pension and other postretirement benefits                   (1,203)          (1,151)             (765)
--------------------------------------------------------------------------------------------------------------------
Net cash  provided by (used in) operating activities                      11,548            3,024            (5,171)

Investing Activities
Proceeds from sales of property and equipment                                218              473               112
Purchase of property and equipment                                        (1,530)          (1,713)           (1,074)
Payments for business combinations, net of cash acquired                 (14,394)            (954)             (682)
Proceeds from sale of business                                             2,235
(Increase) decrease in long-term receivables                                 (33)             777               189
(Increase) decrease in other assets                                         (732)             479               128
Other, net                                                                  (235)            (124)
-------------------------------------------------------------------------------------------------------------------
Net cash  used in investing activities                                   (14,471)          (1,062)           (1,327)

Financing Activities
Net increase (decrease) in short-term borrowings                                           (3,000)            1,905
Proceeds from long-term obligations                                      142,924          102,925            81,614
Repayment of long-term obligations                                      (138,532)        (100,050)          (74,581)
Dividends paid                                                            (1,211)          (2,497)           (2,121)
Purchase of common stock                                                    (258)
Proceeds from exercise of stock options                                                        42                66
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                        2,923           (2,580)            6,883
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                              ---             (618)              385
Cash at beginning of year                                                                     618               233
-------------------------------------------------------------------------------------------------------------------
Cash at end of year                                               $          ---    $         ---    $          618
===================================================================================================================
Net cash paid (received) during the year for:
     Interest                                                     $        1,826    $       2,223    $        1,085
     Income taxes                                                          2,314             (644)            2,682
===================================================================================================================
<FN>
Supplemental disclosure of non-cash investing and financing activities: In 1994,
net assets of Momentum  Corporation of $23,855,000  were merged into the Company
in exchange for 2,385,466 shares of common stock.

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


<PAGE>


<TABLE>
                                          PRIMESOURCE CORPORATION AND SUBSIDIARIES
                                       Consolidated Statements of Shareholders' Equity


<CAPTION>
                                                        Common                            Unamortized
                                                         Stock   Additional                Restricted
                                                     ($.01 Par      Paid-in     Retained        Stock
(Thousands of dollars)                                  Value)      Capital     Earnings       Awards         Total
-------------------------------------------------------------------------------------------------------------------
<S>              <C>                               <C>          <C>          <C>          <C>           <C>        
Balance, January 1, 1994                           $        41  $     1,255  $    19,477  $      (119)  $    20,654
Net income                                                                         3,531                      3,531
Cash dividends paid to
   shareholders ($.45 per share)                                                  (2,121)                    (2,121)
Shares issued under
   noncompete agreement                                                 100                                     100
Shares issued in merger
   with Momentum Corporation                                24       23,927                      (104)       23,847
Restricted stock awards and
   related amortization                                                  (4)                       81            77
Stock options exercised and
   related tax benefit                                                   81                                      81
-------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                                  65       25,359       20,887         (142)       46,169
Net income                                                                         1,646                      1,646
Cash dividends paid to
   shareholders ($.3825 per share)                                                (2,497)                    (2,497)
Shares issued under
   noncompete agreement                                                 142                                     142
Restricted stock awards and
   related amortization                                                                            70            70
Stock options exercised and
   related tax benefit                                                   42                                      42
-------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                                  65       25,543       20,036          (72)       45,572
Net income                                                                         3,914                      3,914
Cash dividends paid to
   shareholders ($.18 per share)                                                  (1,211)                    (1,211)
Shares issued under
   acquisition agreement                                                137                                     137
Amortization of restricted
   stock awards                                                                                    29            29
Purchase of common stock                                               (147)        (111)                      (258)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                         $        65  $    25,533  $    22,628  $       (43)  $    48,183
===================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>


<PAGE>


                    PRIMESOURCE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



 1.      Organization

         PrimeSource  Corporation  (the  "Company")  through its P/J North,  P/J
         South,  Jetcom,  Momentum,  TK Gray and CM Graphics divisions,  and its
         subsidiary  Dixie Type & Supply  Company,  Inc.  ("Dixie  Type"),  is a
         national  distributor  and systems  integrator  serving  the  printing,
         publishing,  and graphics arts  industries.  In 1997,  the Company will
         begin operating its divisions under the PrimeSource name.

         On September 1, 1994, Momentum  Corporation was merged into the Company
         in a  tax-free  stock  exchange.  Effective  with this  combination  of
         companies,  the  Company's  name was  changed  from  Phillips & Jacobs,
         Incorporated to PrimeSource Corporation.

         On August 1, 1993, Tasty Baking Company ("TBC")  distributed to the TBC
         shareholders  100% of the  outstanding  shares of the Company's  common
         stock. As a result of the execution of this plan of  distribution,  the
         Company became an independent  publicly-owned  company whose shares are
         traded on the Nasdaq Stock Market's National Market.


2.       Summary of Significant Accounting Policies

         Basis of Consolidation
         The  consolidated  financial  statements  include  the  accounts of the
         Company and its wholly-owned subsidiaries. All significant intercompany
         transactions and accounts have been eliminated.

         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.  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 thirty 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.

         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 is being amortized by the straight-line method
         over periods ranging from fifteen to forty years. At each balance sheet
         date, the Company  evaluates the  recoverability  of its goodwill using
         certain financial  indicators,  including historical and future ability
         to generate income from operations.
<PAGE>


         Fair Value of Financial Instruments
         The carrying value of the Company's  short-term  financial  instruments
         such as receivables and payables  approximate their fair values,  based
         on the short-term  maturities of these instruments.  The carrying value
         of long-term  investments,  consisting  primarily  of  long-term  notes
         receivable,  and long-term debt  obligations,  consisting  primarily of
         revolving  credit debt with interest rates based on current  short-term
         market  rates,  approximate  the market  value  based on the  estimated
         discounted value of future cash flows.

         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.  The Company
         maintains reserves for potential credit losses and such losses have not
         exceeded management's expectations.

         Incentive Stock Awards
         The Company  applies the  intrinsic  value based method  prescribed  in
         Accounting  Principles  Board  Opinion  No. 25 (APB 25) to account  for
         options  granted to employees and directors to purchase  common shares.
         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
         Stock-Based  Compensation"  (SFAS 123) requires that companies electing
         to  continue  using  the  intrinsic  value  method  must make pro forma
         disclosures   of  net  income  and   earnings   per  share  as  if  the
         fair-value-based method of accounting had been applied. No compensation
         expense is recognized on the grant date since, at that date, the option
         price equals the market price of the underlying common shares.

         Income Per Common Share
         Income  per common  share is based on the  weighted  average  number of
         common shares and equivalent common shares outstanding during the year.

         In  March  1997,  the  Financial   Accounting  Standards  Board  issued
         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  Per
         Share" (SFAS 128). This Statement  establishes  standards for computing
         and  presenting  earnings per share (EPS) and applies to entities  with
         publicly held common stock or potential common stock. This Statement is
         effective  for  financial  statements  issued for periods  ending after
         December 15, 1997, earlier application is not permitted. This statement
         requires  restatement  of all  prior-period  EPS  data  presented.  The
         Company is currently  evaluating the impact,  if any,  adoption of SFAS
         128 will have on its financial statements.

         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.




<PAGE>


3.       Business Combinations

         Momentum Corporation
         On September  1, 1994,  Momentum  Corporation  merged into the Company.
         Each common share of Momentum stock was converted into .71 share of the
         Company's  common stock,  with any  fractional  share paid in cash. The
         equivalent  Company  common  stock  issued in exchange for the Momentum
         common stock was 2,385,466 shares at a fair value as of the transaction
         date of $10  per  share,  or  $23,855,000.  In  addition,  the  Company
         incurred  merger  costs of  approximately  $660,000.  The excess of the
         acquisition cost over the net tangible assets acquired of approximately
         $3,335,000 is being amortized on a straight-line basis over 15 years.

         Effective March 1, 1994, Momentum Corporation  purchased  substantially
         all of the assets and assumed  certain of the  liabilities  of TK Gray,
         Inc. for approximately $15.4 million.  Assuming both the acquisition of
         TK Gray,  Inc.  by  Momentum  Corporation  and the  merger of  Momentum
         Corporation into the Company had occurred at the beginning of the year,
         unaudited  pro-forma  sales and net income for the year ended  December
         31, 1994 would have been  approximately  $348.3  million and $1,737,000
         ($.26 per share), respectively.

         VGC
         The Company acquired VGC Corporation's  branch operations in St. Louis,
         Missouri  on August 26,  1996 and  Minneapolis,  Minnesota;  Milwaukee,
         Wisconsin;  Des Moines, Iowa; and Omaha,  Nebraska on November 1, 1996.
         The  acquisition  cost was  approximately  $11,977,000  for  which  the
         Company acquired  buildings and land in Minneapolis and Des Moines, and
         inventory and other operating  assets in all of the locations.  None of
         the acquisition costs were applied to intangible assets. Except for the
         Omaha  operation,  these operations were combined with existing Company
         businesses in these locations.

         KPM
         On May 28, 1996, the Company  acquired the operating  assets of KPM for
         approximately  $2,417,000.  The excess of the acquisition cost over the
         net  tangible  assets  acquired  of  approximately  $221,000  is  being
         amortized on a straight-line basis over 15 years.

         Other Acquisitions
         In 1995, the Company acquired substantially all of the operating assets
         of Turner  Products,  Inc.  ("Turner")  and Litho  Supply  and  Service
         Company's   supply   distribution   business   ("Litho   Supply")   for
         approximately  $1,010,000.  The excess of the acquisition cost over the
         net  tangible  assets  acquired  of  approximately   $89,000  is  being
         amortized on a straight-line basis over 15 years.

         In 1994,  the Company  acquired the operating  assets of Lanman Systems
         for approximately $310,000. The excess of the acquisition cost over the
         net  tangible  assets  acquired  of  approximately  $200,000  is  being
         amortized on a straight-line basis over 15 years.

         All of the business  combinations  have been accounted for as purchases
         and,  accordingly,  are included in  operations  from their  respective
         acquisition dates.

         The pro forma results of the VGC, KPM, Turner, Litho Supply, and Lanman
         Systems Group  acquisitions  would not have had a significant impact on
         the Company's consolidated results of operations.


4.       Disposition

         On July 1, 1996,  the Company sold  substantially  all of the assets of
         its Rochester,  New York subsidiary,  Onandaga Litho Supply, Co., Inc.,
         for approximately  $2.2 million which  approximated the financial basis
         of the assets at the time of the sale. This  transaction did not have a
         significant impact on the Company's operating results.




<PAGE>


5.       Inventories

         Inventories,  which  are  primarily  finished  goods,  at  December  31
         consisted of:
<TABLE>
<CAPTION>
          
         (Thousands of dollars)                        1996                1995
         ----------------------------------------------------------------------

<S>                                         <C>                <C>             
          Last-in, first-out (LIFO)         $        25,838    $         21,838
          First-in, first-out (FIFO)                 22,903              19,743
         ----------------------------------------------------------------------
          Total inventories                 $        48,741    $         41,581
         ======================================================================
</TABLE>

         The current  replacement  costs of  inventories  exceeds LIFO values by
         approximately  $5,591,000 and $5,208,000 at December 31, 1996 and 1995,
         respectively.


6.       Property and Equipment

         Property and equipment, net, at December 31 consisted of:
<TABLE>
<CAPTION>

         (Thousands of dollars)                        1996                1995
         -----------------------------------------------------------------------

<S>                                         <C>                <C>             
           Land                             $         1,549    $          1,191
           Buildings and improvements                 9,017               6,225
           Leased property                            1,418                 886
           Machinery, equipment and other            10,883              10,140
         -----------------------------------------------------------------------
                                                     22,867              18,442
           Less accumulated depreciation 
             and amortization                        (9,148)             (8,084)
         -----------------------------------------------------------------------

         Property and equipment, net        $        13,719    $         10,358
         =======================================================================
</TABLE>




<PAGE>


7.       Long-term Obligations

         The long-term obligations of the Company at December 31 consisted of:
<TABLE>
<CAPTION>

         (Thousands of dollars)                                                            1996                1995
         ----------------------------------------------------------------------------------------------------------

<S>                                                                             <C>                <C>             
         Revolving credit agreements                                            $        32,450    $         27,200
         Term loan (interest rate of 6.03%), principal payment of
           $167 plus interest due quarterly through December, 1999                        2,000               2,571
         Term loan (interest rate of 6.03%), principal payment of
           $134 plus interest due quarterly through December, 1999                        1,604               2,033
         Capitalized lease obligation (imputed interest rate of 8.38%)
           payable in monthly installments through  August, 2002                          1,352               1,538
         Capitalized lease obligation (imputed interest rate of 8.97%)
           payable in monthly installments through  August, 1999                            348
         Other miscellaneous notes                                                           46                  66
         ----------------------------------------------------------------------------------------------------------
                                                                                         37,800              33,408
         Less current portion                                                            (1,550)             (1,206)
         -----------------------------------------------------------------------------------------------------------
         Net long-term obligations                                              $        36,250    $         32,202
         ==========================================================================================================
</TABLE>

         Maturities  of  long-term  obligations  for  each  of  the  five  years
         beginning January 1, 1997 and thereafter are as follows:

<TABLE>
<CAPTION>
                                                                                    Capitalized               Other
                                                                                          Lease           Long-term
         (Thousands of dollars)                                                     Obligations         Obligations
         ----------------------------------------------------------------------------------------------------------
<S>      <C>                                                                    <C>                <C>             
         1997                                                                   $           460    $          1,223
         1998                                                                               460               1,225
         1999                                                                               409               1,202
         2000                                                                               308              32,450
         2001                                                                               308
         Thereafter                                                                         155
         ----------------------------------------------------------------------------------------------------------
                                                                                          2,100              36,100
         Less imputed interest on capitalized lease                                        (400)
         ----------------------------------------------------------------------------------------------------------
                                                                                $         1,700    $         36,100
         ==========================================================================================================
</TABLE>

         In November  1996,  the Company  entered into an  uncollateralized  $50
         million  revolving  credit  agreement  which expires in January,  2000.
         Under the terms of the  agreement,  which  includes  three  banks,  the
         Company  can borrow at the prime rate or the London  Interbank  Offered
         Rate (LIBOR) plus between .75% to 1.05% depending on certain  specified
         performance  levels.  The loan agreement  provides,  among other terms,
         various  requirements  for  tangible  net worth and  leverage and fixed
         charge  coverage  ratios.   This  agreement  replaced  three  revolving
         agreements with a total commitment of $27.5 million.

         Under  terms  of  certain   insurance   policies  and  claims  handling
         agreements, the Company is required to maintain certain standby letters
         of credit. At December 31, 1996 these totaled approximately $300,000.




<PAGE>


8.       Provision for Income Taxes

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

<TABLE>
<CAPTION>
         (Thousands of dollars)                                        1996                1995                1994
         ----------------------------------------------------------------------------------------------------------
         Current:
<S>                                                            <C>                 <C>                 <C>        
         Federal                                                $     2,571         $     1,015         $     1,701
         State                                                          586                 143                 305
         ----------------------------------------------------------------------------------------------------------
                                                                      3,157               1,158               2,006
         Deferred:
         Federal                                                       (264)                 58                 154
         State                                                         (105)                 16                  50
         ----------------------------------------------------------------------------------------------------------
                                                                       (369)                 74                 204
         ----------------------------------------------------------------------------------------------------------
         Provision for income taxes                             $     2,788         $     1,232         $     2,210
         ==========================================================================================================
</TABLE>

         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)                                        1996                1995                1994
         ----------------------------------------------------------------------------------------------------------

<S>                                                             <C>                 <C>                 <C>        
         Statutory tax provision                                $     2,279         $       979         $     1,952
         State income taxes, net of federal income tax  benefit         334                  95                 201
         Expenses for which there are no tax benefits                   154                 178                  75
         Other, net                                                      21                 (20)                (18)
         ----------------------------------------------------------------------------------------------------------
         Provision for income taxes                             $     2,788         $     1,232         $     2,210
         ==========================================================================================================
</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:
<TABLE>
<CAPTION>

         (Thousands of dollars)                                                            1996                1995
         ----------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>                 <C>        
         Pension and employee benefit costs                                         $       979         $     1,214
         Postretirement benefits other than pensions                                        853                 893
         Vacation accrual                                                                   408                 315
         Provision for doubtful accounts                                                    634                 558
         Depreciation                                                                      (424)               (784)
         Other, net                                                                       1,295                 827
         ----------------------------------------------------------------------------------------------------------
         Total deferred tax assets                                                  $     3,745         $     3,023
         ==========================================================================================================
</TABLE>





<PAGE>


9.       Defined Benefit Pension Plans

         Employees of the Company are covered under two defined  benefit pension
         plans.  The Momentum  Retirement Plan (the "Momentum  Plan") covers the
         employees  of the  Momentum  and TK  Gray  divisions.  The  PrimeSource
         Pension Plan (the  "PrimeSource  Plan") covers  substantially all other
         employees of the Company.  Effective January 1, 1997, the Momentum Plan
         was combined into the PrimeSource Plan.

         Employees of the P/J North and P/J South divisions were included in the
         Tasty  Baking  Retirement  Plan (the "TBC Plan")  through  December 31,
         1994.  The  pension  expense  and  contributions  to the TBC Plan  were
         allocated between TBC and the Company based on the actuarial attributes
         of each company's respective participants.

         Benefits under the plans are generally based on the employees' years of
         service  and  compensation  during  the  years  preceding   retirement.
         Contributions to the plans are based on funding  standards  established
         by the Employee Retirement Income Security Act of 1974 (ERISA).

         The plans' net pension expense for the years ended December 31 included
         the following components:
<TABLE>
<CAPTION>

         (Thousands of dollars)                                        1996                1995                1994
         ----------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                <C>           
         Service cost of benefits earned during the year      $       1,000       $         732      $          120
         Interest cost on projected benefit obligation                1,718               1,572                 366
         Actual (return) loss on plan assets                         (3,082)             (5,118)                262
         Net amortization and deferral                                  821               3,297                (734)
         Allocated expense from TBC Plan                                                                        254
         ----------------------------------------------------------------------------------------------------------
         Net pension expense                                  $         457       $         483      $          268
         ==========================================================================================================
</TABLE>

         The plans'  funded  status and the amounts  recognized in the Company's
         consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>
                                                                      PrimeSource Plan                Momentum Plan
         (Thousands of dollars)                                      1996         1995           1996          1995
         ----------------------------------------------------------------------------------------------------------
         Actuarial present value of plan benefit obligations
<S>                                                           <C>          <C>            <C>           <C>        
         Vested                                               $     5,931  $     5,488    $    15,424   $    15,526
         Non-vested                                                    74           91            361           325
         ----------------------------------------------------------------------------------------------------------
         Accumulated benefit obligation                             6,005        5,579         15,785        15,851
         Effect of future salary increases                          1,565        1,501            753           852
         ----------------------------------------------------------------------------------------------------------
         Projected benefit obligation                               7,570        7,080         16,538        16,703
         Plan assets at fair value                                  6,295        5,140         19,591        17,893
         ----------------------------------------------------------------------------------------------------------
         Plan assets in excess of (less than)
           projected benefit obligation                            (1,275)      (1,940)         3,053         1,190
         Unrecognized prior service cost                             (205)        (345)
         Unrecognized net loss (gain)                                (356)         650         (2,903)       (1,378)
         -----------------------------------------------------------------------------------------------------------
         Net pension asset (liability)                         $   (1,836) $    (1,635)   $       150   $      (188)
         ===========================================================================================================
</TABLE>

         For both plans,  the actuarial  present value of benefits and projected
         benefit  obligations  were  determined  using a discount rate of 7.75%,
         7.25% and 8.5% for the years ending  December 31, 1996,  1995 and 1994,
         respectively.  The expected  long-term rate of return on assets was 10%
         and the rate of  compensation  increase  used to measure the  projected
         benefit obligation was 4% for both plans.

         The plans' assets are invested in undivided  interests in several funds
         structured  to  duplicate  the  performance  of various  stock and bond
         indexes.




<PAGE>


10.      Defined Contribution Pension Plans

         The Company sponsors a number of defined  contribution pension plans in
         the form of IRC 401(k)  plans.  Participation  in one of these plans is
         available to  substantially  all employees.  Company  contributions  to
         these plans are based on a percentage of the employee contributions not
         to exceed certain maximum levels. The cost of these plans was $220,000,
         $222,000 and $170,000 for the years 1996, 1995, and 1994, respectively.


11.      Postretirement Benefits Other Than Pensions

         The Company has two retiree health benefit plans, the Phillips & Jacobs
         Retiree  Health Plan (the "P/J Retiree  Plan")  which  covers  retirees
         primarily  from the P/J North and P/J South  divisions and the Momentum
         Retiree  Medical  Plan  (the  "Momentum  Retiree  Plan")  which  covers
         retirees from the Momentum  division.  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'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.

          Net  postretirement  benefit  expense  (benefit)  for the years  ended
         December 31 included the following components:

<TABLE>
<CAPTION>
         (Thousands of dollars)                                        1996                1995                1994
         ----------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                <C>           
         Service cost of benefits earned during the year      $          17       $          19      $           19
         Interest cost on projected benefit obligation                   86                 106                  74
         Amortization of net gain                                      (107)               (100)               (106)
         -----------------------------------------------------------------------------------------------------------
         Net expense (benefit)                                $          (4)      $          25      $          (13)
         ===========================================================================================================
</TABLE>


         The plans'  funded  status and the amounts  recognized in the Company's
         consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>

         (Thousands of dollars)                                                            1996                1995
         ----------------------------------------------------------------------------------------------------------
         Actuarial present value of benefit obligations
<S>                                                                                  <C>                  <C>       
         Fully eligible plan participants                                            $     (146)          $    (187)
         Other active plan participants                                                     (76)               (114)
         Retirees and vested terminated employees                                          (830)             (1,136)
         -----------------------------------------------------------------------------------------------------------
         Accumulated postretirement benefit obligation                                   (1,052)             (1,437)
         Unrecognized net gain                                                           (1,103)               (819)
         -----------------------------------------------------------------------------------------------------------
         Postretirement benefit liability                                            $   (2,155)          $  (2,256)
         ===========================================================================================================
</TABLE>

         The accumulated  postretirement benefit obligation was determined using
         a discount rate of 7.75%,  7.25% and 8.5% for the years ending December
         31, 1996, 1995 and 1994, respectively. The health care cost trend rates
         used were 8.12%  (7.45% for health  maintenance  organizations(HMO's)),
         8.56%  (7.73% for  HMO's),  and 9% (8% for  HMO's) for the years  1996,
         1995, and 1994,  respectively,  gradually declining to 5% in 2003 (2005
         for HMO's) and remaining at that level thereafter.  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.




<PAGE>


12.      Incentive Stock Awards
         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 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  or its
         subsidiaries terminates.

         Changes in options  outstanding  for the three years ended December 31,
         1996 are:

<TABLE>
<CAPTION>
                                                                               Option Prices
                                                              ------------------------------
                                                Options        Average                 Range
         -----------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>               
         Outstanding at December 31, 1993       219,748      $   11.50    $            11.50
         -----------------------------------------------------------------------------------
         Granted                                170,471           8.56          5.92 - 13.03
         Exercised                               (9,922)          6.68          6.34 -  6.91
         -----------------------------------------------------------------------------------
         Outstanding at December 31, 1994       380,297          10.35          5.92 - 13.03
         -----------------------------------------------------------------------------------
         Granted                                 65,350           6.11                  6.11
         Exercised                               (3,195)          6.34                  6.34
         Canceled                               (19,009)         10.07          6.34 - 12.32
         -----------------------------------------------------------------------------------
         Outstanding at December 31, 1995       423,443           9.74          5.92 - 13.03
         -----------------------------------------------------------------------------------
         Granted                                344,756           6.30          6.11 -  6.97
         Canceled                              (303,350)         11.04          5.92 - 13.03
         -----------------------------------------------------------------------------------
         Outstanding at December 31, 1996       464,849      $    6.34    $     6.11 -  8.06
         ===================================================================================
</TABLE>

         At December  31,  1996,  there were  140,751  options  exercisable  and
         147,500 options  available for grant.  The  weighted-average  remaining
         contractual  life of outstanding  options at December 31, 1996 and 1995
         was 8.3 and 7 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 earnings per share on a pro forma
         basis  would  have been  reduced  for the years  ended  December  31 as
         follows:
<TABLE>
<CAPTION>

         (Thousands of dollars, except per share data)              1996                1995
         -----------------------------------------------------------------------------------

         Net Income:
<S>                                                          <C>                 <C>        
         As reported                                         $     3,914         $     1,646
         Pro forma                                                 3,813               1,631
         ===================================================================================

         Earnings Per Share:
         As reported                                         $       .60         $       .25
         Pro forma                                                   .58                 .25
         ===================================================================================
</TABLE>

         The  weighted-average  fair value per share for options granted in 1996
         and 1995  was  $2.51  and  $1.92,  respectively.  The  fair  value  was
         estimated using the  Black-Scholes  option-pricing  model.  For options
         granted  in  1996,  a  dividend  yield  rate of  2.6%,  expected  stock
         volatility  of 37%,  expected  option life of seven years and risk-free
         interest rate of 6.75% were used in estimating  the value.  For options
         granted  in  1995,  a  dividend  yield  rate of  2.9%,  expected  stock
         volatility  of 34%,  expected  option life of seven years and risk-free
         interest rate of 5.5% were used.




<PAGE>

         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
         which is  amortized  to  operations  over the  restriction  period.  At
         December 31, 1996, there was an unamortized  expense for shares awarded
         of $43,000 and an additional 61,880 shares available for future awards.

13.      Leases

         The  Company  leases  certain   distribution  and  office   facilities,
         machinery  and  equipment,   and  automotive  equipment  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, 1996 are
          as follows:
<TABLE>
<CAPTION>

         Years Ending December 31,
         (Thousands of dollars)
         -----------------------------------------------------------------------
<S>                                                               <C>          
           1997                                                   $       2,031
           1998                                                           1,565
           1999                                                           1,044
           2000                                                             602
           2001                                                             174                                   
           Thereafter                                                       264                                
         -----------------------------------------------------------------------
          Total minimum lease payments                            $       5,680
         =======================================================================
</TABLE>

         Rent expense, net of noncancelable sublease income of $5,000,  $98,000,
         and $61,000 in 1996,  1995,  and 1994,  respectively,  was  $2,182,000,
         $2,382,000 and $1,388,000 for 1996, 1995, and 1994, respectively.

         The Company  leases a distribution  facility from two  employees.  Rent
         expense  incurred  in  connection  with this  lease  was  approximately
         $63,000 in 1996, and $60,000 in 1995 and 1994.


14.      Restructure Expense

         The Company  recognized a  restructuring  expense of $1,315,000 in 1995
         relating  to  the  consolidation  of  five  distribution  centers,  the
         realignment of two others,  and the centralization of certain financial
         and  information  services.  The  expense  consisted  of  $875,000  for
         employee severance  compensation and $440,000 for costs associated with
         the closure of facilities.  Except for continuing lease commitments for
         closed facilities, substantially all of the costs were paid in 1995.


15.      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 potentially  responsible parties, is
         a defendant in a declaratory action to determine an allocation of costs
         for the  investigation and remediation of a Superfund cleanup site. 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>


16.      Quarterly Financial Information (unaudited)

         Summarized  unaudited  quarterly  financial  data for the  years  ended
         December 31, 1996 and 1995 are:

<TABLE>
<CAPTION>
         (Thousands of dollars
          except per share data)                     First       Second        Third      Fourth(1)     Total
          ----------------------------------------------------------------------------------------------------
         Year Ended December 31, 1996
<S>                                             <C>          <C>          <C>          <C>          <C>       
         Net sales                              $   86,959   $   87,898   $   89,344   $  102,456   $  366,657
         Gross profit                               15,182       15,576       16,062       18,409       65,229
         Net income                                    829          916          924        1,245        3,914
         Net income per share                   $      .13   $      .14   $      .14   $      .19   $      .60

         Year Ended December 31, 1995
         Net sales                              $   89,577   $   89,158   $   88,156   $   90,186   $  357,077
         Gross profit                               15,870       16,059       15,248       16,110       63,287
         Net income (loss)                             626         (285)(2)      451          854        1,646
         Net income (loss) per share (3)        $      .10   $     (.04)  $      .07   $      .13   $      .25
</TABLE>
         


         (1)  The  operations  of the  VGC  acquisition  are included  from  the
              November 1, 1996 acquisition date.

         (2)  Includes a one-time  restructuring expense of $1,315,000 ($794,000
              after tax)  relating  to the  consolidation  of five  distribution
              centers,  the realignment of two others, and the centralization of
              certain financial and information services.

         (3)  Due to changes in the number of outstanding shares during the year
              and rounding,  the sum of the quarterly incomes per share for each
              year will not equal the net income per share for the year.





<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and the Board of Directors
  of PrimeSource Corporation

We have audited the  accompanying  consolidated  balance  sheets of  PrimeSource
Corporation  and its  subsidiaries  as of December  31,  1996 and 1995,  and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the three years in the period ended  December 31, 1996. We have also
audited the financial  statement  schedule  listed in Item 14(a)(2) of this Form
10-K. These financial  statements and this financial  statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  financial  statements  and this financial  statement  schedule
based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
PrimeSource  Corporation and its subsidiaries at December 31, 1996 and 1995, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1996 in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information required to be included therein.



/s/ COOPERS & LYBRAND L.L.P.

COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 19, 1997



<PAGE>




                                    PART III.


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, 1997,  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, 1997.


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, 1997.


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, 1997.




<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                               12
           Consolidated Balance Sheets                                     13
           Consolidated Statements of Cash Flows                           14
           Consolidated Statements of Shareholders' Equity                 15
           Notes to Consolidated Financial Statements                      16
           Report of Independent Accountants                               27

(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
      On  November  13,  1996,  the  Registrant  filed a Form 8-K to report  the
      Registrant's   acquisition  of  VGC  Corporation's  branch  operations  in
      Minneapolis, Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha,
      Nebraska on November 1, 1996.





<PAGE>


                    PRIMESOURCE CORPORATION AND SUBSIDIARIES


<TABLE>

                           SCHEDULE II -- VALUATION OF QUALIFYING ACCOUNTS AND RESERVES

<CAPTION>
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, 1996
<S>                                     <C>            <C>             <C>            <C>            <C>      
   Allowance for doubtful accounts      $   1,372      $     865                      $    (450)     $   1,787
   Amortization of goodwill                   825            316       $     (39)(1)                     1,102
   Inventory reserves                       1,752            364           1,754 (2)       (698)         3,172
--------------------------------------------------------------------------------------------------------------
                                            3,949          1,545           1,715         (1,148)         6,061
--------------------------------------------------------------------------------------------------------------

For the year ended December 31, 1995
   Allowance for doubtful accounts      $   1,457      $   1,090                      $  (1,175)     $   1,372
   Amortization of goodwill                   519            306                                           825
   Inventory reserves                       1,563            561             624 (3)       (996)         1,752
--------------------------------------------------------------------------------------------------------------
                                            3,539          1,957             624         (2,171)         3,949
--------------------------------------------------------------------------------------------------------------

For the year ended December 31, 1994
   Allowance for doubtful accounts      $     937      $     626       $     603 (3)  $    (709)     $   1,457
   Amortization of goodwill                   379            140                                           519
   Inventory reserves                         232            316           1,362 (3)       (347)         1,563
--------------------------------------------------------------------------------------------------------------
                                            1,548          1,082           1,965         (1,056)         3,539
--------------------------------------------------------------------------------------------------------------
<FN>

(1) Reserve  disposed of with the sale of the assets of Onondaga  Litho  Supply,
Inc.

(2) Related to the  acquisition of VGC  Corporation's  branch  operations in St.
Louis, Missouri; Minneapolis, Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa;
and Omaha, Nebraska. 

(3) Related to the merger with Momentum  Corporation  and  acquisition of Lanman
Systems 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 28, 1997
                               /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 28, 1997
                               /s/ William A. DeMarco
                                   William A. DeMarco
                                   Vice President,
                                   Chief Financial Officer
                                   (principal financial and accounting officer)




<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature                               Capacity                           Date
-----------------------------------------------------------------------------------------
<S>                                     <C>                               <C>                 

/s/ Richard E. Engebrecht               Chairman of the Board and          March 4, 1997
--------------------------------------
     Richard E. Engebrecht              Director of PrimeSource
                                        Corporation


/s/ James F. Mullan                     President, Chief Executive         March 4, 1997
--------------------------------------
     James F. Mullan                    Officer and Director of
                                        PrimeSource Corporation


/s/ John H. Goddard, Jr.                Executive Vice President and       March 4, 1997
--------------------------------------
     John H. Goddard, Jr.               Director of PrimeSource
                                        Corporation


/s/ Fred C. Aldridge, Jr.               Director of PrimeSource            March 4, 1997
--------------------------------------
     Fred C. Aldridge, Jr.              Corporation


/s/ Philip J. Baur, Jr.                 Director of PrimeSource            March 4, 1997
--------------------------------------
     Philip J. Baur, Jr.                Corporation


/s/ Gary MacLeod                        Director of PrimeSource            March 4, 1997
--------------------------------------
     Gary MacLeod                       Corporation


/s/ Edward N. Patrone                   Director of PrimeSource            March 4, 1997
--------------------------------------
     Edward N. Patrone                  Corporation


/s/ John M. Pettine                     Director of PrimeSource            March 4, 1997
--------------------------------------
     John M. Pettine                    Corporation


/s/ Andrew V.  Smith                    Director of PrimeSource            March 4, 1997
--------------------------------------
     Andrew V. Smith                    Corporation

</TABLE>



<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)

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

 3.3       Amendment to Amended and  Restated  By-laws of the  Registrant  which
           will be effective May 7, 1997.

(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)
 
(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)

(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 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)*


<PAGE>

(10.4)     Employment  Agreement between  Registrant and D.M. Zewiske dated July
           1, 1988  (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)* 

10.5       Employment  Agreement  between the Registrant and W.A.  DeMarco dated
           December 31, 1996*

10.6       Employment  Agreement  between the Registrant  and J.F.  Mullan dated
           December 31, 1996*

(10.7)     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)

(10.8)     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)*

(10.9)     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)*

(10.10)    Phillips  &  Jacobs,  Incorporated  401(k)  Savings  Plan  and  Trust
           Agreement  (filed as Exhibit  10.14 to Form 10-K,  File No.  0-21750,
           dated March 28, 1994)*

(10.11)    1989  Long-Term   Incentive  Stock  Plan  (filed  with   Registration
           Statement on Form S-8 on December 8, 1994, File No. 33-87360)*

(10.12)    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)*

(10.13)    Momentum  Retirement  Plan (filed as Exhibit 10.18 to Form 10-K, File
           No. 0-21750, dated March 30, 1995)*

(10.14)    Amended and Restated  Revolving  Credit and Loan  Agreement  executed
           February 17, 1995 effective as of December 31, 1994 among PrimeSource
           Corporation,  Dixie Type & Supply  Company,  Inc., and Onondaga Litho
           Supply Co., Inc. as Borrowers and First Fidelity  Bank,  N.A. as Bank
           (filed as Exhibit 10.19 to Form 10-K, File No.  0-21750,  dated March
           30, 1995)

(10.15)    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)*

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

(10.17)    Orlando,  FL facility  lease dated March 31, 1986 and August 14, 1995
           Lease  Extension  between  the  Registrant  and Dennis M.  Zewiske as
           co-lessor  (filed as Exhibit  10.25 to Form 10-K,  File No.  0-21750,
           dated March 26, 1996)*

10.18      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

11.1       Computation of Per Share Income

21.1       Subsidiaries of the Registrant

23.1       Consent of Coopers & Lybrand L.L.P., Independent Accountants

27         Financial data schedule

99.1       Undertakings


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