<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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





For the quarterly period ended March 31, 1999

Commission file number 1-13293


                                 SunSource Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                      23-2874736    
--------------------------------                 -----------------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

       3000 One Logan Square
       Philadelphia, Pennsylvania                           19103
----------------------------------------         -----------------------------  
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:  (215) 282-1290


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

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

Preferred Share Purchase Rights        New York Stock Exchange


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

  YES  X       NO    
     -----        ----- 

On May 17, 1999 there were 6,742,159 Common Shares outstanding.


                                                                    Page 1 of 20


<PAGE>



                                 SUNSOURCE INC.

                                      INDEX





PART I.  FINANCIAL INFORMATION                                           PAGE(S)

     Item 1.   Consolidated Financial Statements

                Consolidated Balance Sheets as of March 31, 1999
                (Unaudited), December 31, 1998 and March 31, 1998
                (Unaudited)                                                 3

                Consolidated Statements of Income for the
                three months ended March 31, 1999 and 1998
                (Unaudited)                                                 4

                Consolidated Statements of Cash Flows for the
                three months ended March 31, 1999 and 1998
                (Unaudited)                                                 5

                Consolidated Statement of Changes in Stockholders'
                Equity for the Three Months ended March 31, 1999
                (Unaudited)                                                 6

                Notes to Consolidated Financial Statements
                (Unaudited)                                                7-10

      Item 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                        11-18


PART II. OTHER INFORMATION                                                  19



SIGNATURES                                                                  20


                                                                    Page 2 of 20
<PAGE>

                         SUNSOURCE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                  March 31,                                  March 31,
                                                                    1999              December 31,             1998
                       ASSETS                                    (Unaudited)              1998              (Unaudited)
                       ------                                  ---------------      ----------------     -----------------
<S>                                                               <C>                 <C>                   <C>  
Current assets:
  Cash and cash equivalents                                      $   2,119             $  2,796              $ 21,043
  Accounts receivable, net                                         103,536               88,629                90,469
  Inventories                                                      120,151              112,497               104,801
  Deferred income taxes                                             10,055                9,886                10,566
  Other current assets                                               6,306                5,421                 4,361
                                                                 ---------            ---------             ---------
      Total current assets                                         242,167              219,229               231,240
Property and equipment, net                                         28,207               26,770                21,805
Goodwill                                                            86,032               77,544                62,139
Other Intangibles                                                    1,705                1,807                   710
Deferred income taxes                                                5,121                5,202                 4,971
Cash surrender value of life insurance policies                     12,064               10,262                 9,361
Other assets                                                           876                  754                   666
                                                                 ---------            ---------             ---------

      Total assets                                               $ 376,172            $ 341,568             $ 330,892
                                                                 =========            =========             =========


            LIABILITIES AND STOCKHOLDERS' EQUITY
            ------------------------------------   
Current liabilities:
  Accounts payable                                               $  61,310            $  58,353              $ 57,568
  Notes payable                                                      1,508                1,770                 1,758
  Current portion of capitalized lease obligations                     276                  276                   180
  Dividends / distributions payable                                    674                  676                   277
  Deferred tax liability                                               929                  929                   935
  Accrued expenses:
    Salaries and wages                                               5,608                8,379                 6,137
    Income and other taxes                                           4,489                4,194                 3,966
    Other accrued expenses                                          20,680               23,050                19,108
                                                                 ---------            ---------             ---------
      Total current liabilities                                     95,474               97,627                89,929
Senior notes                                                        60,000               60,000                60,000
Bank revolving credit                                               71,580               35,000                31,000
Capitalized lease obligations                                          517                  566                   505
Deferred compensation                                               12,229               11,802                11,809
Other liabilities                                                      250                  308                   745
                                                                 ---------            ---------             ---------
      Total liabilities                                            240,050              205,303               193,988
                                                                 ---------            ---------             ---------

Guaranteed preferred beneficial interests in the
 Company's junior subordinated debentures                          115,463              115,551               115,815
                                                                 ---------            ---------             ---------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par, 1,000,000 shares
   authorized, none issued                                               -                    -                     -
  Common stock, $.01 par, 20,000,000 shares authorized,
   7,219,308 issued and 6,740,208 outstanding at March 31, 
   1999, 7,217,263 issued and 6,756,163 outstanding at 
   December 31, 1998 and 7,215,275 shares issued and                    72                   72                    72
   outstanding at March 31, 1998
  Additional paid-in capital                                        21,137               21,099                20,881
  Retained earnings                                                 12,979               12,748                 2,635
  Unearned compensation                                               (215)                (229)                   -
  Accumulated other comprehensive income                            (4,609)              (4,596)               (2,499)
  Treasury stock, at cost, 479,100 shares at
   March 31, 1999; 461,100 shares at December 31,
   1998; none at March 31, 1998                                     (8,705)              (8,380)                    -
                                                                 ---------            ---------             ---------

      Total stockholders' equity                                    20,659               20,714                21,089
                                                                 ---------            ---------             ---------

      Total liabilities and stockholders'
        equity                                                   $ 376,172            $ 341,568             $ 330,892
                                                                 =========            =========             =========

</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                    Page 3 of 20

<PAGE>

                         SUNSOURCE INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                           FOR THE THREE MONTHS ENDED,
                (dollars in thousands, except for share amounts)

<TABLE>
<CAPTION>

                                                                               March 31,              March 31,
                                                                                 1999                   1998
                                                                             -----------            ----------
<S>                                                                          <C>                     <C> 
Net sales                                                                      $173,111               $171,177
Cost of sales                                                                   101,109                103,364
                                                                               --------               --------
   Gross profit                                                                  72,002                 67,813
                                                                               --------               --------

Operating expenses:                                                                                     
  Selling, general and administrative expenses                                   63,408                 58,518
  Depreciation                                                                    1,473                  1,109
  Amortization                                                                      659                    513
                                                                               --------               --------
   Total operating expenses                                                      65,540                 60,140
                                                                               --------               --------

Other income                                                                        220                     21
                                                                               --------               --------

   Income from operations                                                         6,682                  7,694
                                                                                                        
Interest expense, net                                                             2,063                  1,688
Distributions on guaranteed preferred
 beneficial interests                                                             3,058                  3,058
                                                                               --------               --------
    Income before provision for income taxes                                      1,561                  2,948

Provision for income taxes                                                          656                  1,327
                                                                               --------               --------

    Net income                                                                 $    905               $  1,621
                                                                               ========               ========

Basic and diluted net income per common share                                     $0.13                  $0.25

Weighted average number of
  outstanding common shares                                                   6,752,737              6,474,223

</TABLE>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page 4 of 20


<PAGE>

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

<TABLE>
<CAPTION>


                                                                                March 31, 1999                March 31, 1998
                                                                                --------------                --------------
<S>                                                                              <C>                           <C>
Cash flows from operating activities:
  Net income                                                                      $   905                        $  1,621
  Adjustments to reconcile net income to net cash                                                                               
   (used for) provided by operating activities:                                                                                 
     Depreciation and amortization                                                  2,132                           1,622
     Increase in cash value of life insurance                                        (114)                           (854)
     Provision for deferred compensation                                                -                             415
     Provision (benefit) for deferred income taxes                                    (88)                            268
     Changes in current operating items:
        Increase in accounts receivable                                            (9,886)                         (7,968)
        Increase in inventories                                                    (6,435)                         (1,432)
        Decrease (increase) in other current assets                                  (713)                            198
        Increase in accounts payable                                                1,060                           7,443
        Decrease in income taxes payable                                              (58)                           (483)
        Decrease in accrued restructuring charges
          and transaction costs                                                      (619)                           (572)
        Decrease in other accrued liabilities                                      (5,318)                            (84)
     Other items, net                                                                 (69)                            630
                                                                                 --------                         -------

    Net cash (used for) provided by operating activities                          (19,203)                            804
                                                                                  --------                         -------

Cash flows from investing activities:                                                                                           
  Proceeds from sale of property and equipment                                        274                              10
  Payments for acquired businesses, net of cash acquired                          (13,516)                              -
  Capital expenditures                                                             (2,136)                           (978)
  Investment in life insurance policies                                            (1,300)                           (100)
  Other, net                                                                          (64)                           (137)
                                                                                 --------                         -------

    Net cash used for investing activities                                        (16,742)                         (1,205)
                                                                                 --------                         -------

Cash flows from financing activities:
  Net proceeds from issuance of common stock                                            -                          20,889
  Borrowings (repayments) under the bank credit agreement, net                     36,580                          (2,000)
  Purchase of treasury stock at cost                                                 (325)                              -
  Cash distributions / dividends to investors                                        (676)                         (2,718)
  Repayments under other credit facilities, net                                      (262)                           (322)
  Principal payments under capitalized lease obligations                              (49)                            (43)
                                                                                 --------                         -------

    Net cash provided by financing activities                                      35,268                          15,806
                                                                                 --------                         -------

Net (decrease) increase in cash and cash equivalents                                 (677)                         15,405

Cash and cash equivalents at beginning of period                                    2,796                           5,638
                                                                                 --------                         -------

Cash and cash equivalents at end of period                                        $ 2,119                        $ 21,043
                                                                                 ========                        ========
</TABLE>


           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                
 
                                                                    Page 5 of 20



<PAGE>

                         SUNSOURCE INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
          EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1999 (Unaudited)

                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                                             Accumulated
                                                    Additional                                  Other                     Total
                                           Common    Paid-in     Retained     Unearned       Comprehensive   Treasury  Stockholders'
                                            Stock    Capital     Earnings    Compensation      Income (1)     Stock       Equity
                                           ------   ----------   --------    ------------    -------------   --------  ------------
<S>                                        <C>       <C>           <C>        <C>              <C>             <C>      <C>
Beginning Balance - December 31, 1998       $ 72     $ 21,099    $ 12,748      $ (229)         $ (4,596)     $ (8,380)   $ 20,714
                                                                                                                         --------   

  Net income                                                          905                                                     905

  Change in cumulative foreign
   translation adjustment                                                                           (13)                      (13)
                                                                                                                         --------
  Comprehensive income                                                                                                        892
                                                                                                                         --------   
  Issuance of 2,045 shares of common stock
   to certain non-employee directors                       38                                                                  38

  Dividends declared on common stock                                 (674)                                                   (674)

  Amortization of stock option discount                                            14                                          14

  Repurchase of 18,000 shares of common                                                                          (325)       (325)
    stock
                                          ------   --------      --------      ------         --------       --------    --------   
Ending Balance - March 31, 1999            $ 72    $ 21,137      $ 12,979      $ (215)        $ (4,609)      $ (8,705)   $ 20,659
                                          =====    ========      ========      ======         ========       ========    ======== 

</TABLE>

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




           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page 6 of 20



<PAGE>



                        SUNSOURCE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (dollars in thousands)


1.  Basis of Presentation:

The accompanying financial statements include the consolidated accounts of
SunSource Inc. (the "Company") and its wholly-owned subsidiaries including
SunSource Industrial Services Company, Inc., The Hillman Group, Inc.
("Hillman"), Harding Glass, Inc. ("Harding") and SunSource Capital Trust (the
"Trust"). All significant intercompany balances and transactions have been
eliminated. The Company is one of the leading providers of value-added services
and products to retail and industrial markets in North America.

The accompanying consolidated financial statements and related notes are
unaudited; however, in management's opinion all adjustments (consisting of
normal recurring accruals) considered necessary for the fair presentation of
financial position, income and cash flows for the periods shown have been
reflected. Results for the interim period are not necessarily indicative of
those to be expected for the full year.

Certain information in note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to Form 10-Q requirements although the
Company believes that disclosures are adequate to make the information presented
not misleading. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's report on Form 10-K for the year ended December 31,
1998.

Accounts payable has been increased to include a reclassification of $8,110
representing checks issued as of March 31, 1999 for which funds would have had
to have been drawn against the Company's revolving credit facility if they had
been presented on that date.

2.  Acquisitions:

On February 9, 1999, Harding acquired all of the outstanding common stock of
Pritchard Glass, Inc. and Premier Glass Services, Inc. for an aggregate net cash
consideration of $11,211, including debt repayments of $3,272 and transaction
costs of $339, plus the assumption of certain liabilities aggregating $3,189.
Harding recorded goodwill of $7,277 related to this acquisition.

During the first quarter, Harding also acquired the assets of two retail glass
shops for net cash consideration, including transaction costs, of $1,385 plus
the assumption of certain liabilities of $273. Harding recorded goodwill of
$1,327 related to these acquisitions.

Cash payments for acquisitions in the first quarter of 1999 also includes
disbursements totaling $920 related to prior year acquisitions.

The following disclosures indicate the Company's estimate of financial results
had all 1998 and 1999 acquisitions been consummated on January 1, 1998:

                                                          Pro forma      
                                                 -------------------------   
                                                     Three Months Ended
                                                  3/31/99          3/31/98
                                                 --------         --------  
       Net sales                                 $175,959         $184,587
       Income before extraordinary items              981            1,992
       Net income                                     981            1,992
       Basic and diluted earnings per share         $0.15            $0.31



                                                                    Page 7 of 20


<PAGE>



                        SUNSOURCE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (dollars in thousands)

3. Lines of Credit and Long-Term Debt:

As of March 31, 1999, the Company had $12,977 available under its $90,000 Bank
Credit Agreement which provides revolving credit for working capital purposes
and acquisitions through September 30, 2002. The Company had $132,373 of
outstanding long-term debt and capital lease obligations at March 31, 1999,
consisting of bank borrowings of $71,580, outstanding senior notes of $60,000
and capital lease obligations of $793. The Company also had $5,443 of Letters of
Credit charged against its available borrowing on the revolving credit facility.
The Company has another credit facility available in the amount of $500 for
letter of credit commitments only, of which no amount was outstanding as of
March 31, 1999. In addition, an indirect, wholly-owned Canadian subsidiary of
the Company has a $2,500 Canadian dollar line of credit for working capital
purposes of which $70 was outstanding at March 31, 1999.

4.   Guaranteed Preferred Beneficial Interests in the Company's
     Junior Subordinated Debentures:

The sole assets of the Trust are the Junior Subordinated Debentures. The
obligations of the Company under the Declaration of Trust of the Trust, the
Indenture, the Preferred Securities Guarantee and the Junior Subordinated
Debentures in the aggregate constitute a full and unconditional guarantee by the
Company of the Trust's obligations under the Trust Preferred Securities. The
distributions on the Trust Preferred Securities aggregate $12,232 annually. The
Company has guaranteed on a subordinated basis the payment of distributions on
the Trust Preferred Securities and payments on liquidation of the Trust and
redemption of Trust Preferred Securities (the "Preferred Securities Guarantee").
The principal amount of the Junior Subordinated Debentures is $108,707,
consisting of $3,261 related to the Trust Common Securities and $105,446 related
to the Trust Preferred Securities; the interest rate is 11.6%; and their
maturity date is September 30, 2027, unless redeemed earlier.

The Trust Preferred Securities will be redeemed upon maturity on September 30,
2027, or earlier redemption of the Junior Subordinated Debentures at 100% of the
liquidation amount plus accrued and unpaid distributions, provided that any
redemption due to a change in the tax status of the interest payments to the
Trust within the first five years will be at 101%. The Trust Preferred
Securities may be redeemed by the Company at any time after September 30, 2002,
at the liquidation value of $25 per security plus accrued and unpaid
distributions. The Trust Preferred Securities have equity and debt
characteristics but creditor's rights and are therefore classified between
liabilities and stockholders' equity on the balance sheet.

5.   Contingencies:

On February 27, 1996, a lawsuit was filed against the Company by the buyer of
its Dorman Products division for alleged misrepresentation of certain facts by
the Company upon which the buyer allegedly based its offer to purchase Dorman.
The complaint seeks damages of approximately $21,000.

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

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


                                                                    Page 8 of 20


<PAGE>




                        SUNSOURCE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (dollars in thousands


6.  Stockholders' Equity:

    Earnings per Share

The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 requires the presentation of basic and diluted earnings per share for
companies with complex capital structures. Under the Company's Equity
Compensation Plan, certain executives and key employees have been granted a
total of 301,495 options to purchase shares of the Company's common stock having
a potentially dilutive effect on earnings per share. Currently, due to market
conditions, the shares granted under the plan do not have a material dilutive
effect on earnings per share for the three months ended March 31, 1999.

   Common Shares Issued to Certain Non-Employee Directors

Under the Company's Stock Compensation Plan for Non-Employee Directors, certain
non-employee directors were issued 2,045 Common Shares at fair market value in
the first three months of 1999, which results in a compensation charge of
$37,500.

   Stock Options

On March 5, 1999, the Compensation Committee of the Board of Directors granted
90,000 non-qualified stock options to senior executives under the Company's 1998
Equity Compensation Plan at fair market value on that date of $18.375 per share.

   Common Stock Dividend

On December 16, 1998, the Board of Directors declared a dividend of $0.10 per
Common Share which was paid on January 7, 1999, to holders of record as of
December 28, 1998. On March 29, 1999, the Board of Directors declared a dividend
of $0.10 per Common Share which was paid on April 19, 1999, to holders of record
as of April 8, 1999. The Company expects to declare future quarterly dividends
on the Common Shares to aggregate $0.40 per Common Share annually, subject to
the discretion of its Board of Directors and dependent upon, among other things,
the Company's future earnings, financial condition, capital requirements, funds
needed for acquisitions, level of indebtedness, contractual restrictions and
other factors that the Board of Directors deems relevant.

   Treasury Stock

On August 6, 1998, the Company's Board of Directors authorized $15,000 for
management to repurchase up to 10% of the Company's outstanding common stock
through open market transactions and private block trades, dependent upon market
conditions. At March 31, 1999, the number of shares purchased under this
authorization was 479,100 which are held in treasury at an aggregate cost of
$8,705.





                                                                    Page 9 of 20



<PAGE>


                         SUNSOURCE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              (dollars in thousands


7.  Segment Information:

The following supplemental table of segment tangible assets is presented due to
the increase in segment tangible assets during the three months ended March 31,
1999, which represents primarily additional investments in accounts receivable
and inventory:


                                                               $           %  
                                     3/31/99    12/31/98    INC(DEC)    INC(DEC)
                                     -------    --------    --------    --------

  Technology Services               $ 89,518    $ 85,460    $ 4,058        4.7%
  Expediter                           42,570      42,479         91        0.2% 
  Integrated Supply                   16,954      15,343      1,611       10.5% 
  Hillman                             69,273      59,487      9,786       16.5%
  Harding                             34,270      27,642      6,628       24.0% 
                                    --------    --------    ------- 
     Total                          $252,585    $230,411    $22,174        9.6% 
                                    ========    ========    =======

8.  Subsequent Events:

In April, 1999, the Compensation Committee of the Board of Directors granted the
following stock options under the Company's 1998 Equity Compensation Plan:

   (1)  300,000 non-qualified stock options at fair market value.
   (2)   55,000 non-qualified stock options at 85% of fair market value.
   (3)  122,000 incentive stock options at fair market value.




                                                                   Page 10 of 20




<PAGE>



          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein.


General

SunSource Inc. (the "Company") is one of the largest providers of value-added
services and products to retail and industrial markets in North America. The
Company is organized into three businesses which are SunSource Industrial
Services Company, Inc., The Hillman Group, Inc.("Hillman") and Harding
Glass, Inc. ("Harding").

SunSource Industrial Services Company operates in three segments which are
Technology Services, Expediter and Integrated Supply. Technology Services offers
a full range of technology-based products and services to small, medium and
large manufacturers. The Expediter segment provides personalized, small parts
inventory management services to low volume customers. The Integrated Supply
segment provides major industrial manufacturing customers with comprehensive
inventory management services for their maintenance, repair and operating
supplies.

Hillman operates in the Hardware Merchandising Segment, providing small hardware
and related items and merchandising services to retail outlets, primarily
hardware stores, home centers and lumberyards.

Harding operates in the Glass Merchandising Segment, selling retail and
wholesale automotive and flat glass and providing auto glass installation and
small contract glazing services to individual consumers, insurance companies,
autobody shops, and other customers through a large network of retail glass
shops.

Business Reorganization

After the close of business, on December 31, 1998, the Company reorganized its
primary operating subsidiary, SDI Operating Partners, L.P. (the "Operating
Partnership"), by contributing its assets and liabilities to newly-formed
corporate subsidiaries organized according to the Company's current operating
structure (the "Reorganization"). The Reorganization allows the Company to
implement certain state and local tax planning strategies, to offer its key
employees incentive stock options and align its operating businesses in
corporate form. As a result of the Reorganization, the Operating Partnership and
its general partner, SDI Partners I, L.P. cease to exist.

Stock Repurchase

On August 6, 1998, the Company's Board of Directors authorized $15.0 million for
management to repurchase up to 10% of the Company's outstanding common shares
through open market transactions and private block trades dependent upon market
conditions. The Company has acquired and placed into treasury 479,100 common
shares through March 31, 1999, at an average cost of $18.12 per common share.
The Company is currently restricted from making additional repurchases as a
result of debt covenants under its credit agreements.


                                                                   Page 11 of 20


<PAGE>





Stock Options

On March 5, 1999, the Compensation Committee of the Board of Directors granted
90,000 non-qualified stock options to senior executives under the Company's 1998
Equity Compensation Plan. These options do not result in a current charge to
earnings, however they are included in the calculation of diluted earnings per
share from the date of the grant forward.

Acquisitions

On February 9, 1999, Harding acquired all of the outstanding common stock of
Pritchard Glass, Inc. ("Pritchard") and Premier Glass Services, Inc. ("Premier")
for an aggregate net cash consideration of $11.2 million, including debt repaid
of $3.3 million and transaction costs of $0.3 million, plus the assumption of
certain liabilities aggregating $3.2 million. Sales of Pritchard and Premier
aggregated approximately $25 million for the twelve-month period prior to
acquisition. This acquisition adds twenty-one retail glass shops, expanding
Harding's business into the North and South Carolina markets.

In addition, in the first quarter of 1999, Harding acquired the assets of two
retail glass shops for a net cash consideration of $1.4 million, including
transaction costs, plus the assumption of certain liabilities of $0.3 million
which had sales aggregating approximately $2.0 million for the twelve-month
period prior to acquisition. These acquisitions expand Harding's business into
the Columbus, Georgia and Las Vegas, Nevada markets.





























                                                                   Page 12 of 20


<PAGE>


Results of Operations

Segment Sales and Profitability for the Three Months Ended March 31, 1999 & 1998

<TABLE>
<CAPTION>


                                                                                         (dollars in thousands)

                                                                            March 31, 1999                    March 31, 1998
                                                                            --------------                    --------------
                                                                                           % Total                          % Total
Sales                                                                                       Sales                            Sales
-----                                                                                      -------                          -------
<S>                                                                         <C>             <C>                <C>          <C>
SunSource Industrial Services
    Technology Services                                                     $ 68,270         39.4%            $ 81,965        47.9%
    Expediter                                                                 31,233         18.0%              31,331        18.3%
    Integrated Supply (1)                                                      9,428          5.5%              12,201         7.1%
                                                                            --------        ------            --------       ------ 
          Industrial Services                                                108,931         62.9%             125,497        73.3%
Hillman (2) (3)                                                               35,919         20.8%              25,183        14.7%
Harding (4)                                                                   28,261         16.3%              20,497        12.0%
                                                                            --------        ------            --------       ------ 
    Consolidated Net Sales                                                  $173,111        100.0%            $171,177       100.0%
                                                                            ========        ======            ========       ====== 

                                                                                           % Total                          % Total
Gross Profit                                                                                Sales                            Sales
------------                                                                               -------                          -------
SunSource Industrial Services
    Technology Services                                                     $ 18,098         26.5%            $ 20,863        25.5%
    Expediter                                                                 21,819         69.9%              22,440        71.6%
    Integrated Supply                                                          2,642         28.0%               3,115        25.5%
                                                                            --------                          --------        
          Industrial Services                                                 42,559         39.1%              46,418        37.0%
Hillman (3)                                                                   18,998         52.9%              13,311        52.9%
Harding                                                                       10,445         37.0%               8,084        39.4%
                                                                            --------                          --------        
    Consolidated Gross Profit                                               $ 72,002         41.6%            $ 67,813        39.6%
                                                                            ========                          ======== 
EBITA (5)
---------
SunSource Industrial Services
    Technology Services                                                       $1,128          1.7%              $2,684         3.3%
    Expediter                                                                  5,195         16.6%               4,849        15.5%
    Integrated Supply                                                            416          4.4%                 560         4.6%
                                                                            --------                          --------         
          Industrial Services                                                  6,739          6.2%               8,093         6.4%
Hillman                                                                        2,878          8.0%               2,176         8.6%
Harding                                                                         (220)        (0.8%)                 50         0.2%
                                                                            --------                          --------         
      Total operations before
        corporate expenses                                                     9,397          5.4%              10,319         6.0%
Corporate expenses                                                            (2,056)        (1.2%)             (2,112)       (1.2%)
                                                                            --------                          --------         

          Consolidated EBITA                                                $  7,341          4.2%            $  8,207         4.8%
                                                                            ========                          ========
</TABLE>


(1)  Includes sales of $1,829 for the three months ended March 31, 1998, related
     to integrated supply contracts cancelled in 1998.

(2)  Includes sales from businesses acquired in 1998 of $4,595 for three months
     ended March 31, 1999.

(3)  Includes a reduction in sales and gross profit of $914 for the three months
     ended March 31, 1998 to conform to current accounting for customer rebates.

(4)  Includes sales of $5,516 and $3,039 for three months ended March 31, 1999,
     related to businesses acquired in 1999 and 1998, respectively. Also
     includes sales from branches closed in 1998 of $759 for the three months
     ended March 31, 1998.

(5)  "EBITA" (earnings before interest, taxes, and amortization) is defined as
     income from operations before amortization.
 

                                                                   Page 13 of 20



<PAGE>


    Three Months Ended March 31, 1999 and 1998

Net sales increased $1.9 million or 1.1% in the first three months of 1999 to
$173.1 million from $171.2 million in 1998. Sales variances by segment are as
follows:

                                                      Sales Increase (Decrease)
                                                      -------------------------
                                                         Amount           % 
                                                         ------          ----
                                                     (In thousands)
  SunSource Industrial Services Company
       Technology Services                             $(13,695)       (16.7)%
       Expediter                                            (98)        (0.3)%
       Integrated Supply                                 (2,773)       (22.7)%
                                                      ---------
          Industrial Services                           (16,566)       (13.2)%
  Hillman                                                10,736         42.6 %
  Harding                                                 7,764         37.9 %
                                                      ---------
          Total Company                               $   1,934          1.1 %
                                                      =========

Technology Services sales decreased $13.7 million or 16.7% in the first quarter
of 1999 to $68.3 million from $82.0 million in 1998 due primarily to the
restructuring of the sales force as well as the effects of the Asian economic
crisis on its original equipment manufacturing customers. Expediter sales
decreased $0.1 million or 0.3% in 1999 to $31.2 million from $31.3 million in
1998 due to reduced manpower in certain sales territories. Integrated Supply
sales decreased $2.8 million or 22.7% in the first quarter of 1999 to $9.4
million from $12.2 million in the 1998 period primarily due to contracts
canceled after the first quarter of 1998 which generated sales of $1.8 million
in the first quarter of 1998. Excluding terminated contracts, Integrated Supply
sales decreased 9.0% in the comparison period.

Hillman's sales increased $10.7 million or 42.6% in the first quarter of 1999 to
$35.9 million from $25.2 million in 1998 comparison period due to sales from
newly acquired businesses of $4.6 million, market penetration of new product
lines to existing customers in the amount of $2.6 million, and the balance of
$3.5 million in growth from new accounts and expansion of existing product
lines.

Harding's sales increased $7.8 million or 37.9% in the first quarter of 1999 to
$28.3 million from $20.5 million in the 1998 comparison period due to an
increase of $8.4 million as a result of newly acquired retail glass shops and an
increase in retail, contract and other product line sales of $0.4 million,
offset by the discontinuation of certain low-margin product lines resulting in
reduced sales of $0.8 million and a decrease of $0.2 million in wholesale glass.
Growth in Harding's retail glass shops is expected to continue as a result of
sales development programs and the recent acquisitions.

The Company's sales backlog on a consolidated basis was $66.2 million as of
March 31, 1999, compared with $66.4 million at December 31, 1998, and $81.7
million as of March 31, 1998, a decrease of 0.3% and 19.0%, respectively.

The Company's consolidated gross margin was 41.6% in the first quarter of 1999
compared with 39.6% in the first quarter of 1998. SunSource Industrial Services
Company's gross margin was 39.1% in the first quarter of 1999 compared with
37.0% in the first quarter of 1998, an increase of 2.1%. Technology Services'
gross margin increased 1.1% in the first quarter of 1999 due to tighter pricing
controls. The Expediter activity's gross margin declined 1.7% in the first
quarter of 1999 due to competitive pricing pressures. The Integrated Supply






                                                                   Page 14 of 20


<PAGE>



activity's gross margin increased 2.5% in the first quarter of 1999 due to sales
mix. Hillman's gross margin remained constant with the first quarter of 1998.
Harding's gross margin decreased 2.5% in the comparison period due to an
increase in contract sales at lower gross margins than the overall retail glass
business.

The Company's selling, general and administrative ("S,G&A") expenses increased
by $4.9 million or 8.4% to $63.4 million in the first quarter of 1999 from $58.5
million in first quarter of 1998. Selling expenses increased $1.6 million,
primarily as a result of the acquisitions at Hillman and Harding, offset by
decreases in all other businesses as a result of reduced sales levels. Warehouse
and delivery expenses increased $2.4 million or 23.1% due mainly to integration
costs for the 1998 acquisitions at Hillman and facility reorganization costs at
Technology Services. The increase in general and administrative expenses of $0.9
million or 4.9% is also attributable to the integration of the newly acquired
businesses at Harding and Hillman.

S,G&A expenses as a percentage of sales increased compared with the first
quarter of 1998, as follows:

                                                Three Months ended March 31,
                                                ---------------------------- 
                                                   1999           1998
                                                   ----           ----
  Selling Expenses                                17.9%           17.1%
  Warehouse and Delivery Expenses                  7.2%            5.9%
  General and Administrative Expenses             11.5%           11.2%
                                                 ------           -----
          Total S,G&A Expenses                    36.6%           34.2%
                                                 ======           =====

Overall, as a percentage of sales, total S,G&A expenses increased due mainly to
the decrease in sales levels in relation to the fixed cost component of S,G&A
expenses.

EBITA from operations after corporate expenses was $7.3 million for the three
months ended March 31, 1999, compared with $8.2 million for the same prior-year
period.

The Company's consolidated operating profit margin (EBITA, as a percentage of
sales) after corporate expenses declined to 4.2% in the first quarter of 1999
compared with 4.8% in the same prior-year quarter. SunSource Industrial Services
Company's operating profit margin declined to 6.2% in the first quarter of 1999
from 6.4% in the same quarter of 1998, primarily reflecting reduced 1999 sales
and increased expenses related to the reorganization of sales and administrative
functions in the Technology Services segment. Hillman's operating profit margin
declined in the first quarter of 1999 to 8.0% from 8.6% in the same quarter of
1998 due to increased selling expenses for new field staff related primarily to
1998 acquisition activities. Harding's operating profit margin declined in the
first quarter of 1999 to a negative 0.8% from 0.2% in same quarter of 1998 due
to increased selling and administrative expenses related to integration costs
for newly acquired businesses.

Depreciation expense increased $0.4 million to $1.5 million in the first quarter
of 1999 from $1.1 million in same quarter of 1998 due primarily to the
acquisition activity at Hillman and Harding and an overall increase in the
depreciable fixed asset base due to investment in the Company's core businesses.

Amortization expense increased $0.2 million to $0.7 million in the first quarter
of 1999 due primarily to the acquisition activity at Hillman and Harding.


                                                                   Page 15 of 20


<PAGE>




Interest expense increased $0.4 million in the first quarter of 1999 to $2.1
million due primarily to increased borrowings on the Company's revolving credit
facility as a result of cash requirements to fund the Company's acquisition
activities and working capital investment.

The Company pays interest to the Trust on the Junior Subordinated Debentures
underlying the Trust Preferred Securities at the rate of 11.6% per annum on
their face amount of $105.4 million, or $12.2 million. The Trust distributes an
equivalent amount to the holders of the Trust Preferred Securities. For the
three months ended March 31, 1999 and 1998, the Company paid $3.1 million in
interest on the Junior Subordinated Debentures, equivalent to the amounts
distributed by the Trust.

The Company is subject to federal, state and local income taxes on its domestic
operations and foreign income taxes on its Canadian and Mexican operations as
accounted for in accordance with Statement of Financial Accounting Standard
("SFAS") 109, "Accounting for Income Taxes". Deferred income taxes represent
differences between the financial statement and tax bases of assets and
liabilities as classified on the Company's balance sheet. The Company's combined
effective tax rate was 42.0% for the three months ended March 31, 1999.

Liquidity and Capital Resources

Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
decreased $0.5 million or 5.4% to $8.8 million in the first quarter of 1999 from
$9.3 million in the same quarter of 1998. The Company's net interest coverage
ratio for the quarter ended March 31, 1999, declined to 1.30X (earnings before
interest, distributions on Trust Preferred Securities and income taxes over net
interest expense and distributions on Trust Preferred Securities), from 1.62X in
the 1998 comparison period as a result of reduced earnings and increased
interest expense.

The Company's cash position of $2.1 million as of March 31, 1999, decreased $0.7
million from the balance at December 31, 1998. Cash was provided during this
period primarily from net borrowings under the bank revolver ($36.6 million)and
proceeds from the sale of property and equipment ($0.3 million). Cash was used
during this period predominantly for working capital investments in operations
($19.2 million), acquisitions ($13.5 million), cash distributions to investors
($0.7 million), capital expenditures ($2.1 million), purchase of treasury stock
($0.3 million), investment in life insurance ($1.3 million) and other items, net
($0.5 million).

The Company's working capital position of $146.7 million at March 31, 1999,
represents an increase of $25.1 million from the December 31, 1998 level of
$121.6 million. The Company's current ratio increased to 2.54x at March 31, 1999
from 2.25x at December 31, 1998, principally due to investments in accounts
receivable and inventories.

As of March 31, 1999, the Company had $13.0 million available under its credit
facilities. The Company had $132.4 million of outstanding long-term debt at
March 31, 1999, consisting of a $60.0 million Senior Note at 7.66%, bank
borrowings totaling $71.6 million at an effective interest rate of 6.29%, and
capitalized lease obligations of $0.8 million at various interest rates. An
indirect, wholly-owned Canadian subsidiary of the Company had a $2.5 million
Canadian dollar line of credit for working capital purposes, of which $0.1
million was outstanding at March 31, 1999.


                                                                   Page 16 of 20


<PAGE>



As of March 31, 1999, the Company's total debt (including dividends payable) as
a percentage of its consolidated capitalization (total debt, Trust Preferred
Securities and stockholders' equity) was 49.4% compared with 41.5% as of
December 31, 1998 and 40.2% as of March 31, 1998. The Company's consolidated
capitalization (including dividends payable) as of March 31, 1999, was $269.2
million compared to $232.8 million at December 31, 1998 and $228.9 million as of
March 31, 1998.

The Company anticipates spending $5.1 million for capital expenditures in 1999,
primarily for warehouse improvements, machinery and equipment and computer
hardware and software.

On December 16, 1998, the Board of Directors declared a dividend of $0.10 per
Common Share which was paid on January 7, 1999, to holders of record as of
December 28, 1998. On March 29, 1999, the board of Directors declared a dividend
of $.10 per Common Share which was paid on April 19, 1999, to holders of record
as of April 8, 1999. The Company expects to declare future quarterly dividends
on the Common Shares to aggregate $0.40 per Common Share annually, subject to
the discretion of its Board of Directors and dependent upon, among other things,
the Company's future earnings, financial condition, capital requirements, funds
needed for acquisitions, level of indebtedness, contractual restrictions and
other factors that the Board of Directors deems relevant.

The Company has deferred tax assets aggregating $15.2 million as of March 31,
1999, as determined in accordance with SFAS 109. Management believes that the
Company's deferred tax assets will be realized through the reversal of existing
temporary differences between the financial statement and tax bases, as well as
through future taxable income.

Year 2000 Issue

The following discussion is an update of the Company's Y2K disclosure contained
in its annual report on Form 10-K for the year-ended December 31, 1998. Each of
the individuals responsible for the Y2K plans within the Company's business
segments continues to update senior management on a quarterly basis regarding
Y2K matters. Plans and locations with critical 1999 dates and activities
required to achieve Y2K compliance are being monitored on a more frequent basis
by management.

State of Readiness

SunSource Industrial Services

o  The remediation of the Expediter segment's proprietary software has been
   completed utilizing an outside consultant. The testing of this remediation is
   approximately 80% complete and is targeted for full completion by the end of
   the third quarter of 1999. Expediter also continues to expect that its
   critical personal computer ("PC") hardware and purchased software will be
   compliant and fully-tested by September 30, 1999.

o  Technology Services' conversion of all its operating units to the third-party
   purchased computer system is approximately 60% complete and is currently
   targeted for full completion and testing by September 30, 1999.

Hillman

Hillman has completed remediation (including full testing) on 100% of its
proprietary software programs. Hillman's critical purchased software
applications and hardware have been certified by the vendors to be compliant,
except for several applications (i.e. payroll, telephone and shipping) which are
expected to be upgraded or replaced by July 31, 1999.


                                                                   Page 17 of 20


<PAGE>




Harding

Harding's installation of the Y2K compliant version of its critical purchased
point-of-sale software application and its related hardware operating system is
88% complete and is expected to be completed by the end of the third quarter of
1999. Harding's purchased financial software requires a version update to become
Y2K compliant which is expected to be installed by the end of May 1999. Harding
completed the necessary upgrades for network servers and PC hardware during the
first quarter of 1999. Since Harding does not have standardized telephone
systems at its 125 locations, an assessment of Y2K compliance for the different
telephone systems is being performed due to the important role the telephone
plays in Harding's retail glass sales and service activities. Harding has
confirmed that 70% of its locations' phone systems are Y2K compliant. Harding
expects the evaluation and remediation (if necessary) of the final 30% of its
locations to be complete by June 30, 1999.

      Costs to Address Year 2000 Issue

The Company's Y2K costs incurred through March 1999 are approximately $0.8
million, of which 80% is for remediation of internally designed software
applications. Y2K costs of $0.9 million are expected to be incurred during the
remainder of 1999, with approximately 20% for remediation of internally designed
software applications, resulting in projected aggregate costs of $1.7 million
for the entire Y2K project. The source of the funds for these Y2K costs will be
from the Company's operating cash flows.

      Risks of Year 2000 Compliance and Contingency Plans

There has been no significant change to the Company's Y2K risk profile or the
Company's plans to address potential operating problems related to Y2K.

The Company has received responses from approximately 85% of its major suppliers
to its request for Y2K compliance letters. At this time, no significant Y2K
issues have been communicated from major suppliers that have responded.

Inflation

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

Subsequent Events

On April 27, 1999, Maurice P. Andrien was elected as President, Chief Executive
Officer and member of the Board of Directors of the Company effective
immediately. Donald T. Marshall will continue as Chairman of the Board,
retaining all corporate governance authority and responsibility. In connection
with this election, and after approval by stockholders at the Company's Annual
Meeting on April 27, 1999 of an amendment to the Company's 1998 Equity
Compensation Plan, the Compensation Committee of the Board of Directors granted
Mr. Andrien 150,000 non-qualified stock options under such plan.

On April 28, 1999, the Compensation Committee of the Board of Directors granted
150,000 non-qualified stock options to the Chairman of the Board at fair market
value, 55,000 non-qualified stock options to senior executives at 85% of fair
market value and 122,000 incentive stock options to key employees of the
Company's business units at fair market value under the Company's 1998 Equity
Compensation Plan.
      

                                                                   Page 18 of 22


<PAGE>



                                     PART II
                                OTHER INFORMATION


Items 1, 2, 3, 5, & 6 - None
----------------------------

Item 4 -  Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------

The Company held its Annual Meeting of Stockholders on April 27, 1999 to
consider and take action on the following:

           1. Election of directors.
           2. Approval of proposal to amend the Company's Bylaws to provide
              Classification of the Board of Directors into three classes of
              Directors with staggered terms of office.
           3. Approval of a proposal to amend the 1998 Equity Compensation Plan
              to Increase the number of shares that may be issued by the Company
              under the Plan in connection with the search for a new Chief
              Executive Officer by 150,000 shares.

The items listed above are discussed in detail in the Company's Proxy Statement
filed on April 6, 1999. The voting results for each of these items are as
follows:

1. Election of directors:

                                                   Votes For         Withheld
                                                   ---------         --------
           O. Gordon Brewer, Jr.                   4,717,222           56,861
           Norman V. Edmonson                      4,719,047           55,036
           Arnold S. Hoffman                       4,719,547           54,536
           Robert E. Keith, Jr.                    4,719,197           54,886
           Donald T. Marshall                      4,719,372           54,711
           John P. McDonnell                       4,718,497           55,586
           Donald A. Scott                         4,715,572           58,511
           Geoffrey C. Shepard                     4,715,372           58,711
           Francis G. Ziegler                      4,717,022           57,061

                                         Votes          Votes
                                          For          Against        Abstain
                                        ------         -------        -------  
2. Approval of the Amendment
   of the Bylaws                      2,603,862      2,164,995         5,226

3. Approval of the Amendment
   of the 1998 Equity
   Compensation Plan                  3,617,773      1,125,506        30,804




                                                                   Page 19 of 20






<PAGE>



                                   SIGNATURES




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



                                        SUNSOURCE INC.



















--------------------------              ---------------------------
Joseph M. Corvino                       John J. Dabrowski
Vice President - Finance                Controller
(Chief Financial Officer)               (Chief Accounting Officer)





DATE:  May 17, 1999


                                                                   Page 20 of 20