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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
 
  FOR THE FISCAL YEAR ENDED MARCH 28, 1997
                                      OR
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
  For the transition period from            to
  Commission File Number 0-28568
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
 <S>                                             <C>
                  CALIFORNIA                                       95-2920557
 (STATE OR OTHER JURISDICTION OF INCORPORATION      (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
               OR ORGANIZATION)
</TABLE>
 
<TABLE>
<S>                                            <C>
 700 EAST BONITA AVENUE, POMONA, CALIFORNIA                        91767
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)
</TABLE>
 
Registrant's telephone number, including area code: (909) 624-8041
 
Securities registered pursuant to Section 12(b) of the Act:
 
                                     None
 
Securities registered pursuant to Section 12(g) of the Act:
 
<TABLE>
<CAPTION>
                                                          NAME OF EACH EXCHANGE ON
             TITLE OF EACH CLASS                              WHICH REGISTERED
             -------------------                          ------------------------
<S>                                                       <C>
         Common Stock, no par value                        Nasdaq National Market
</TABLE>
 
  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 [_]
 
  THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT BASED UPON THE CLOSING SALES PRICE OF ITS COMMON STOCK ON JUNE 5,
1997 ON THE NASDAQ NATIONAL MARKET WAS APPROXIMATELY $63,922,541.
 
  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 THE FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K [X]
 
  THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 31, 1997:
9,750,000
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
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<PAGE>
 
                          FORWARD LOOKING STATEMENTS
 
  This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties, such as
statements of the Company's strategies, plans, objectives, expectations and
intentions. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Cautionary Statements" in Item 1
below and elsewhere in this Annual Report. The cautionary statements made in
this Annual Report should be read as being applicable to all related forward-
looking statements wherever they appear in this Annual Report.
 
ITEM 1. BUSINESS
 
GENERAL
 
  Keystone Automotive Industries, Inc. ("Keystone" or the "Company") is the
nation's leading distributor of aftermarket collision replacement parts
produced by independent manufacturers for automobiles and light trucks.
Keystone distributes products primarily to collision repair shops throughout
most of the United States. In addition, the Company recycles and produces
chrome plated and plastic bumpers and remanufactures alloy wheels. The
Company's product lines consist of automotive body parts, bumpers, autoglass
and remanufactured alloy wheels, as well as paint and other materials used in
repairing a damaged vehicle. Keystone currently offers more than 19,000 stock
keeping units to over 22,000 collision repair shop customers, out of an
estimated 48,000 shops nationwide. Founded in Southern California in 1947, the
Company operates a "hub and spoke" distribution system consisting of 11
regional hubs and 71 service centers located in 33 states in the West,
Midwest, Northeast, Mid-Atlantic and South, as well as in Tijuana, Mexico.
From these service centers, Keystone has approximately 360 professional and
highly-trained salespersons who call on an average of over 5,000 collision
repair shops per day.
 
  On March 28, 1997, a wholly-owned subsidiary of the Company merged into
North Star Plating Company ("North Star") in a transaction (the "North Star
Merger") accounted for as a pooling of interests. At the time of the North
Star Merger, North Star operated four regional hubs and 23 service centers
located in the Midwest and Mid-Atlantic, and the Company believes that North
Star was the second largest distributor of aftermarket collision replacement
parts in the United States. North Star's operations are very similar to the
Company's and strategically expand the Company's geographic market coverage,
as only two of the North Star service centers operate in markets already
served by Keystone. In addition, the North Star Merger adds depth and
experience to the Company's management capabilities. Except as otherwise
specifically set forth herein, all information, financial and otherwise, with
respect to the Company includes North Star.
 
INDUSTRY OVERVIEW
 
  History. The Aftermarket Body Parts Association ("ABPA") estimates that the
wholesale market for aftermarket collision parts in 1995 ranged between $800
million and $1.2 billion in annual expenditures, or approximately 10% of the
collision parts market. In addition, industry sources estimate that wholesale
sales of paint and related supplies and equipment for collision repair, which
constitute a growing part of the Company's business, accounted for
approximately $2.4 billion in 1995. Substantially all of the remainder of the
collision parts market consists of parts produced by OEMs, and a substantial
number of collision parts are available exclusively from OEMs and are likely
to remain so. The growth in sales of aftermarket collision parts has been due
primarily to the increased availability of quality parts and to cost
containment efforts by the insurance industry.
 
  Before 1980, automotive collision parts were manufactured almost exclusively
by OEMs. During the 1960s and 1970s, due to prohibitive tariffs in Taiwan on
imported automobiles and restrictions on foreign ownership of manufacturing
facilities in Taiwan, certain Taiwanese automobile manufacturers commenced
producing automobiles for sale in Taiwan. Since the early 1980s, these
Taiwanese manufacturers have sought to reduce the effect on their business of
the cyclical demand for new automobiles by producing aftermarket collision
parts.
 
                                       1
<PAGE>
 
  Collision Repair Industry Insight ("Insight"), an industry trade
publication, estimates that approximately 87% of all automobile collision
repair work is paid for in part by insurance. Accordingly, major insurance
companies exert significant influence over the selection of collision parts
used by collision repair shops. The availability of aftermarket collision
parts has been a major factor in the insurance industry's efforts to contain
the escalating cost of collision repairs. According to Body Shop Business'
1996 Industry Survey, the percentage of collision repair facilities using
aftermarket collision replacement parts increased from approximately 54% in
1993 to 69% in 1995.
 
  Aftermarket collision parts generally sell for between 20% and 40% less than
comparable OEM parts. The ABPA estimates that the competition afforded by
aftermarket collision parts has resulted in price reductions of between 25%
and 50% for selected OEM collision parts, and that the availability of
aftermarket collision parts saved insurance companies approximately $800
million in 1994 by providing consumers with less expensive aftermarket parts
and creating competition resulting in lower prices for comparable OEM parts.
The Company believes that it is somewhat insulated from downturns in the
general economy as a result of the fact that 87% of all automobile collision
repair work is paid for in part by insurance.
 
  As a part of their ongoing efforts to improve customer service, most major
insurance companies have adopted programs designating selected collision
repair shops in particular geographic areas as Direct Repair Providers
("DRPs"). DRPs are generally directed additional collision repair business by
the insurers in return for adhering to certain criteria, which include the use
of aftermarket collision parts when available. To encourage consumers to use
DRPs, the insurers authorize the repair of collision damage without obtaining
the prior approval of the insurer's adjuster (thereby generally providing for
a quicker return of the vehicle to its owner) and offer additional warranties
concerning the repair services and parts used. According to Insight, during
1996, DRPs accounted for approximately 9% to 11% of total collision repair
costs and this market share is estimated to grow to 25% by 1998.
 
  Companies offering collision support services, including Automated Data
Processing ("ADP"), Mitchell International and CCC Information Services, Inc.,
have developed proprietary software and databases to provide insurance claims
adjustors and collision repair shops with computerized access to the
inventories and prices of selected distributors of both aftermarket and OEM
collision parts nationwide. The Company's inventory and prices are included in
these databases. Access to the providers' databases enables distributors with
computerized inventory control systems, such as the Company, to update prices
rapidly and notify collision repair shops of the availability of new products.
 
  Quality Assurance. In 1987, the Certified Automotive Parts Association
("CAPA") was founded to provide insurance companies, distributors, collision
repair shops and consumers with an objective method of evaluating the
functional equivalence of aftermarket collision parts and OEM collision parts.
CAPA, a non-profit association of insurance companies, manufacturers,
importers, distributors, collision repair shops and consumer groups,
establishes the specifications for, tests and certifies the quality of
aftermarket automotive collision parts. Through independent testing
laboratories, CAPA develops engineering specifications for aftermarket
collision parts based upon an examination of OEM parts; certifies the
factories, manufacturing processes and quality control procedures used by
independent manufacturers; and certifies the materials, fit and finish of
specific aftermarket collision parts. According to CAPA, the number of
collision part applications entitled to bear the CAPA certification had
increased from approximately 600 in January 1994 to approximately 1,600 by
October 1996. CAPA randomly reviews both the factories and individual parts
previously certified by it and solicits comments concerning the quality of
certified parts from collision repair shops and consumers on a regular basis.
 
  Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of collision parts to seek CAPA certification. Management
believes that the Company is the largest distributor of CAPA-certified parts
in the United States.
 
                                       2
<PAGE>
 
  Consolidation. The collision repair shop industry is in the process of
consolidation due to, among other things, (i) an increase in the technical
complexity of collision repairs generally, (ii) an increase in governmental
regulations, including environmental regulations, applicable to collision
repair shops, (iii) the designation of certain collision repair shops as DRPs
and (iv) a reduction in the number of collision repairs generally. The
increasing number of aftermarket collision parts and makes and models of
automobiles has resulted in distributors being required to maintain larger
inventories. In addition, the trend towards fewer, larger and more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and certain value-added services,
such as training, that collision repair shops require in their increasingly
complex and competitive industry. The above factors, in turn, are contributing
to a consolidation of distributors of aftermarket collision parts, providing
the Company with an opportunity through acquisitions to expand its operations
into new markets and to penetrate further existing markets.
 
PRODUCTS
 
  The Company distributes more than 19,000 stock keeping units of aftermarket
collision parts and repair materials for most popular models of domestic and
foreign automobiles and light trucks, generally for the seven most recent
model years. The Company's principal product lines consist of automotive body
parts, bumpers, paint and other materials, autoglass, light truck accessories
and remanufactured alloy wheels. In addition, the Company, primarily through
North Star, recycles, produces and distributes new and remanufactured plastic
and chrome bumpers to wholesale bumper distributors and manufacturers of truck
accessories.
 
  Automotive Body Parts. The Company distributes automotive and light truck
parts manufactured by six foreign and nine domestic manufacturers, including
fenders, hoods, radiators and condensers and head and tail light assemblies.
These products accounted for $74.9 million, or 38.5% of the Company's net
sales in the fiscal year ended March 28, 1997.
 
  Bumpers. The Company distributes new and remanufactured plastic bumper
covers and steel bumpers manufactured by five foreign and six domestic
manufacturers. For the fiscal year ended March 28, 1997, sales of plastic and
steel bumpers accounted for $74.0 million, or 38.1% of the Company's net
sales.
 
  In addition, the Company recycles, produces and distributes new and recycled
chrome and plastic bumpers, primarily at North Star. Management believes that
North Star is one of the nation's largest non-OEM producers of new and
recycled chrome plated bumpers to the collision repair and restoration
markets. On an annual basis, North Star electro-plates approximately 150,000
steel plated bumpers for automobiles and light trucks. Bumpers used in the
operations include new steel stampings, collision-damaged bumpers that require
straightening and replating and older model or antique bumpers that require
restoration and replating. The bumper repair and replating process generally
includes some or all of the following steps: straightening or reforming to
original dimensions; welding breaks or cracks; surface grinding to remove rust
and corrosion; chemical stripping to remove the original electro-plated
finishes; metal polishing and buffing; electro-plating layers of copper,
nickel and chromium; and inspecting and packaging.
 
  Beginning in the late 1970s and the early 1980s, manufacturers of new
automobiles began changing from an almost exclusive use of chrome plated steel
bumpers to painted plastic bumpers. By the 1996 model year, manufacturers were
using painted plastic bumpers almost exclusively for their automobiles. Chrome
plated steel bumpers are still used extensively on light trucks and sport
utility vehicles. The Company's sales of chrome bumpers accounted for $27.7
million, or 14.3% of the Company's net sales for the fiscal year ended March
28, 1997.
 
  Paint and Other Materials. Beginning in fiscal 1993, the Company
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle, including sandpaper, abrasives, masking
products and plastic filler. The paint and other materials distributed by the
Company are purchased from approximately 20 domestic suppliers. For the fiscal
year ended March 28, 1997, sales of paint and other materials accounted for
$34.8 million, or 18.0% of the Company's net sales. Certain of these products
are distributed under the name "Keystone."
 
                                       3
<PAGE>
 
  Light Truck Accessories. The Company distributes parts and accessories for
light trucks, including grills, step bumpers and bedliners. For the fiscal
year ended March 28, 1997, sales of parts and accessories for light trucks
accounted for $9.3 million, or 4.8% of the Company's net sales.
 
  Autoglass. The Company distributes autoglass, including windshields, side
windows and rear windows, which are purchased from two domestic manufacturers.
For the fiscal year ended March 28, 1997, sales of autoglass, which was
introduced in fiscal 1993, accounted for $2.7 million, or 1.4% of the
Company's net sales.
 
  Remanufactured Alloy Wheels. In October 1995, the Company acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and during fiscal 1997 it opened remanufacturing operations in four of its
facilities. The Company opened a remanufacturing operation in Atlanta, Georgia
in May 1997 and acquired remanufacturing operations located in Roseville,
Minnesota and Chicago, Illinois in June 1997. According to industry sources,
the percentage of new automobiles equipped with alloy wheels, as opposed to
steel wheels and hub caps, has increased from approximately 11% in 1985 to 45%
for the 1996 model year. The average wholesale cost of a new replacement alloy
wheel is $225, compared to an average wholesale cost of $140 for a
remanufactured alloy wheel. The alloy wheel remanufacturing process generally
includes some or all of the following steps: straightening, welding minor
breaks or chips, machining, painting and applying clear coat. For the fiscal
year ended March 28, 1997, sales of remanufactured alloy wheels accounted for
$2.9 million, or 1.5% of the Company's net sales.
 
  The remanufacturing of alloy wheels is generally conducted by many small
independent operators. The Company believes that there is a large and growing
demand for remanufactured alloy wheels and that, using its existing
distribution system and customer base, the Company is well-positioned to
service that demand.
 
DISTRIBUTION, MARKETING AND SALES
 
  The Company's distribution system is designed to provide responsive customer
service and to foster long-term customer relations.
 
  Distribution System. The Company has developed a national "hub and spoke"
distribution system consisting of 11 regional hubs and 71 service centers.
Each regional hub receives container shipments directly from foreign and
domestic manufacturers. Using the Company's fleet of over 600 delivery trucks,
each regional hub makes regular shipments to the service centers in its
region, which in turn make regular deliveries to its repair shop customers. By
maintaining a fleet of delivery trucks, the Company ensures rapid delivery
within its distribution system and to its customers. In addition, each service
center can order products directly from any hub or service center. The Company
manages its inventory and the ordering, shipment, storage and delivery of
products through centralized information systems that allow the Company's and
North Star's corporate headquarters, regional hubs and service centers to
obtain timely information regarding the location and availability of products.
The continuing increase in the number of makes and models of automobiles and
light trucks and the number of aftermarket collision parts has increased the
pressure on distributors to maintain larger inventories. The Company believes
that its "hub and spoke" distribution system allows it to offer its customers
one of the broadest available selections of aftermarket collision parts and to
fill most orders within 24 hours, while minimizing inventory costs.
 
  Sales and Marketing Staff. The Company has a ten-person marketing staff,
which operates from its corporate headquarters, and has 78 sales
representatives and approximately 360 route salespersons who operate from its
service centers. The marketing staff develops all marketing and promotional
materials, assists the service centers in recruiting and training sales
representatives, route salespersons and customer service representatives,
supervises the Company's in-house management training program and supports
general managers of its service centers, sales representatives and route
salespersons with computerized analyses of sales by product, route and
customer. In addition, the marketing staff conducts educational programs for
regional insurance executives and claims adjusters to explain the role of
aftermarket collision parts in containing the escalating costs of claims and
in order to facilitate the implementation of insurance companies' policies
favoring aftermarket collision parts.
 
                                       4
<PAGE>
 
  The general managers of the Company's service centers have been employed by
the Company for an average of over nine years and are actively involved in
customer calls. The Company believes that this local control and expertise
have contributed significantly to its growth. In addition, through periodic
training programs and performance reviews, the Company seeks to enhance the
professionalism and technical expertise of its route salespersons. As a
result, the Company believes that its route salespersons are highly attendant
to the needs of the Company's customers.
 
  Marketing Programs. The Company offers various marketing programs to foster
closer customer relations, including a warranty program in which the Company
generally warrants its products against defects in material and workmanship
for as long as the repair shop's customer owns the vehicle. In addition, the
Company's management information systems allow it to provide individual
collision repair shops with personalized product usage reports which enable
its customers to better manage their inventory by controlling inventory
shrinkage and ensuring timely reordering.
 
CUSTOMERS
 
  The Company's current customers consist of more than 22,000 collision repair
shops located in 33 states and Tijuana, Mexico, none of which accounted for
more than 1% of the Company's net sales during the fiscal year ended March 28,
1997. The Company also distributes its bumpers to wholesale distributors and
manufacturers of truck accessories. The size of its customer base reduces the
Company's dependence on any single customer and its national scope mitigates
the effects of regional economic changes and regional weather patterns.
Insight estimates that there are over 48,000 collision repair shops
nationwide. The number of collision repair shops to whom Keystone sold
products increased from approximately 13,400 in fiscal 1993 to approximately
22,000 following the North Star Merger in March 1997.
 
  The Company's regional hubs also sell collision parts to local distributors
who may compete with the Company. Approximately 12% of the Company's net sales
during the fiscal year ended March 28, 1997 were attributable to sales to
other local distributors. No distributor accounted for more than 1% of the
Company's net sales for such fiscal year.
 
SUPPLIERS
 
  The products distributed by the Company are manufactured by over 60
manufacturers, the ten largest of which provided approximately 43% of the
products purchased by the Company during the fiscal year ended March 28, 1997,
and no single supplier provided as much as ten percent. The Company believes
that it is one of the largest customers of each of its ten largest suppliers.
In fiscal 1997, approximately 75% of the products distributed by the Company
were manufactured in the United States or Canada, and approximately 25% were
imported directly from manufacturers in Taiwan. The Company's orders from
domestic suppliers generally are received within 10 days and orders from
foreign manufacturers generally are received in between 60 and 90 days.
Although the Company has no manufacturing agreements with any of its suppliers
and competes with other distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers
are satisfactory. Although alternative suppliers exist for substantially all
products distributed by the Company, the loss of any one supplier could have a
material adverse effect on the Company until alternative suppliers are located
and have commenced providing products.
 
  North Star generally sells only automotive paint manufactured by PPG
Industries, Inc. ("PPG") at certain of its service centers. Keystone derived
approximately 5% of its revenues from North Star's sale of PPG paint in fiscal
1997. In the event PPG's paint became unavailable for any reason, the Company
believes North Star could replace its use of PPG paint by using a different
company's paint products.
 
                                       5
<PAGE>
 
COMPETITION
 
  Based upon industry estimates, the Company believes that approximately 85%
of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and 5% by distributors of salvage
parts. The Company encounters intense competition from OEMs, all of which have
substantially greater financial, distribution, marketing and other resources,
including greater brand recognition and a broader selection of collision
parts, than the Company. Accordingly, OEMs are in a position to exert pricing
and other competitive pressure on the Company. The distribution industry for
aftermarket collision parts is highly fragmented. The Company's competitors
generally are independently owned distributors having from one to three
distribution centers. The Company expects to encounter significant competition
in the future, including competition from OEMs, automobile dealerships,
distributors of salvage parts, buying groups and other large distributors.
 
  The Company competes with OEMs primarily on the basis of price, and it
competes with distributors of aftermarket collision parts primarily on the
basis of the competitive advantages provided by its position as a market
leader, experienced executive management and service center managers,
entrepreneurial corporate culture, superior customer service, relationship
with insurance companies and management information systems and centralized
administrative functions, and, to a lesser extent, on the basis of price.
 
  The Company's chrome bumper plating operations compete in the wholesale
bumper distribution segment of the market with four companies, whom the
Company believes have greater regional sales than the Company. It also
competes with small chrome bumper platers or distributors in virtually every
geographical market in which it operates. The Company competes with small
chrome bumper platers and distributors primarily on the basis of quality and
service. Over the last ten years, there has been a significant decrease in the
number of small bumper platers as a result of the decreasing use of chrome
plated bumpers on new automobiles and the increasing environmental
requirements for electro-platers. Bumper Recyclers Association of North
America ("BRANA"), the nation's only bumper trade association, membership
decreased from approximately 100 companies in 1982 to approximately 32
companies in 1996. The Company believes that this trend will continue,
creating more sales opportunities for larger regional chrome bumper platers,
who are capable of meeting the increased financial and environmental
requirements in the future.
 
  The Company also encounters competition from the OEM's who supply new
replacement bumpers to the collision repair market, and have significantly
greater resources than the Company. The Company competes with the OEM's
primarily on the basis of price.
 
GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS
 
  The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health Administration
and the EPA, have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and local
laws and regulations, an owner or lessee of real estate or the operator of a
business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the
 
                                       6
<PAGE>
 
Company. Furthermore, compliance with legislative or regulatory changes may
cause future increases in the Company's operating costs or otherwise adversely
affect operations. Certain of the Company's products, such as paints and
solvents, are highly flammable. Accordingly, the storage and transportation of
these materials expose the Company to the inherent risk of fire.
 
  The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. See
"Business -- Products-- Bumpers." The Company's bumper plating operations,
which use a number of hazardous materials, are subject to a variety of federal
and state laws and regulations relating to environmental matters, including
the release of hazardous materials into the air, water and soil. The Company
endeavors to ensure that its chrome plating operation complies with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's capital expenditures, earnings
or competitive position, and no material capital expenditures with respect to
the Company's bumper plating operations are anticipated for the remainder of
this fiscal year. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations.
 
PRIOR FORD LITIGATION
 
  In 1987, Ford Motor Company ("Ford") filed suit against the Company on the
grounds that between 1982 and 1987, the Company had misrepresented the quality
of the aftermarket collision parts sold by it for Ford automobiles. In May
1992, Ford and the Company settled this lawsuit. As part of the settlement,
the Company and its insurance companies paid Ford $1.8 million, of which the
Company contributed $450,000, as damages and agreed to finance a one-year
corrective advertising campaign conducted by Ford using the Company's name. As
a result of this settlement and the corrective advertising campaign, certain
insurance companies ceased listing the Company as an approved supplier of
aftermarket collision parts. Currently, most major insurance companies list
the Company as an approved supplier of aftermarket collision parts, and all
major insurance companies reimburse the cost of collision repairs using the
Company's products. The Company's business is highly dependent on the
continued acceptance of aftermarket collision parts in general, and the
Company's products in particular, by insurers, collision repair shops,
consumers and governmental agencies.
 
EMPLOYEES
 
  At May 31, 1997, the Company had approximately 1,537 full-time employees, of
whom 11 were engaged in corporate management, 131 in administration, 809 in
sales and customer service, 235 in warehousing and shipping and 351 in
manufacturing. Seven persons in the Newark, New Jersey chrome bumper recycling
facility and six persons in its Kenilworth, New Jersey service center are
covered by collective bargaining agreements. The Company considers its
relations with its employees to be satisfactory.
 
CAUTIONARY STATEMENTS
 
  Acquisition Strategy. A principal component of the Company's growth strategy
is to acquire other independent distributors operating in new geographic
markets, as well as to increase its penetration in existing markets. Since
April 1992, the Company has completed 18 acquisitions of a total of 42 service
centers (including four acquisitions of 11 service centers by North Star prior
to the North Star Merger), in the Northeast, Midwest,
 
                                       7
<PAGE>
 
Mid-Atlantic, South and Mexico, of which 11 have been consolidated with
existing locations and four have been closed. During this same period, North
Star opened five additional service centers. The Company's ability to maintain
or exceed its historical growth rate will depend in large part on its ability
to successfully execute its acquisition strategy. The successful execution of
this strategy will depend on the Company's ability to identify and to compete
for appropriate acquisition candidates, to consummate such acquisitions on
favorable terms (including obtaining acquisition financing, if necessary), to
maintain and expand the sales and profitability of the acquired centers, and
to anticipate the changes that continued growth would impose on its financial
reporting and control systems, data processing systems and management. There
can be no assurance that the Company will be successful in executing its
strategy.
 
  Acquisition Risks. Although the Company investigates the operations and
assets that it acquires, there may be liabilities that the Company fails or is
unable to discover, and for which the Company as a successor owner or
operator, may be responsible. The Company seeks to mitigate the risk of these
potential liabilities by obtaining indemnities and warranties from the seller
and, in some cases, deferring payments of a portion of the purchase price.
However, these indemnities, warranties and holdbacks, if obtained, may not
fully cover the liabilities due to their limited scope, amounts or duration,
the limited financial resources of the indemnitor or warrantor or other
reasons. In addition, the Company's acquisitions accounted for under the
purchase method of accounting generally involve the recording of goodwill and
deferred charges on its balance sheet, which are amortized over varying
periods of time of up to 15 years. This amortization has the effect of
reducing the Company's reported earnings. At March 28, 1997, the Company had
recorded $1.3 million in goodwill, net of accumulated amortization. The
Company had also recorded $2.4 million in deferred charges net of accumulated
amortization, primarily related to noncompetition agreements, which are
amortized over the terms of those agreements.
 
  The efficient and effective integration of acquired companies' operations is
necessary for the Company's acquisition strategy to be successful. This
generally requires, among other things, an integration of purchasing,
distribution, marketing and sales efforts, pricing, employee benefits
policies, liquidity and capital expenditure requirements, management teams and
management information and other systems. The challenges of integration may be
increased by the need to coordinate geographically separated organizations. In
addition, the integration generally requires a commitment of management
resources which may temporarily divert attention from day-to-day operations of
the Company.
 
  The North Star Merger was only recently consummated. Although the Company
expects that the North Star Merger will result in benefits to the combined
companies, there can be no assurance that the integration issues described
above with respect to the combination of the two companies can be dealt with
in an efficient and effective manner. The inability of management to
successfully integrate the two companies could have a material adverse effect
on the business and the future results of operations of the Company.
 
  Competition. Based upon industry estimates, the Company believes that 85% of
collision parts for automobiles and light trucks are supplied by OEMs,
compared with approximately 10% by independent distributors of aftermarket
collision parts and an additional 5% by distributors of salvaged parts. The
Company competes directly with, and encounters intense competition from, OEMs,
all of which have substantially greater financial, distribution, marketing and
other resources, including greater brand recognition and a broader selection
of collision parts. Accordingly, OEMs are in a position to exert pricing and
other competitive pressures on the Company and other independent distributors,
which could have a material adverse effect on the results of operations of the
Company. The aftermarket collision parts distribution industry is highly
fragmented. Typically, the Company's competitors are independently owned
distributors having from one to three distribution centers. The Company
anticipates that it will encounter significant competition in the future,
including competition from OEMs, automobile dealerships, distributors of
salvage parts, buying groups and other large distributors.
 
                                       8
<PAGE>
 
  Dependence on Key and Foreign Suppliers. The Company is dependent on a small
number of suppliers. For the fiscal year ended March 28, 1997, the ten largest
suppliers accounted for approximately 43% of the products purchased by the
Company. Although alternative suppliers exist for substantially all products
distributed by the Company, the loss of any one supplier could have a material
adverse effect on the Company until alternative suppliers are located and have
commenced providing products. In fiscal 1997, approximately 75% of the
products distributed by the Company were manufactured in the United States or
Canada and approximately 25% were imported directly from manufacturers in
Taiwan. As a result, the Company's operations are subject to the customary
risks of doing business abroad, including, among other things, transportation
delays, political instability, expropriation, currency fluctuations and the
imposition of tariffs, import and export controls and other non-tariff
barriers (including changes in the allocation of quotas), as well as the
uncertainty regarding future relations between China and Taiwan. The
percentage of imported products may decline in the future if sales of
autoglass, paint and related supplies and equipment and remanufactured alloy
wheels, which are manufactured in the United States, continue to grow. Any
significant disruption in the Company's Taiwanese sources of supply or in its
relationship with its suppliers located in Taiwan could have a material
adverse effect on the Company.
 
  Continued Acceptance of Aftermarket Collision Parts. Based upon industry
sources, the Company estimates that approximately 87% of automobile collision
repair work is paid for in part by insurance; accordingly, the Company's
business is highly dependent upon the continued acceptance of such parts by
the insurance industry. The Company's business is also dependent upon the
continued acceptance of such parts by collision repair shops, consumers and
governmental agencies.
 
  Consolidation in the Collision Repair Industry. The collision repair shop
industry is in the process of consolidation. The trend towards larger, more
efficient repair shops will increase the competition among distributors for
the remaining accounts and the pressure on distributors to provide price
concessions, just-in-time delivery, larger inventories, training and other
value-added services, which may have a material adverse effect on the
Company's sales and profitability.
 
  Decline in the Number of Collision Repairs. The number of collision repairs
has declined significantly in recent years, and may continue to do so, due to,
among other things, automotive safety improvements, more rigorous enforcement
of stricter drunk driving laws resulting in fewer accidents and the increase
in unit body construction and higher collision repair costs resulting in a
larger number of automobiles being declared a total loss in lieu of being
repaired. The continuation of such decline may have a material adverse effect
on the Company.
 
  Compliance with Government Regulations; Environmental Hazards. The Company
is subject to increasing restrictions imposed by various federal, state and
local laws and regulations. Various state and federal regulatory agencies,
such as the Occupational Safety and Health Administration and the United
States Environmental Protection Agency (the "EPA"), have jurisdiction over the
Company's operations with respect to matters including worker safety,
community and employee "right-to-know" laws, and laws regarding clean air and
water. Under various federal, state and local laws and regulations, an owner
or lessee of real estate or the operator of a business may be liable for the
costs of removal or remediation of certain hazardous or toxic substances
located on or in, or emanating from, property owned or used in the business,
as well as related costs of investigation and property damage. Such laws often
impose such liability without regard to whether the owner, lessee or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. Other than as described below with respect to its bumper plating
operations, the Company does not currently generate substantial hazardous
waste in the ordinary course of its business. The Company believes that it
currently is in substantial compliance with all applicable laws and
regulations, and is not aware of any material environmental problem at any of
its current or former facilities. No assurance can be given, however, that the
Company's prior activities or the activities of a prior owner or operator of
an acquired service center or other facility did not create a material
environmental problem for which the Company could be responsible or that
future uses or conditions (including, without limitation, changes in
applicable laws and regulations) will not result in material environmental
liability to the Company. Furthermore, compliance with legislative or
regulatory changes may cause future increases in the Company's operating costs
or otherwise adversely affect operations. Certain of the Company's products,
such as paints and solvents, are highly flammable. Accordingly, the storage
and transportation of these materials expose the Company to the inherent risk
of fire.
 
                                       9
<PAGE>
 
  The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. The
Company's bumper plating operations, which use a number of hazardous
materials, are subject to a variety of federal and state laws and regulations
relating to environmental matters, including the release of hazardous
materials into the air, water and soil. The Company endeavors to ensure that
its bumper plating operations comply with applicable environmental laws and
regulations. Compliance with such laws and regulations has not had a material
effect on the Company's capital expenditures, earnings or competitive
position, and no material capital expenditures with respect to the Company's
bumper plating operations are anticipated for the remainder of this fiscal
year. Although the Company believes it is in substantial compliance with all
applicable environmental laws and regulations relating to its bumper plating
operations, there can be no assurance that the Company's current or former
operations have not, or will not in the future, violate such laws and
regulations or that compliance with such laws and regulations will not have a
material adverse effect on the Company's operations. Any inadvertent
mishandling of hazardous materials or similar incident could result in costly
remediation efforts and administrative and legal proceedings, which could
materially and adversely affect the Company's business and results of
operations. In addition, future environmental regulations could add to overall
costs of the Company's bumper plating business or otherwise materially and
adversely affect these operations.
 
  Volatility of Stock Price. The trading price of the Company's Common Stock
has been, and is likely to continue to be, subject to significant fluctuations
in response to quarterly variations in the Company's actual or anticipated
operating results, changes in general market conditions and other factors. In
recent years, the stock market generally has experienced significant price and
volume fluctuations which often have been unrelated or disproportionate to the
operating performance of a specific company or industry. There can be no
assurance that the market price of the Company's Common Stock will not decline
below the current market price. It is possible that in some future quarter,
the Company's operating results will be below the expectations of public
market analysts or investors. In such event, the price of the Company's Common
Stock may be materially and adversely affected.
 
ITEM 2. PROPERTIES
 
  Keystone's principal executive offices are located in Pomona, California and
North Star's principal executive offices are located in Minneapolis,
Minnesota. These premises contain approximately 20,000 square feet and 75,000
square feet, respectively. The Pomona, California offices are owned by the
Company and the Minneapolis, Minnesota offices are leased. In addition, the
Company owns facilities used as service centers in
Chicago, Illinois; Bethlehem, Pennsylvania; Denver, Colorado; New Albany,
Indiana and Palmyra, New Jersey, of which two of the facilities also serve as
regional hubs and three serve as wheel remanufacturing facilities. The Company
leases its remaining facilities, consisting of 65 service centers, of which
eight serve as regional hubs and four also serve as remanufacturing centers.
The Company also leases small depots in ten larger cities to facilitate
distribution.
 
  The Company's regional hubs range from approximately 25,000 square feet to
163,000 square feet. Its service centers range from approximately 2,500 square
feet to 30,000 square feet. All of its leased properties are leased for terms
expiring on dates ranging from the date hereof to February 2005, many with
options to extend the lease term. The Company believes that no single lease is
material to its operations, its facilities are adequate for the foreseeable
future and alternative sites presently are available at market rates.
 
  Of the Company's service centers, eight are leased from parties in whom
current or former officers or directors of the Company have an interest. See
"Item 13" below. The Company believes that the terms and conditions of leases
with affiliated parties are no less favorable to the Company than could have
been obtained from unaffiliated parties in arm's-length transactions at the
time of the execution of such leases.
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any material
pending litigation.
 
                                      10
<PAGE>
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  On March 21, 1997, the Company held a special meeting of shareholders for
the purpose of approving an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which a wholly-owned subsidiary of the Company was to
merge with and into North Star, the shareholders of North Star immediately
prior to the Merger would receive shares of the Company's Common Stock and
Ronald G. Brown, a director, officer and principal shareholder of North Star
would become a director of the Company. Shareholders. Shareholders holding
4,834,736 shares voted in favor of the Merger Agreement (66.2% of the
outstanding shares), 7,883 shares were voted against, 145 shares abstained and
there were no broker non-votes. For additional information with respect to the
North Star Merger reference is made to the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on April 10, 1997.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
  The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol "KEYS" on June 20, 1996. The following table sets
forth, for the periods indicated, the range of high and low sale prices for
Keystone's Common Stock as reported by the Nasdaq National Market. These
prices do not include retail mark-ups, markdowns or commissions.
 
<TABLE>
<CAPTION>
                                                                  HIGH     LOW
                                                                 ------- -------
<S>                                                              <C>     <C>
Fiscal 1997
  First Quarter (beginning June 20, 1996)....................... $ 10.50 $  9.25
  Second Quarter................................................   13.75   10.13
  Third Quarter.................................................   17.25   12.00
  Fourth Quarter................................................   18.13   15.50
Fiscal 1998
  First Quarter (through June 5, 1997).......................... $ 16.75 $ 15.25
</TABLE>
 
  On June 5, 1997, the last reported sale price for the Common Stock of the
Company as reported on the Nasdaq National Market was $15.25 per share. As of
June 5, 1997, there were approximately 93 shareholders of record of the Common
Stock.
 
  The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings to provide funds to operate
and expand its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of the Company's Board of Directors, and will depend upon, among
other things, the Company's earnings, financial condition and capital
requirements, general business conditions and any restrictions in credit
agreements.
 
                                      11
<PAGE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
  The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the two-year period ended March 28, 1997
have been derived from financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors, appearing elsewhere
herein. The selected financial data presented below for, and as of the end of
the fiscal year ended March 31, 1995, have been derived from the financial
statements audited by Ernst & Young LLP, of which the balance sheet is not
included herein. The selected financial data presented below for, and as of
the end of, each of the fiscal years in the two-year period ended March 25,
1994 have been derived from unaudited financial statements of the Company not
included herein and which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the years ended March 26, 1993 and March 25,
1994. The operating data presented below were derived from unaudited
information maintained by the Company. The historical consolidated financial
data for all periods presented includes the accounts and operations of North
Star Plating Company, which was combined with the Company on March 28, 1997 in
a transaction accounted for as a pooling of interests. The following selected
consolidated financial data should be read in conjunction with the
consolidated financial statements and notes thereto and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" also
included elsewhere herein.
<TABLE>
<CAPTION>
                          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND
                                             OPERATING DATA)
                                            FISCAL YEAR ENDED
                          -------------------------------------------------------
                           MARCH 26,   MARCH 25,  MARCH 31,  MARCH 29,  MARCH 28,
                             1993        1994       1995(1)    1996       1997
                          ----------- ----------- ---------  ---------  ---------
                          (UNAUDITED) (UNAUDITED)
<S>                       <C>         <C>         <C>        <C>        <C>
CONSOLIDATED STATEMENT
 OF INCOME DATA
Net sales...............   $  99,165   $ 110,918  $ 132,655  $ 157,021  $ 194,321
Cost of sales...........      59,399      65,713     79,319     95,131    115,052
                           ---------   ---------  ---------  ---------  ---------
Gross profit............      39,766      45,205     53,336     61,890     79,269
Selling and distribution
 expenses...............      30,632      33,773     38,601     43,800     53,503
General and administra-
 tive expenses..........       6,710       7,840      9,557      9,428     12,340
Merger costs............         --          --         --         --         905
                           ---------   ---------  ---------  ---------  ---------
Operating income........       2,424       3,592      5,178      8,662     12,521
Interest expense........       1,037         824      1,200      1,490      1,297
                           ---------   ---------  ---------  ---------  ---------
Income before income
 taxes..................       1,387       2,768      3,978      7,172     11,224
Income taxes............         566       1,108      1,543      2,836      4,435
Cumulative effect of
 accounting change for
 income taxes...........         --          134        --         --         --
                           ---------   ---------  ---------  ---------  ---------
Net income..............   $     821   $   1,526  $   2,435  $   4,336  $   6,789
                           =========   =========  =========  =========  =========
Net income per share....       $0.10       $0.18      $0.29      $0.53      $0.72
                           =========   =========  =========  =========  =========
Weighted average common
 shares outstanding(2)..   8,313,000   8,313,000  8,255,000  8,250,000  9,408,000
OPERATING DATA (UNAU-
 DITED)
Number of service cen-
 ters (3)
  Starting sites........          38          49         49         53         64
   Sites acquired.......          14           2          6         10         10
   Sites opened.........           2          --         --          3         --
   Sites consolidated...           3           2          1          2          3
   Sites closed.........           2          --          1         --          1
                           ---------   ---------  ---------  ---------  ---------
  Ending sites..........          49          49         53         64         70
                           =========   =========  =========  =========  =========
Comparable service
 center sales
 increase(4)
  Keystone..............                                 19%        10%        13%
  North Star............                                  7%        22%        13%
   Combined.............                                 16%        13%        13%
</TABLE>
 
 
                                      12
<PAGE>
 
<TABLE>
<CAPTION>
                          MARCH 26,   MARCH 25,  MARCH 31, MARCH 29, MARCH 28,
                            1993        1994       1995(1)   1996      1997
                         ----------- ----------- --------- --------- --------- 
                         (UNAUDITED) (UNAUDITED)
                         ----------- -----------
<S>                      <C>         <C>         <C>       <C>       <C>       
CONSOLIDATED BALANCE
 SHEET DATA
Working capital.........   $10,402     $11,518    $13,583   $16,954   $26,847
Total assets............    39,859      45,613     49,811    64,715    78,800
Total current
 liabilities............    22,321      26,971     27,429    35,063    35,438
Long-term debt..........     2,346       1,666      2,505     5,904     1,105
Shareholders' equity....    14,370      16,278     19,107    23,443    41,854
</TABLE>
--------
(1) Fiscal 1995 contained 53 weeks.
 
(2) Includes Common Stock equivalents attributable to stock options
    outstanding, which are not material.
 
(3) Information with respect to service centers includes combined operating
    data of both Keystone and North Star. As a result of the North Star
    Merger, the Company acquired 23 service centers. Since March 28, 1997, the
    Company has acquired one additional service center.
 
(4) Comparable service center sales have been computed using sales of service
    centers that were open throughout both fiscal years being compared.
 
                                      13
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS
 
  The following discussion and analysis is qualified in its entirety by, and
should be read in conjunction with, the "Selected Consolidated Financial Data"
and the financial statements and notes thereto included elsewhere herein.
Except for the historical information contained herein, the matters addressed
herein constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such forward-
looking statements are subject to a variety of risks and uncertainties, such
as statements of the Company's strategies, plans, objectives, expectations and
intentions, that could cause the Company's actual results to differ materially
from those anticipated in these forward-looking statements. The Cautionary
Statements made herein should be read as being applicable to all related
forward-looking statements wherever they appear herein.
 
RECENT ACQUISITIONS
 
  On March 28, 1997, the Company completed the North Star merger which was
accounted for as a pooling of interests, in which the Company issued 2,450,000
shares of its Common Stock. The pooling of interests method of accounting
requires that financial information be presented on an historical combined
basis for all periods presented. Therefore, unless otherwise indicated, the
following discussion of results of operations and liquidity and capital
resources reflects the combined companies.
 
  In August 1996, the Company acquired five service centers located in Mobile,
Montgomery, Birmingham, Dothan and Huntsville, Alabama from After Market Parts
& Supply, Inc. In September 1996, the Company acquired the assets of Southern
Wrecker Sales, Inc. ("Augusta") located in Augusta, Georgia. Augusta will be
operated as a depot of the Company's Atlanta service center. Also in September
1996, the Company acquired the assets related to the aftermarket collision
replacement parts business of Glenn Automotive Paint & Body Supply, Inc.
("Glenn"). Glenn operated two locations, Atlanta, Georgia and Chattanooga,
Tennessee, which have been consolidated into the Company's existing service
centers in those cities. In October 1996, the Company acquired the assets
related to the bumper distribution business of Stockton Plating, Inc. located
in Stockton, California. These acquisitions were accounted for under the
purchase method of accounting.
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, certain selected
income statement items as a percentage of net sales.
 
<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED
                                                   -----------------------------
                                                   MARCH 31, MARCH 29, MARCH 28,
                                                     1995      1996      1997
                                                   --------- --------- ---------
   <S>                                             <C>       <C>       <C>
   Net sales......................................   100.0%    100.0%    100.0%
   Cost of sales..................................    59.8      60.6      59.2
                                                     -----     -----     -----
   Gross profit...................................    40.2      39.4      40.8
   Selling and distribution expenses..............    29.1      27.9      27.5
   General and administrative expenses............     7.2       6.0       6.4
   North Star Merger costs........................     --        --        0.5
                                                     -----     -----     -----
   Operating income...............................     3.9       5.5       6.4
   Interest expense...............................     0.9       0.9       0.6
                                                     -----     -----     -----
   Income before income taxes.....................     3.0       4.6       5.8
   Income taxes...................................     1.2       1.8       2.3
                                                     -----     -----     -----
   Net income.....................................     1.8%      2.8%      3.5%
                                                     =====     =====     =====
</TABLE>
 
 
                                      14
<PAGE>
 
Fiscal 1997 Compared to Fiscal 1996
 
  Net sales were $194.3 million in fiscal 1997 compared to $157.0 million in
fiscal 1996, an increase of $37.3 million, or 23.8%. This increase was due
primarily to an increase of $14.2 million in sales of automotive body parts,
an increase of $10.1 million in sales of paint and related materials and an
increase of $9.5 million in sales of new and recycled bumpers, which represent
increases of approximately 23.5%, 40.7% and 14.7%, respectively, over fiscal
1996. In addition, the Company sold $2.9 million of remanufactured alloy
wheels in fiscal 1997 compared to $250,000 in the prior fiscal year, an
increase of 1,060%.
 
  The increased net sales were attributable primarily to an increase in the
number of service centers in operation and an increase in unit volume. Price
increases were not a material factor in increased net sales.
 
  Gross profit increased to $79.3 million (40.8% of net sales) in fiscal 1997
from $61.9 million (39.4% of net sales) in fiscal 1996, an increase of 28.1%,
primarily as a result of the increase in net sales. The Company's gross profit
margin has fluctuated, and is expected to continue to fluctuate, depending on
a number of factors, including changes in product mix, acquisitions and
competition.
 
  Selling and distribution expenses increased to $53.5 million (27.5% of net
sales) in fiscal 1997 from $43.8 million (27.9% of net sales) in fiscal 1996,
an increase of 22.2%. The decrease in these expenses as a percentage of net
sales was generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
 
  General and administrative expenses increased to $12.3 million (6.4% of net
sales) in fiscal 1997 from $9.4 million (6.0% of net sales) in fiscal 1996, an
increase of 30.9%. The increase in these expenses as a percentage of net sales
in fiscal 1997 was primarily the result of costs incurred in assimilating
acquired operations.
 
  In addition, during fiscal 1997, the Company incurred $905,000 of costs
related to the North Star Merger, consisting primarily of legal, accounting
and regulatory fees which were required to be expensed as incurred. All costs
associated with the North Star Merger were expensed in fiscal 1997.
 
  As a result of the above factors, net income increased to $6.8 million (3.5%
of net sales) in fiscal 1997 from $4.3 million (2.8% of net sales) in fiscal
1996. The increase in net income as a percentage of net sales was primarily
the result of an increase in gross profit as a percentage of sales. Gross
profit margin in fiscal 1997 increased primarily as a result of changes in
product mix, including an increase in the sale of remanufactured alloy wheels.
However, there can be no assurance that the Company can maintain its gross
profit margin at the level experienced in fiscal 1997, which was above
historical levels.
 
 Fiscal 1996 Compared to Fiscal 1995
 
  Net sales were $157.0 million in fiscal 1996 compared to $132.7 million in
fiscal 1995, an increase of $24.3 million, or 18.4%. This increase was due
primarily to an increase of $11.0 million in sales of automotive body parts,
an increase of $8.0 million in sales of new and recycled bumpers and an
increase of $5.3 million in the sale of paint and related materials, which
represent increases of approximately 22.3%, 14.1% and 28.2%, respectively,
over fiscal 1995.
 
  Increased net sales were attributable primarily to an increase in the number
of service centers in operation, including centers acquired in fiscal 1995 for
which fiscal 1996 was the first full year that results of operations were
included with the Company's, and an increase in unit volume. Price increases
were not a material factor in increased net sales.
 
  Gross profit increased to $61.9 million in fiscal 1996 from $53.3 million in
fiscal 1995, an increase of 16.0%, primarily as a result of the increase in
sales. Gross profit decreased as a percentage of sales from 40.2% in fiscal
1995 to 39.4% in fiscal 1996, primarily as a result of changes in product mix.
 
                                      15
<PAGE>
 
  Selling and distribution expenses increased to $43.8 million (27.9% of net
sales) in fiscal 1996 from $38.6 million (29.1% of net sales) in fiscal 1995,
an increase of 13.5%. The decrease in these expenses as a percentage of net
sales is generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
 
  General and administrative expenses decreased to $9.4 million (6.0% of net
sales) in fiscal 1996 from $9.6 million (7.2% of net sales) in fiscal 1995, a
reduction of 1.3%. These expenses decreased in amount and as a percentage of
net sales in fiscal 1996 as a result of a net reduction in certain charges
incurred in fiscal 1996 of $1.4 million as compared to fiscal 1995, of which
$1.2 million represented compensation paid in fiscal 1995 pursuant to the
Company's restricted stock option plan.
 
  As a result of the above factors, net income increased to $4.3 million (2.8%
of net sales) in fiscal 1996 from $2.4 million (1.8% of net sales) in fiscal
1995. The increase in net income as a percentage of net sales was primarily
the result of a decrease in operating expenses as a percentage of net sales
from 36.3% in fiscal 1995 to 33.9% in fiscal 1996, which was partially offset
in part by a decrease in gross profit margin from 40.2% in fiscal 1995 to
39.4% in fiscal 1996. The decrease in operating expenses in fiscal 1996
related primarily to certain charges incurred in 1995 which are not expected
in future years and, consequently, the Company does not expect to realize
significant decreases in operating expenses as a percentage of sales in the
future.
 
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
 
  The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and the seasonal nature of
Keystone's business. The number of collision repairs is directly impacted by
the weather. Accordingly, the Company's sales generally are highest during the
five-month period between December and April. Such seasonality may be reduced
somewhat in the future as Keystone becomes more geographically diversified.
Other factors which influence quarterly variations include the reduced number
of business days during the holiday seasons, the timing of the introduction of
new products, the level of consumer acceptance of new products, general
economic conditions that affect consumer spending, the timing of supplier
price changes and the timing of expenditures in anticipation of increased
sales and customer delivery requirements.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  On June 6, 1997, the Company filed a registration statement with the
Securities and Exchange Commission with respect to an underwritten public
offering of 3,800,000 shares of its Common Stock, of which 1,500,000 shares
are being offered by the Company and the balance are being offered by selling
shareholders (the "Offering"). In addition, the Company and certain selling
shareholders have granted the Underwriters a 30-day option to purchase up to
570,000 additional shares of Common Stock (of which the first 310,000 shares
will be sold by certain selling shareholders and the remaining shares will be
sold by the Company) solely to cover over-allotments, if any.
 
  In June 1996, Keystone completed an initial public offering of 3,105,000
shares of its Common Stock, (of which 1,500,000 shares were sold by the
Company) yielding net proceeds to the Company, after discounts, commissions
and expenses, of $11.6 million.
 
  Approximately $10.9 million of the proceeds were used to pay down the
Company's revolving credit facility with a commercial bank and approximately
$700,000 of the proceeds were used to retire two outstanding mortgages on the
Company's facilities located in Bethlehem, Pennsylvania and Louisville,
Kentucky. Subsequently, $5.4 million under the Company's line of credit was
used to fund acquisitions.
 
  On March 25, 1997, the Company entered into a revolving loan agreement with
a commercial lender that provides for a $25.0 million unsecured credit
facility that expires on March 24, 1998. Advances under the revolving line of
credit bear interest at LIBOR plus 0.75% (6.46% at May 31, 1997). At May 31,
1997, the outstanding balance of the line of credit was $19.3 million. The
revolving loan agreement is subject to certain restrictive covenants and
requires that the Company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
 
                                      16
<PAGE>
 
  The Company's primary need for funds has been to finance the growth of
inventory and accounts receivable and acquisitions. At March 28, 1997, working
capital was $26.8 million compared to $17.0 million at March 29, 1996.
Historically, the Company has financed its working capital requirements from
its cash flow from operations, advances drawn under lines of credit and, to a
limited extent, indebtedness to certain of the sellers of acquired service
centers.
 
  The Company believes that its cash flow from operations and the credit
available under its line of credit will enable it to finance its anticipated
growth in sales (excluding growth from acquisitions) for at least the next 12
months.
 
  The Company believes that consolidation among independent distributors of
aftermarket collision parts is creating opportunities for the Company to
acquire service centers in new and existing markets. The Company intends to
explore acquisition opportunities that may arise from time to time. To date,
the Company's acquisitions have been financed by cash flow from operations,
advances drawn under its credit facilities and indebtedness to certain of the
sellers of acquired service centers. The primarily purpose for the Offering is
to allow Keystone to implement its acquisition strategy. If the Offering is
consummated and all of the net proceeds therefrom are utilized for
acquisitions and other general corporate purposes, the Company may incur
indebtedness or issue equity or debt securities to third parties or the
sellers of the acquired businesses to complete additional acquisitions. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. In addition, current
and future issuance of equity securities, if any, will result in dilution to
the shareholders of the Company, including investors in the Offering.
 
INFLATION
 
  The Company does not believe that the relatively moderate rates of inflation
over the past three years have had a significant effect on its net sales or
its profitability.
 
NEW ACCOUNTING STANDARDS
 
  In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company has adopted Statement
121 in fiscal 1997 and the effect of adoption was not material. In October
1995, the FASB issued Statement No. 123, Accounting for Stock-based
Compensation, which establishes financial accounting and reporting standards
for stock-based compensation plans. The Company has adopted Statement No. 123
in fiscal 1997.
 
                                      17
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEX TO FINANCIAL STATEMENTS
 
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
<TABLE>
<S>                                                                          <C>
Report of Independent Auditors.............................................
Consolidated Balance Sheets at March 29, 1996 and March 28, 1997...........
Consolidated Statements of Income for the years ended March 31, 1995, March
 29, 1996 and March 28, 1997...............................................
Consolidated Statements of Shareholders' Equity for the years ended March
 31, 1995, March 29, 1996 and March 28, 1997...............................
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
 March 29, 1996 and March 28, 1997.........................................
Notes to Consolidated Financial Statements.................................
</TABLE>
 
                                       18
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
 
  We have audited the accompanying balance sheets of Keystone Automotive
Industries, Inc. and subsidiaries as of March 28, 1997 and March 29, 1996, and
the related statements of income, shareholders' equity, and cash flows for
each of the three years in the periods ended March 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of Keystone Automotive
Industries, Inc. at March 28, 1997 and March 29, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 28, 1997, in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG LLP
 
Los Angeles, California
May 23, 1997
 
                                      19
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                            MARCH 29, MARCH 28,
                                                              1996      1997
                                                            --------- ---------
<S>                                                         <C>       <C>
                          ASSETS
Current assets:
 Cash......................................................  $ 3,876   $ 1,352
 Accounts receivable, less allowance for doubtful accounts
  of $355 in 1996 and $658 in 1997.........................   15,919    18,738
 Inventories, primarily finished goods.....................   30,576    39,512
 Prepaid expenses and other current assets.................      867       897
 Deferred taxes............................................      779     1,786
                                                             -------   -------
   Total current assets....................................   52,017    62,285
Property, plant and equipment, at cost:
 Land......................................................      376       486
 Buildings and leasehold improvements......................    4,973     5,959
 Machinery and equipment...................................    5,823     7,359
 Furniture and fixtures....................................    6,820     8,187
                                                             -------   -------
                                                              17,992    21,991
 Accumulated depreciation and amortization.................   (9,470)  (11,241)
                                                             -------   -------
                                                               8,522    10,750
Intangibles................................................    2,584     3,719
Other assets...............................................    1,592     2,046
                                                             -------   -------
   Total assets............................................  $64,715   $78,800
                                                             =======   =======
           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Line of credit............................................  $13,250   $12,629
 Bankers acceptances and other short term debt.............    3,520     3,538
 Accounts payable..........................................   13,086    15,994
 Accrued salaries, wages and related benefits..............    1,540     1,432
 Other accrued liabilities.................................    1,140       718
 Long-term debt, due within one year.......................    2,527       741
 Deferred taxes............................................      --        386
                                                             -------   -------
   Total current liabilities...............................   35,063    35,438
 Long-term debt, less current maturities...................    5,712       913
 Notes payable to officers, shareholders and other related
  parties                                                        192       192
 Deferred taxes............................................      269       403
 Accrued pension cost......................................       36       --
Shareholders' equity:
 Preferred stock, no par value:
 Authorized shares--3,000,000
 None issued and outstanding...............................      --        --
 Common stock, no par value:
 Authorized shares--20,000,000
 Issued and outstanding shares--8,250,000 in 1996 and
  9,750,000 in 1997, at stated value.......................    4,299    15,921
 Additional paid-in capital................................      553       553
 Retained earnings.........................................   18,591    25,380
                                                             -------   -------
   Total shareholders' equity..............................   23,443    41,854
                                                             -------   -------
   Total liabilities and shareholders' equity..............  $64,715   $78,800
                                                             =======   =======
</TABLE>
 
                            See accompanying notes.
 
                                       20
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
               (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                               --------------------------------
                                               MARCH 31,  MARCH 29,  MARCH 28,
                                                  1995       1996       1997
                                               ---------- ---------- ----------
<S>                                            <C>        <C>        <C>
Net sales..................................... $  132,655 $  157,021 $  194,321
Cost of sales.................................     79,319     95,131    115,052
                                               ---------- ---------- ----------
Gross profit..................................     53,336     61,890     79,269
Operating expenses:
 Selling and distribution expenses............     38,601     43,800     53,503
 General and administrative...................      9,557      9,428     12,340
 Merger costs.................................        --         --         905
                                               ---------- ---------- ----------
                                                   48,158     53,228     66,748
                                               ---------- ---------- ----------
Operating income..............................      5,178      8,662     12,521
Interest expense..............................      1,200      1,490      1,297
                                               ---------- ---------- ----------
Income before income taxes....................      3,978      7,172     11,224
Income taxes..................................      1,543      2,836      4,435
                                               ---------- ---------- ----------
Net income.................................... $    2,435 $    4,336 $    6,789
                                               ========== ========== ==========
Net income per share.......................... $      .29 $      .53 $      .72
                                               ========== ========== ==========
Weighted averages shares outstanding..........  8,255,000  8,250,000  9,408,000
                                               ========== ========== ==========
</TABLE>
 
 
                            See accompanying notes.
 
                                       21
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
                                 MARCH 28, 1997
 
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                 COMMON STOCK      ADDITIONAL
                               ------------------   PAID-IN   RETAINED
                                SHARES    AMOUNT    CAPITAL   EARNINGS  TOTAL
                               ---------  -------  ---------- -------- -------
<S>                            <C>        <C>      <C>        <C>      <C>
Balance at March 25, 1994, as
 previously reported.......... 5,682,622  $ 3,905     $436    $ 6,228  $10,569
 Pooling of interests with
  North Star Plating
  Company..................... 2,450,000      --       117      5,592    5,709
                               ---------  -------     ----    -------  -------
Balance at March 25, 1994, as
 adjusted..................... 8,132,622    3,905      553     11,820   16,278
 Retirement of 62,755 shares
  of common stock ($3.32 per
  share)......................   (62,755)    (209)     --         --      (209)
 Issuance of 180,133 shares of
  common stock to
  officers ($3.35 per share)..   180,133      603      --         --       603
 Net income...................       --       --       --       2,435    2,435
                               ---------  -------     ----    -------  -------
Balance at March 31, 1995..... 8,250,000    4,299      553     14,255   19,107
 Net income...................       --       --       --       4,336    4,336
                               ---------  -------     ----    -------  -------
Balance at March 29, 1996..... 8,250,000    4,299      553     18,591   23,443
 Issuance of 1,500,000 shares
  in connection with initial
  public offering at $9.00 a
  share net of offering costs
  and commissions of $1,878... 1,500,000   11,622      --         --    11,622
 Net income...................       --       --       --       6,789    6,789
                               ---------  -------     ----    -------  -------
Balance at March 28, 1997..... 9,750,000  $15,921     $553    $25,380  $41,854
                               =========  =======     ====    =======  =======
</TABLE>
 
 
                            See accompanying notes.
 
                                       22
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                  -----------------------------
                                                  MARCH 31, MARCH 29, MARCH 28,
                                                    1995      1996      1997
                                                  --------- --------- ---------
<S>                                               <C>       <C>       <C>
OPERATING ACTIVITIES:
Net income......................................   $2,435    $4,336    $ 6,789
Adjustments to reconcile net income to net cash
 provided by (used in) operating activities:
  Depreciation and amortization.................    1,401     1,607      2,617
  Deferred taxes................................     (639)      239       (487)
  Provision of losses on uncollectible accounts.      270       317        673
  Provision for losses on inventory.............    1,324       641        322
  (Gain) loss on sales of assets................       87       (11)      (150)
  Stock issued for compensation.................      603       --         --
  Changes in operating assets and liabilities:
   Accounts receivable..........................     (857)   (4,672)    (2,736)
   Inventories..................................     (267)   (5,700)    (6,834)
   Prepaid expenses and other receivables.......     (454)      574        (30)
   Other assets.................................      176       445       (454)
   Accounts payable.............................     (520)    3,947      2,908
   Accrued salaries, wages and related benefits.     (195)      539       (108)
   Other accrued liabilities and accrued pension
    costs.......................................      (60)     (524)      (458)
                                                   ------    ------    -------
Net cash provided by operating activities.......    3,304     1,738      2,052
INVESTING ACTIVITIES:
Proceeds from sales of assets...................       66        75        270
Acquisitions of certain service centers.........   (1,289)   (3,051)    (3,175)
Intangible assets acquired......................     (175)   (2,003)    (1,751)
Purchases of property, plant and equipment......   (2,504)   (1,945)    (3,854)
                                                   ------    ------    -------
Net cash used in investing activities...........   (3,902)   (6,924)    (8,510)
FINANCING ACTIVITIES:
Borrowings under bank credit facility...........    2,950     1,560     19,129
Payments under bank credit facility.............   (1,210)      (50)   (19,750)
Bankers acceptances and other short-term debt,
 net............................................   (1,024)    1,067         18
Borrowings on notes payable to officers,
 shareholders and other related parties.........       14       178        --
Payments on notes payable to officers,
 shareholders and other related parties.........      (13)     (364)       --
Borrowings on long-term debt....................    2,944     4,351         24
Principal payments on long-term debt............   (1,762)   (2,131)    (7,109)
Proceeds from initial public offering...........      --        --      11,622
Principal payments on capital lease obligations.     (141)
Retirement of stock.............................     (209)      --         --
                                                   ------    ------    -------
Net cash provided by financing activities.......    1,549     4,611      3,934
                                                   ------    ------    -------
Net increase (decrease) in cash.................      951      (575)    (2,524)
Cash at beginning of year.......................    3,500     4,451      3,876
                                                   ------    ------    -------
Cash at end of year.............................   $4,451    $3,876    $ 1,352
                                                   ======    ======    =======
Supplemental disclosures
  Interest paid during the year.................   $1,145    $1,503    $ 1,338
  Income taxes paid during the year.............   $2,631    $2,412    $ 5,311
  Acquisition of businesses using debt..........   $  --     $1,666    $   500
                                                   ------    ------    -------
</TABLE>
                            See accompanying notes.
 
                                       23
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                MARCH 28, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BUSINESS INFORMATION
 
  The principal business of Keystone Automotive Industries, Inc. (the
"Company") is the distribution of replacement parts for automobiles and light
trucks to collision repair shops through a network of seventy service centers
located within the United States and one in Mexico.
 
PRINCIPLES OF CONSOLIDATION
 
  The accompanying consolidated financial statements include the accounts of
Keystone Automotive Industries, Inc. and its wholly-owned subsidiary, North
Star Plating Co. All significant intercompany transactions have been
eliminated in consolidation.
 
CASH EQUIVALENTS
 
  The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
and cash equivalents are held by major financial institutions.
 
FISCAL YEAR
 
  The Company uses a 52/53 week fiscal year. The Company's fiscal year ends on
the last Friday of March. The fiscal years ended March 31, 1995, March 29,
1996 and March 28, 1997, included 53, 52 and 52 weeks, respectively.
 
FAIR VALUES OF FINANCIAL INSTRUMENTS
 
  Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the
consolidated financial statements.
 
INVENTORIES
 
  The Company's inventories consist primarily of automotive collision
replacement parts, paint and related materials and bumpers. Inventories are
stated at the lower of cost (first-in, first-out) or market.
 
DEPRECIATION
 
  The Company uses the straight-line method for depreciation of property,
plant, and equipment over the following estimated useful lives:
 
<TABLE>
   <S>                                      <C>
   Buildings...............................   20 years
   Machinery and equipment................. 5-12 years
   Furniture and fixtures..................  5-6 years
   Auto and truck..........................  3-5 years
   Leasehold improvements.................. Term of lease or life of the asset,
                                            whichever is shorter, or 5-20 years.
</TABLE>
 
  Depreciation expenses amounted to approximately $1,369,000, $1,483,000, and
$2,001,000 for the years ended March 31, 1995, March 29, 1996 and March 28,
1997, respectively.
 
                                      24
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
CONCENTRATIONS OF RISK
 
  Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, none representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are generally due within 30
days. Credit losses have consistently been within management's expectations.
During 1997 Keystone imported 25% of its products from the Far East.
 
ACCOUNTING ESTIMATES
 
  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 revenue and expenses during the
reporting period. Actual results could differ from these estimates.
 
STOCK-BASED COMPENSATION
 
  The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and related interpretations. Management has determined
that the effect of applying Financial Accounting Standards Board Statement No.
123's fair value method to the Company's stock-based awards results in net
income and earnings per share that are not materially different from amounts
reported. Under the provisions of APB 25, compensation expense is measured at
the grant date for the difference between the fair value of the stock and the
exercise price.
 
REVENUE RECOGNITION
 
  The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are
damaged or defective. The effect of these programs is estimated and current
period sales and costs of sales are reduced accordingly.
 
INTANGIBLES
 
  Excess of cost over net assets acquired is amortized over a fifteen-year
period using the straight-line method. Covenants not to compete are amortized
using the straight-line method over the terms of the agreements. Amortization
expense for the years ended March 31, 1995, March 29, 1996, and March 28, 1997
were $32,000, $124,000, and $616,000, respectively.
 
 
<TABLE>
<CAPTION>
                                                                  1996    1997
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Covenants not to compete..................................... $1,135  $3,012
   Excess of cost over net assets acquired......................  1,605   1,479
                                                                 ------  ------
                                                                  2,740   4,491
   Less: Accumulated amortization...............................   (156)   (772)
                                                                 ------  ------
   Total........................................................ $2,584  $3,719
                                                                 ======  ======
</TABLE>
 
                                      25
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
EARNINGS PER SHARE
 
  The Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. The Company
restated its Articles of Incorporation and Bylaws to increase the authorized
shares of common stock to 20,000,000 and to authorize 3,000,000 shares of
preferred stock. No preferred stock has been issued. Additionally, the Board
of Directors and shareholders approved a common stock split of 3.8467 to 1 on
April 16, 1996. All share and per share amounts in these financial statements
have been adjusted for the common stock split.
 
  Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents (attributable to stock options
which are not material) outstanding during each period. Common stock
equivalents were calculated using the treasury stock method.
 
NEW ACCOUNTING STANDARDS
 
  In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for fiscal years
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options will be excluded. The impact
of Statement 128 on the calculation of basic earnings per share and fully
diluted earnings per share for the years ended March 31, 1995, March 29, 1996,
and March 28, 1997 will not be material.
 
2. MERGER AND ACQUISITIONS
 
  Effective March 28, 1997, the Company completed a merger with North Star
Plating Company ("North Star"). An aggregate of 2,450,000 shares of Keystone
common stock was exchanged for all of the outstanding common stock of North
Star. The transaction was accounted for as a pooling of interests and
therefore, all prior period financial statements presented include North
Star's historical activities. North Star used a September 30 year end. The
North Star balance sheets and statements of income and cash flow have been
conformed to Keystone's fiscal years ended March 31, 1995, March 29, 1996 and
March 28, 1997.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                   ----------------------------
                                                    MARCH     MARCH     MARCH
                                                     31,       29,       28,
                                                     1995      1996      1997
                                                   --------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
   <S>                                             <C>       <C>       <C>
   Net sales:
     Keystone..................................... $101,596  $115,326  $138,380
     North Star...................................   32,479    43,317    58,227
     Intercompany eliminations....................   (1,420)   (1,622)   (2,286)
                                                   --------  --------  --------
   Combined....................................... $132,655  $157,021  $194,321
                                                   ========  ========  ========
   Net income:
     Keystone..................................... $  1,406  $  3,106  $  4,836
     North Star...................................    1,029     1,230     1,953
                                                   --------  --------  --------
   Combined....................................... $  2,435  $  4,336  $  6,789
                                                   ========  ========  ========
   Other changes in shareholders' equity:
     Keystone..................................... $    394  $    --   $ 11,622
     North Star...................................      --        --        --
                                                   --------  --------  --------
   Combined....................................... $    394  $         $ 11,622
                                                   ========  ========  ========
</TABLE>
 
 
                                      26
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
2. MERGER AND ACQUISITIONS (CONTINUED)
 
  Changes in shareholders' equity for the year ended March 31, 1995 are due to
the issuance of 180,133 shares of common stock to officers for $3.35 a share
and the retirement of 62,755 shares of common stock. Changes in shareholders'
equity for the year ended March 28, 1997 are due to the proceeds from the
Company's initial public offering less offering expenses, underwriters
commissions and discounts.
 
  In connection with the merger, $905,000 of merger costs and expenses were
incurred and have been charged to expense during the third and fourth quarter
of the year ended March 28, 1997. The merger costs and expenses consisted
primarily of legal, accounting, and investment banking fees.
 
  During the year ended March 29, 1996, the Company purchased substantially
all of the assets, primarily inventory, furniture and fixtures, and equipment
of M.A.P. International, C.D. Wheel and United Bumper. The Company paid
approximately $1,192,000 in cash and a note for $150,000 due October 1998.
 
  In January of 1996 the Company's wholly-owned subsidiary (North Star)
purchased substantially all of the assets of Carolina Bumper, Inc., Carolina
Auto and Paint Supply, Inc., Carolina Truck Specialties/Automotive Colors,
Inc. and Carolina Bumper/Automotive Colors, Inc., automotive and retail supply
businesses. As consideration for the assets purchased, North Star paid cash of
approximately $3,700,000, assumed certain liabilities and issued a one-year
promissory note in the amount of $647,000. The note is due in monthly
installments and bears interest at the rate of 8%. Promissory notes of
$200,000 (due in 12 equal monthly installments) and $500,000 (due in 60 equal
monthly installments), were issued in exchange for a five year covenant not to
compete. Each note bears interest at a rate of 8%.
 
  The acquisitions for the year ended March 29, 1996 were accounted for using
the purchase method. The acquired assets and liabilities were recorded at
their estimated fair values. The results of operations have been included
since the respective dates of acquisition. These results were not significant
to the financial results of the Company.
 
  During fiscal 1997, the Company purchased substantially all of the assets
primarily inventory, furniture and fixtures, and equipment of After Market
Parts & Supply ("AMPS"), Augusta Bumper, Glenn Automotive Paint & Body Supply,
Inc., and Stockton Plating Inc. The Company paid approximately $5,900,000 in
total for these acquisitions. The acquired assets and liabilities were
recorded at their estimated fair values. The acquisitions were accounted for
using the purchase method. The results of operations have been included since
the respective dates of acquisition. These results were not significant to the
consolidated financial results of the Company.
 
3. SHAREHOLDERS' EQUITY
 
  In June 1996, the Company's Registration Statement of Form S-1 was declared
effective by the Securities and Exchange Commission, permitting the Company to
sell shares of its common stock to the public. The Company and selling
shareholders sold 1,500,000 and 1,605,000 shares, respectively, at the initial
offering price of $9.00 per share. The Company proceeds of $11,622,000 (net of
underwriter commissions and offering costs) were used to pay down bank debt
and for working capital.
 
                                      27
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
4. LONG-TERM DEBT
 
  Long-term debt consists of the following at March 29, 1996, and March 28,
1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                  1996    1997
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Note payable to bank, due in monthly installments of
    $50,000, plus interest at the prime rate (8.25% at March
    29, 1996), plus .5% due August 1, 1996.....................  $  250  $  --
   Various covenants not-to-compete, payable with interest up
    to 8%, through 2001........................................     804     884
   Notes payable to Bumper Exchange, monthly principal of
    $6,790 and interest at 1% above the prime rate (8.25% at
    March 29, 1996), payable through October 1997. Secured by
    inventory, property and equipment..........................     129     --
   Note payable to PNC bank, monthly payments of $6,649 with a
    variable interest rate (9.25% at March 29, 1996), payable
    through April 30, 1999. Secured by property................     674     --
   Note payable to D. Fales, interest at 1% above the prime
    rate, (8.25% at March 28, 1997), payable through October
    1998.......................................................     150     150
   Note payable to bank, secured by all inventories, equipment,
    accounts receivable and fixed assets, payable in monthly
    installments of $62,877, including 8.23% interest until
    December 31, 2000..........................................   3,883     --
   Note payable, XRJ, Inc., secured by acquired assets, payable
    in monthly installments of $56,438 until December 15, 1996.     544     --
   Capital lease obligation, payable in monthly installments of
    $5,678, including 6.73% interest through December 1, 1998..     175     117
   Other interest bearing notes, payable through 1999..........   1,822     695
                                                                 ------  ------
                                                                  8,431   1,846
   Less amount due within one year.............................  (2,527)   (741)
                                                                 ------  ------
   Amounts due after one year..................................  $5,904  $1,105
                                                                 ======  ======
</TABLE>
 
  Long-term debt due after one year matures approximately as follows: 1998--
$741,000; 1999--$685,000; 2000--$225,000; 2001--$195,000; 2002 and
thereafter--$0.
 
5. FINANCING ARRANGEMENTS
 
  On March 25, 1997 the Company entered into a revolving loan agreement with a
commercial lender that provides a $25,000,000 unsecured credit facility that
expires on March 24, 1998. Initial advances under the revolving line of credit
are made with interest at the prime rate (8.5% at March 28, 1997), however at
the Company's option, all advances may be converted to LIBOR plus 0.75%-
0.875%. The weighted average interest rate on the line of credit was 8.3% and
8.1% for the years ended March 29, 1996 and March 28, 1997, respectively. The
agreement also contains an unused line charge of 0.125%. At March 28, 1997 the
unused portion of the line of credit was $12,371,000.
 
  The revolving loan agreement is subject to certain restrictive covenants and
requires that the company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
 
                                      28
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
6. RELATED PARTY TRANSACTIONS
 
  The Company has entered into various property lease agreements with related
parties including certain of the Company's directors and officers and
agreements with a corporation which is owned by a family member of a Company
officer and director. The leases contain terms up to 10 years. The Company
believes that the terms and conditions of such leases with affiliated parties
are no less favorable than could have been obtained from unaffiliated parties
in arm's length transactions at the time such leases were entered into. Rent
expense paid to related parties, included in the total rent expense, amounted
to $724,000, $665,000 and $931,000 for 1995, 1996 and 1997, respectively,
exclusive of the Company's obligation for property taxes and insurance.
 
  Notes payable to officers, shareholders, and other related parties are
unsecured, due October 1, 1998, and bear interest at the prime rate (8.25% at
March 28, 1997) plus 1%. Interest expense incurred in connection with these
obligations was $32,000 at March 31, 1995, $43,000 at March 29, 1996 and
$21,000 at March 28, 1997.
 
7. INCOME TAXES
 
  The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
 
  Significant components of the Company's deferred tax liabilities and assets
as of year end as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  1996    1997
                                                                  -----  ------
   <S>                                                            <C>    <C>
   Deferred tax assets:
     Book depreciation over tax.................................. $  36  $  --
     Uniform cost capitalization.................................   546     765
     Inventory reserve...........................................   204     206
     Accrued expenses not currently deductible for tax...........   413     696
     Other, net..................................................   108     313
                                                                  -----  ------
   Total deferred tax assets..................................... 1,307   1,980
   Deferred tax liabilities:
     Prepaid expenses............................................  (381)   (385)
     Tax depreciation over book..................................   --     (182)
                                                                  -----  ------
   Total deferred tax liabilities................................  (381)   (567)
                                                                  -----  ------
   Net deferred tax assets....................................... $ 926  $1,413
                                                                  =====  ======
</TABLE>
 
  No valuation allowance was necessary for deferred tax assets in 1996 or
1997.
 
                                      29
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
7. INCOME TAXES (CONTINUED)
 
  Significant components of the provision for income taxes attributable to
operations under the liability method are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                           1995    1996   1997
                                                          ------  ------ ------
   <S>                                                    <C>     <C>    <C>
   Current:
     Federal............................................. $1,760  $2,064 $3,958
     State...............................................    422     533    964
                                                          ------  ------ ------
                                                           2,182   2,597  4,922
   Deferred:
     Federal.............................................   (436)    203   (390)
     State...............................................   (203)     36    (97)
                                                          ------  ------ ------
                                                            (639)    239   (487)
                                                          ------  ------ ------
                                                          $1,543  $2,836 $4,435
                                                          ======  ====== ======
</TABLE>
 
  The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income tax expense is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                           1995    1996   1997
                                                          ------  ------ ------
   <S>                                                    <C>     <C>    <C>
   Income taxes at statutory tax rate.................... $1,353  $2,438 $3,816
   State income taxes, net of federal tax effect.........    210     381    565
   Non-deductible expenses...............................     14      17     47
   Other, net............................................    (34)    --       7
                                                          ------  ------ ------
                                                          $1,543  $2,836 $4,435
                                                          ======  ====== ======
</TABLE>
 
8. EMPLOYEE BENEFIT PLANS
 
  The Company has an employee stock ownership plan which covers substantially
all of its employees. Under the terms of the Internal Revenue Code, each
year's tax deductible contribution is limited to a maximum of 15% of the
Company's qualified payroll. A carryover of unused allowable contributions is
allowed, subject to certain limits. Under the terms of the plan, the Company
makes the contribution to the Trustee, who is required to follow the
Administrative Committee's investment decisions. The Company's contributions
to the plan were $190,000, in 1995, and none in 1996 and 1997, respectively.
 
  In March 1979, the Company adopted a defined benefit pension plan (the
"Plan") to provide pension benefits to all non-union employees. Plan benefits
are based on an employee's years of service and the compensation during the
five years of employment which would yield the highest average compensation.
The assets of the plan consist primarily of investments in mutual funds, time
certificates of deposit, and marketable debt securities. The Company's policy
is to fund pension cost accrued.
 
                                      30
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
 
  The net periodic pension cost for the Plan for the years ended March 31,
1995, March 29, 1996 and March 28, 1997, consisted of the following (in
thousands).
 
<TABLE>
<CAPTION>
                                                            1995   1996   1997
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Service costs-- benefits earned during the year......... $ 120  $ 132  $ 154
   Interest cost on projected benefit obligation...........   188    213    232
   Actual return on assets.................................  (136)  (153)  (199)
   Net amortization and deferral...........................    40     45     40
                                                            -----  -----  -----
                                                            $ 212  $ 237  $ 227
                                                            =====  =====  =====
</TABLE>
 
  The following is a summary of the status of the funding of the Plan (in
thousands):
 
<TABLE>
<CAPTION>
                                                                1996     1997
                                                               -------  -------
   <S>                                                         <C>      <C>
   Actuarial present value of benefit obligations:
     Vested benefit obligations..............................  $(2,414) $(2,783)
     Non-vested benefit obligations..........................      (65)     (81)
                                                               -------  -------
   Accumulated benefit obligations...........................  $(2,479) $(2,864)
                                                               =======  =======
   Projected benefit obligations.............................  $(2,902) $(3,380)
   Assets of the plan at market..............................    2,442    2,989
                                                               -------  -------
   Projected benefit obligation greater than assets of the
    plan.....................................................     (460)    (391)
   Unrecognized net obligation not yet recognized in periodic
    pension cost.............................................    1,148    1,195
   Unrecognized net transition obligation at March 28, 1987,
    being recognized over 25 years...........................      128      120
   Adjustment required to recognize minimum liability:
     Accrued but not expensed................................       (1)     --
     Unfunded liability......................................       36      --
                                                               -------  -------
   Prepaid pension included in other assets and prepaid
   expenses..................................................  $   851  $   924
                                                               =======  =======
</TABLE>
 
  In determining the actuarial present value of projected benefit obligations
at March 29, 1996 and March 28, 1997, a discount rate of 8% was used. Future
compensation levels are assumed to increase at an annual rate of 5%. The
expected long-term annual rate of return on assets was 8% for the years ended
March 31, 1995, March 29, 1996, and March 28, 1997. In April 1997 the Board of
Directors approved the freezing of the defined benefit pension plan.
Management estimates, after consulting with the Company's actuary, that the
curtailment of the plan is not material to the Company's results of
operations. However, this estimate depends on the plan's asset values at the
date of curtailment.
 
  North Star, a wholly-owned subsidiary, adopted a 401(k) plan in fiscal 1996
that covers substantially all of its employees. Employees who have completed
more than one year of service are eligible and may contribute from 1% to 15%
of their base pay. The Company matches 50% of the first 4% of employee
contributions. Employee contributions vest immediately, while employer
contributions vest based on years of service. Contributions to the plan were
$43,000 and $173,000, as of March 29, 1996 and March 28, 1997, respectively.
On April 1, 1997 the plan was amended to include substantially all of the
Company's employees and to increase the matching contribution to 6% of
employee contribution.
 
                                      31
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
9. STOCK COMPENSATION PLANS
 
  In 1996, the Board of Directors of the Company adopted a Stock Incentive
Plan (the "Plan"). There were 730,000 shares of Common Stock reserved for
issuance under the 1996 Plan. The 1996 Plan provides for granting of stock
options that may be either "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986 (the "Code") or "non-
qualified stock options," which do not satisfy the provisions of Section 422A
of the Code. Options are required to be granted at an option price per share
equal to the fair market value of Common Stock on the date of grant. Stock
options may not be granted longer that 10 years from the date of the 1996
Plan. All options granted have ten-year terms and vest at the rate of 25% per
year, commencing one year from the date of grant.
 
<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                                        AVERAGE
                                                                        EXERCISE
   STOCK OPTION PLAN                                            SHARES   PRICE
   -----------------                                            ------- --------
   <S>                                                          <C>     <C>
   Outstanding at March 29, 1996                                    --      --
     Granted................................................... 432,000  $11.90
     Exercised.................................................     --      --
     Expired...................................................     --      --
   Outstanding at March 28, 1997............................... 432,000  $11.90
</TABLE>
 
  The following tabulation summarizes certain information concerning
outstanding and exercisable options at March 28, 1997:
 
<TABLE>
<CAPTION>
                                                                   PRICE RANGE
                                                                 ---------------
                                                                         $12.25
                                                                           TO
                                                                  $9.00  $15.00
                                                                 ------- -------
   <S>                                                           <C>     <C>
   Outstanding options:
     Number outstanding......................................... 220,000 212,000
     Weighted average exercise price............................ $  9.00 $ 14.90
     Weighted average remaining contractual life in years.......     9.2     9.3
   Exercisable options:
     Number exercisable.........................................  20,000  45,000
     Weighted average exercise price............................ $  9.00 $ 12.69
</TABLE>
 
  There were no exercisable options outstanding in fiscal years 1996 and 1995.
 
  If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by Statement of
Financial Accounting Standards No. 123, net income and earnings per share
would have been reduced to the pro forma amounts shown below:
 
<TABLE>
<CAPTION>
                                                                           1997
   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                               ------
   <S>                                                                    <C>
   Pro forma:
     Net income.......................................................... $6,667
     Earnings per share:
      Primary............................................................ $ 0.71
      Fully diluted...................................................... $ 0.71
</TABLE>
 
 
                                      32
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
 
9. STOCK COMPENSATION PLANS (CONTINUED)
 
  The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
                                                                           1997
                                                                           ----
   <S>                                                                     <C>
   Risk free interest rate................................................ 6.52%
   Expected life in years.................................................    4
   Expected volatility.................................................... 26.8%
   Expected dividend yield................................................ 0.00%
</TABLE>
 
  In fiscal 1995 the Company had 180,133 shares exercised at a weighted
average price of $3.35. This resulted in compensation expense of $1,200,000.
The plan under which these option were granted was terminated in 1995.
 
10. COMMITMENTS
 
  The Company leases substantially all of its property and a portion of its
plant and equipment. Certain of the leases contain renewal options from two to
five years.
 
  Future minimum lease payments, under noncancelable operating leases with
initial terms of one year or more, are approximately as follows at March 28,
1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                       RELATED           TOTAL
                                                        PARTY          OPERATING
                                                       LEASES   OTHER   LEASES
                                                       ------- ------- ---------
   <S>                                                 <C>     <C>     <C>
   1998............................................... $1,002  $ 3,987  $ 4,989
   1999...............................................    946    3,200    4,146
   2000...............................................  1,078    2,699    3,777
   2001...............................................  1,005    1,749    2,754
   2002...............................................    977      774    1,751
   Thereafter.........................................  2,881      234    3,115
                                                       ------  -------  -------
   Total minimum rental payments...................... $7,889  $12,643  $20,532
                                                       ======  =======  =======
</TABLE>
 
  Total rent expense amounted to $2,707,000, $4,044,000 and $4,985,000 for
1995, 1996 and 1997, respectively, exclusive of the Company's obligation for
property taxes and insurance. Certain leases contain provisions for rent
escalation that is being amortized on a straight-line basis over the lives of
the leases.
 
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
  The following is a summary of the quarterly results of operations for the
years ended March 29, 1996 and March 28, 1997.
 
<TABLE>
<CAPTION>
                                                          
                                                 JUNE 30 SEPT. 29 DEC. 29 MAR. 29
                                                 ------- -------- ------- -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE
                                                            AMOUNTS)
                                                 -------------------------------
   <S>                                           <C>     <C>     <C>     <C>
   1996:
     Net Sales.................................. $34,667 $35,420 $38,763 $48,171
     Gross Profit...............................  13,810  13,773  15,479  18,828
     Net Income.................................     760     824   1,199   1,553
     Earnings Per Share.........................    0.09    0.10    0.15    0.19
</TABLE>
 
 
                                      33
<PAGE>
 
                     KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 28, 1997
 
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
 
<TABLE>
<CAPTION>
                                                          
                                                 JUNE 28 SEPT. 27 DEC. 27 MAR. 28
                                                 ------- -------- ------- -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE
                                                            AMOUNTS)
                                                 -------------------------------
   <S>                                           <C>     <C>     <C>     <C>
   1997:
     Net Sales.................................. $45,561 $43,894 $49,905 $54,961
     Gross Profit...............................  18,296  17,712  20,566  22,695
     Net Income.................................   1,519   1,636   1,857   1,777
     Earnings Per Share.........................    0.18    0.17    0.19    0.18
</TABLE>
 
 
12. SUBSEQUENT EVENTS
 
  Effective on May 23, 1997, the Company's Chairman and Chief Executive
Officer resigned his positions to pursue other interests. Under the terms of
the employment agreement, the Company is obligated to pay the balance of his
contract and to provide for certain employee benefits. The Company will record
a pre tax charge of approximately $700,000 in the first quarter of fiscal year
1998 in connection with the settlement of all outstanding obligations.
 
  The Company is planning to file a Form S-1 Registration Statement with the
SEC in connection with a secondary offering of its common stock. The filing is
expected to be effective June 1997. Management has indicated the proceeds from
the offering will be used to paydown the Company's indebtedness under its
revolving lines of credit.
 
  The Company is currently negotiating acquisitions for substantially all the
assets and specific liabilities of a bumper distributor located in the
Southeast and a wheel remanufacturer located in the Midwest for approximately
$4,100,000 in cash. The acquisitions are expected to be completed in June of
1997.
 
                                      34
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
  Not applicable.
 
                                   PART III
 
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The following table sets forth information regarding the directors and
executive officers of the Company.
 
<TABLE>
<CAPTION>
                                                                       YEARS
                                                                      EMPLOYED
           NAME          AGE                POSITION                 BY COMPANY
           ----          ---                --------                 ----------
   <C>                   <C> <S>                                     <C>
   Ronald G. Brown......  60 Chairman of the Board                       29(1)
   Charles J. Hogarty...  56 President, Chief Executive Officer          36
                              and Director
   Al A. Ronco..........  61 Executive Vice President and Director       37
   Kim D. Wood..........  40 Vice President and President and            15(1)
                              Chief Operating Officer of North
                              Star
   John M. Palumbo......  41 Vice President, Treasurer, and Chief         1
                              Financial Officer
   Robert L. Blanton....  54 Vice President -- Finance                   27
   Christopher Northup..  37 Vice President -- Sales and Marketing       13
   James C. Lockwood....  59 Vice President -- General Counsel and        *
                              Secretary
   Timothy C. McQuay(2).  45 Director                                    --
   George E. Seebart(2).  68 Director                                    --
</TABLE>
--------
  * Less than one year.
(1) Includes years of service at North Star.
(2) Member of the Audit Committee and the Compensation Committee.
 
  RONALD G. BROWN was elected a director of the Company upon completion of the
North Star Merger pursuant to the terms of the Merger Agreement and was
elected as Chairman of the Board of Directors in May 1997. Mr. Brown served as
President of North Star from its founding in 1968 until the North Star Merger
and he is currently the Vice-President -- Manufacturing of North Star. From
1982 to the present, he has been a member of the Board of Directors of First
Bank N.A. of Brainerd, Minnesota, an affiliate of North Star's primary bank
lender. Mr. Brown has served as a member of the Board of Directors and Vice
President of the Bumper Recycling Association of North America.
 
  CHARLES J. HOGARTY has served as the President, Chief Operating Officer and
a director of the Company since 1987 and was appointed the Chief Executive
Officer of the Company in May 1997. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,
general manager and regional manager. Mr. Hogarty served as a director of the
Aftermarket Body Parts Association from 1984 to 1993, President in 1989 and
Chairman in 1990.
 
  AL A. RONCO has served as the Executive Vice President and a director of the
Company since 1987 and as Secretary from 1987 until he resigned that position
in May 1997. From his joining the Company in 1959 until 1987, Mr. Ronco held
various positions, including salesman, production manager, general manager and
regional manager.
 
  KIM D. WOOD was elected President and Chief Operating Officer of North Star
upon completion of the North Star Merger in March 1997 and was elected a Vice
President of the Company in May 1997. Mr. Wood served as Vice President of
North Star from 1982 until the completion of the North Star Merger. Mr. Wood
is a member of the Aftermarket Body Parts Association and the Certified
Automotive Parts Association. From 1993 through 1995, he was the Chairman of
the Board of the Aftermarket Body Parts Association.
 
                                      35
<PAGE>
 
  JOHN M. PALUMBO joined the Company as Vice President and Treasurer in March
1996 and was appointed Chief Financial Officer in May 1997. From 1988 until he
joined the Company in 1996, Mr. Palumbo served as Chief Financial Officer,
Treasurer and Corporate Secretary of American United Global, Inc., a public
company engaged in the manufacture of certain automotive parts.
 
  ROBERT L. BLANTON has served as the Vice President -- Finance of the Company
since 1976. From his joining the Company in 1969 until 1976, Mr. Blanton held
various positions, including office manager of a wheel fabrication plant and
staff accountant.
 
  CHRISTOPHER NORTHUP has served as Vice President -- Sales and Marketing
since October 1996. From 1987 until October 1996, Mr. Northup served as the
National Marketing Director. From his joining the Company in 1983 until 1987,
Mr. Northup held the position of Publications Manager.
 
  JAMES C. LOCKWOOD joined the Company in April 1997 and was appointed Vice
President -- General Counsel and Secretary in May 1997. From July 1985 until
he joined the Company in April 1997, Mr. Lockwood was a member of the law firm
of Troy & Gould Professional Corporation.
 
  TIMOTHY C. MCQUAY was appointed a director of the Company upon the
completion of its initial public offering in June 1996. Mr. McQuay joined the
Corporate Finance Department of Crowell, Weedon & Co. as Managing Director --
 Corporate Finance in October 1994. From May 1993 to October 1994, Mr. McQuay
was Vice President, Corporate Development with Kerr Group, Inc., a NYSE-listed
plastics manufacturing company. From May 1990 to May 1993, Mr. McQuay was
Managing Director -- Merchant Banking with Union Bank. Mr. McQuay is a
director of Meade Instruments Corp., a publicly-held company.
 
  GEORGE E. SEEBART was appointed a director of the Company upon the
completion of its initial public offering in June 1996. From 1964 until his
retirement in 1993, Mr. Seebart was employed in various executive positions
with Farmers Group, Inc., including as Senior Vice President, Field Operations
and Vice President, Sales and Marketing. Additionally, from 1987 to 1992, Mr.
Seebart was President of Mid-Century Insurance Company, a subsidiary of
Farmers Group, Inc.
 
  Pursuant to the North Star Merger, certain shareholders of the Company,
including Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco, Robert L.
Blanton and John M. Palumbo, agreed to vote all shares held by them to elect
Ronald G. Brown as a director of Keystone.
 
  All directors are elected annually and serve until the next annual meeting
of shareholders or until their successors have been elected and qualified. All
officers are appointed by and serve at the discretion of the Board of
Directors, subject to employment agreements, where applicable. There are no
family relationships between any directors or officers of the Company. The
Company's Articles of Incorporation provide that, upon the satisfaction of
certain conditions, the Board of Directors will be divided into three classes
of directors, each serving for staggered three-year terms. The Company
believes that the conditions have been satisfied and that the Board of
Directors will be divided into three classes of Directors at the annual
meeting of shareholders scheduled to be held in August 1997.
 
  The Board of Directors has established an Audit Committee and a Compensation
Committee, whose members are currently Messrs. McQuay and Seebart.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders under
the captions "Election of Directors" and "Executive Compensation," and is
incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT
 
  The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders under
the caption "Security Ownership," and is incorporated herein by reference.
 
                                      36
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders under
the caption "Certain Transactions," and is incorporated herein by reference.
 
                                    PART IV
 
    ITEM 14. EXIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
 
(A)(1) FINANCIAL STATEMENTS:
 
  See the Index to Item 8 above.
 
(A)(2) FINANCIAL STATEMENT SCHEDULE:
 
  See (d) below.
 
(A)(3) EXHIBITS:
 
  The following exhibits are filed herewith or incorporated by reference
herein:
 
<TABLE>
<CAPTION>
 EXHIBIT NO.                            DESCRIPTION
 -----------                            -----------
 <C>         <S>
  3.1+++     Amended and Restated Bylaws of the Registrant. [3.4]*
  3.1.1+++++ Amendment to Amended and Restated Bylaws of the Registrant.
             [3.1.1]*
  3.2+++     Restated Articles of Incorporation of the Registrant. [3.5]*
  4.1+++     Form of stock certificate. [4.1]*
 10.1+       Employment Agreement dated June 20, 1996, between the Registrant
              and Virgil K. Benton II. [10.1]*
 10.2+       Employment Agreement dated June 20, 1996, between the Registrant
              and Charles J. Hogarty. [10.2]*
 10.3+       Employment Agreement dated June 20, 1996, between the Registrant
             and Al A. Ronco. [10.3]*
 10.4+       Employment Agreement dated June 20, 1996, between the Registrant
              and Robert L. Blanton. [10.4]*
 10.5++++    Employment Agreement between North Star and Ronald G. Brown.
             [10.5]*
 10.6++++    Employment Agreement between North Star and Kim D. Wood. [10.6]*
 10.7+       Indemnification Agreement dated June 20, 1996 between the
              Registrant and Virgil K. Benton II. [10.5]*
 10.8+       Indemnification Agreement dated June 20, 1996 between the
              Registrant and Charles J. Hogarty. [10.6]*
 10.9+       Indemnification Agreement dated June 20, 1996 between the
             Registrant and Al A. Ronco. [10.7]*
 10.10+      Indemnification Agreement dated June 20, 1996, between the
              Registrant and Robert L. Blanton. [10.8]*
 10.11+      Indemnification Agreement dated June 20, 1996, between the
              Registrant and John M. Palumbo. [10.9]*
 10.12++++   Indemnification Agreement between the Registrant and Ronald G.
             Brown. [10.12]*
 10.13++++   Indemnification Agreement between the Registrant and Kim D. Wood.
             [10.13]*
</TABLE>
 
 
                                      37
<PAGE>
 
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                 DESCRIPTION
  -------                               -----------
 <C>        <S>
 10.14+     Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
             together with forms of incentive stock option, non-qualified stock
             option and restricted stock agreements. [10.10]*
 10.15+     The Registrant's Employee Defined Benefit Pension Plan, as amended.
            [10.11]*
 10.16+     The Registrant's Employee Stock Ownership Plan, as amended.
            [10.12]*
 10.17+     The Registrant's 1989 Restricted Stock Option Plan. [10.13]*
 10.18+     Lease Agreement, dated January 5, 1995, between V-JAC Properties,
             Ltd. and the Registrant. [10.14]*
 10.19+     Lease Agreement, dated January 5, 1995, between B-J Properties,
            Ltd. and the Registrant. [10.15]*
 10.20+     Lease and Option Agreement, dated April 1, 1995, between Benton
             Real Properties, Inc. and the Registrant. [10.16]*
 10.21+     Lease and Option Agreement, dated January 1, 1991, between Benton
             Real Properties, Inc. and the Registrant. [10.17]*
 10.22+     Lease Agreement, dated January 5, 1995, between V-JAC Properties,
             Ltd. and the Registrant. [10.18]*
 10.23+     Loan and Security Agreement, dated December 17, 1990, between Union
             Bank and the Registrant, as amended. [10.19]*
 10.24++    Letter dated May 24, 1996 from Union Bank to the Registrant.
            [10.19.1]*
 10.25+     Term Loan Rider, dated December 17, 1990, between Union Bank and
            the Registrant. [10.20]*
 10.26+     Inventory Rider Agreement, dated December 17, 1990, between Union
             Bank and the Registrant, as amended. [10.21]*
 10.27+     Term Promissory Note, dated December 17, 1990, by the Registrant in
             favor of Union Bank. [10.22]*
 10.28+     Letter of Credit/Bankers Acceptance Rider, dated December 17, 1990,
             between Union Bank and the Registrant, as amended. [10.23]*
 10.29+     ERISA Rider, dated December 17, 1990, between Union Bank and the
            Registrant. [10.24]*
 10.30+     Equipment Rider, dated December 17, 1990, between Union Bank and
             the Registrant, as amended. [10.25]*
 10.31+     Waiver Letter, dated April 15, 1994, between Union Bank and the
            Registrant. [10.26]*
 10.32+     Promissory Note, dated September 28, 1992, from the Registrant to
             the order of Bumper Exchange, Inc. [10.27]*
 10.33++++  Underwriting Agreement dated June 20, 1996, among the Registrant,
             certain selling shareholders and Morgan Keegan & Company, Inc. and
             Crowell, Weedon & Co., as representatives of the several
             underwriters. [10.33]*
 10.34++++  Letter Agreement dated January 15, 1996, between Registrant and
            Crowell, Weedon & Co. [10.34]*
 10.35++++  Affiliate Agreement dated December 6, 1996, among the Registrant,
             North Star Plating Company, Ronald G. Brown and Kim D. Wood.
             [10.35]*
 10.36++++  Form of Registration Rights Agreement among the Registrant, North
             Star Plating Company, Ronald G. Brown and Kim D. Wood [10.36]*
 10.37++++  Voting Agreement dated December 6, 1996, among the Registrant,
             North Star Plating Company, Virgil K. Benton, II, Charles J.
             Hogarty, Al A. Ronco, Robert L. Blanton and John M. Palumbo.
             [10.37]*
 10.38+++++ Credit Agreement dated March 25, 1997 between the Registrant and
            Mellon Bank, N.A. [10.38]*
</TABLE>
 
                                       38
<PAGE>
 
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                 DESCRIPTION
  -------                               -----------
 <C>        <S>
 10.39++++  Agreement and Plan of Merger among the Registrant, North Star
             Merger, Inc., North Star Plating Company, Ronald G. Brown and
             Kim D. Wood dated December 6, 1996. [2.1]*
 10.40+++++ Resignation Agreement and General Release effective as of May 23,
             1997 between the Registrant and Virgil K. Benton II. [10.40]*
 10.41+++++ Lease Agreement, dated January 1, 1995, between North Star and the
             spouses of Ronald G. Brown and Kim D. Wood. [10.41]*
 10.42+++++ Lease Agreement, dated January 1, 1995, between North Star and the
             spouse of Ronald G. Brown and a third party. [10.42]*
 10.43+++++ Lease Agreement, dated January 1, 1995, between North Star and a
             partnership owned by Kim D. Wood and an employee of North Star.
             [10.43]*
 10.44+++++ Lease Agreement, dated May 20, 1996, between North Star and a
             partnership owned by the spouses of Ronald G. Brown and Kim Wood
             and the Brown Family Limited Partnership. [10.44]*
 11.1+++++  Computation of per share earnings. [11.1]*
 21.1+++++  Subsidiaries. [21.1]*
 23.1       Consent of Ernst & Young LLP, independent auditors of Registrant.
 27.1       Financial Data Schedule.
</TABLE>
--------
*     Indicates the exhibit number of the document in the original filing.
+     Filed as an exhibit to the Registration Statement on Form S-1 filed with
      the Securities and Exchange Commission on April 18, 1996 (File No. 333-
      3994).
++    Filed as an exhibit to Amendment No. 1 to the Registration Statement on
      Form S-1 filed with the Securities and Exchange Commission on May 30,
      1996.
+++   Filed as an exhibit to Amendment No. 2 to the Registration Statement on
      Form S-1 filed with the Securities and Exchange Commission on June 17,
      1996.
++++  Filed as an exhibit to the Registration Statement on Form S-4 filed with
      the Securities and Exchange Commission on December 23, 1996 (File No.
      333-18663).
+++++ Filed as an exhibit to the Registration Statement on Form S-1 filed with
      the Securities and Exchange Commission on June 6, 1997 (File No. 333-
      28709).
 
(B) REPORTS ON FORM 8-K:
 
  The Company filed no reports on Form 8-K during the quarter ended March 28,
1997.
 
(C) EXHIBITS:
 
  See (a)(3) above.
 
(D) FINANCIAL STATEMENT SCHEDULES:
 
  Independent Auditors Report on Schedule
 
  Schedule II  Valuation and Qualifying Accounts
 
  All other schedules are omitted because they are not applicable or the
required information is shown in the Registrant's financial statements or the
related notes thereto.
 
                                      39
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
 
  We have audited the financial statements of Keystone Automotive Industries,
Inc. as of March 28, 1997, March 29, 1996 and March 31, 1995 and for each of
the three years in the period ended March 28, 1997, and have issued our report
thereon dated May 23, 1997, (included elsewhere in this Annual Report). Our
audits also included the financial statement schedule of Keystone Automotive
Industries, Inc. listed in Item 14(d) of this Annual Report on Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
 
  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 set forth therein.
 
                                       Ernst & Young LLP
 
Los Angeles, California
May 23, 1997
 
                                      40
<PAGE>
 
                         KEYSTONE AUTOMOTIVE INDUSTRIES
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                           ADDITIONS
                                      -------------------
                           BALANCE AT CHARGED TO CHARGED             BALANCE AT
                           BEGINNING  COSTS AND  TO OTHER              END OF
       DESCRIPTION         OF PERIOD   EXPENSES  ACCOUNTS DEDUCTIONS   PERIOD
       -----------         ---------- ---------- -------- ---------- ----------
<S>                        <C>        <C>        <C>      <C>        <C>
Year ended March 31, 1995
  Allowance for
   uncollectible accounts.    $418       $270      $--       $257(1)    $431
Year ended March 31, 1996
  Allowance for
   uncollectible accounts.     431        317       --        393(1)     355
Year ended March 28, 1997
  Allowance for
   uncollectible accounts.     355        673       --        370        658
</TABLE>
--------
(1) Uncollectible accounts written off, net of recoveries.
 
<TABLE>
<CAPTION>
                                           ADDITIONS
                                      -------------------
                           BALANCE AT CHARGED TO CHARGED             BALANCE AT
                           BEGINNING  COSTS AND  TO OTHER              END OF
       DESCRIPTION         OF PERIOD   EXPENSES  ACCOUNTS DEDUCTIONS   PERIOD
       -----------         ---------- ---------- -------- ---------- ----------
<S>                        <C>        <C>        <C>      <C>        <C>
Year ended March 31, 1995
  Allowance for slow-
   moving inventory.......   $  80      $1,324     $--      $  42      $1,362
Year ended March 31, 1996
  Allowance for slow-
   moving inventory.......   1,362         641      --      1,508         495
Year ended March 28, 1997
  Allowance for slow-
   moving inventory.......     495         322      --        307         510
</TABLE>
 
                                       41
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
 
                                              /s/ Charles J. Hogarty
                                          By:____________________________
                                                Charles J. Hogarty,
                                                     President
Dated: June 20, 1997
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Annual Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
 
<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
<S>                                  <C>                             <C>
       /s/ Charles J. Hogarty        President, Chief Executive      June 20, 1997
------------------------------------  Officer and Director                                          
         Charles J. Hogarty                                        
                                                                   
                                                                    
          /s/ Al A. Ronco            Executive Vice President,       June 20, 1997
------------------------------------  and Director                  
            Al A. Ronco                                            
                                                                   
                                                                    
        /s/ John M. Palumbo          Vice President and Treasurer    June 20, 1997
------------------------------------  (Principal Financial and      
          John M. Palumbo             Accounting Officer)          
                                                                   
                                                                   
                                     Director                        
------------------------------------                               
          Ronald G. Brown                                          
                                                                   
                                                                    
       /s/ Timothy C. McQuay         Director                        June 20, 1997
------------------------------------                                
         Timothy C. McQuay                                         

                                     Director                      
------------------------------------                                
         George E. Seebart          
</TABLE>                            
 
                                      42