<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange
    Act of 1934.
               For the quarterly period ended:  December 25, 1998

                                       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)


         California                                  95-2920557 
-------------------------------        ---------------------------------------
(State or other jurisdiction of        (I.R.S. Employer Identification Number)
incorporation or organization)                


                    700 East Bonita Avenue, Pomona, CA 91767
              (Address of principal executive offices) (Zip Code)

                                 (909) 624-8041
              (Registrant's telephone number including area code)

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 number of shares outstanding of the registrant's Common Stock, no par value,
at  December 25, 1998 was 17,569,033 shares

This Form 10-Q contains 15 pages.
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

                                     INDEX
                                     -----

<TABLE>
<CAPTION>
PART I.          FINANCIAL INFORMATION                                               Page Number
<S>         <C>                                                                      <C>
Item 1.     Condensed Consolidated Financial Statements
            Condensed Consolidated Balance Sheets                                        3
                 December 25, 1998 (unaudited) and March 27, 1998
 
            Condensed Consolidated Statements of Income (unaudited)                      4
                 Three months and nine months ended  December 25, 1998 and
                 Three months and nine months ended  December 26, 1997
 
            Condensed Consolidated Statements of Cash Flow (unaudited)                   5
                 Nine months ended December 25, 1998 and December 26, 1997

            Notes to Condensed Consolidated Financial Statements (unaudited)             6
 
Item 2.     Management's Discussion and Analysis of Financial 
            Conditions and Results of Operations                                         8

Item 3.     Quantitative and Qualitative Disclosure About Market Risks                  12


PART II.         OTHER INFORMATION

Item 1.     Legal Proceedings                                                           13

Item 2.     Changes in Securities and Use of Proceeds                                   13

Item 3.     Defaults upon Senior Securities                                             13

Item 4.     Submission of Matters to a Vote of Security Holders                         13

Item 5.     Other Information                                                           13

Item 6.     Exhibits and Reports on Form 8-K                                            15


Signatures                                                                              15
</TABLE>
 

                                       2
<PAGE>
 
                      Keystone Automotive Industries, Inc.
                     Condensed Consolidated Balance Sheets
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                       December 25,                  March 27, 
                                                                               1998                       1998
                                                                        (Unaudited)                     (Note)
                                                                     --------------             --------------
<S>                                                                  <C>                        <C>
                              ASSETS
Current Assets:
  Cash and cash equivalents                                          $       41,378             $       10,859
  Accounts receivable, net of allowance of $1,021 
   at December 1998 and $593 at March 1998                                   28,119                     23,476
  Inventories, primarily finished goods                                      65,549                     54,870
  Other current assets                                                       11,662                      4,788
                                                                     --------------             --------------
    Total current assets                                                    146,708                     93,993

Plant, property and equipment, net                                           17,846                     14,873
Goodwill, net of accumulated amortization of
 $730 at December 1998 and $437 at March 1998                                23,582                      6,295
Intangibles, net of accumulated amortization
 of $1,738 at December 1998 and $1,302 at March 1998                          1,600                      1,980
Other assets                                                                  9,373                      2,555
                                                                     --------------             --------------
    Total assets                                                     $      199,109             $      119,696
                                                                     ==============             ==============
                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Bankers acceptance                                                 $        2,518             $        1,852
  Accounts payable                                                           10,893                     13,428
  Accrued liabilities                                                         7,232                      5,480
  Current portion of long-term debt                                           1,424                        779
                                                                     --------------             --------------
    Total current liabilities                                                22,067                     21,539

Long-term debt, less current portion                                            270                        503
Deferred taxes                                                                2,085                        426
Other long-term liabilities                                                   1,401                         --

Shareholders' equity:
  Preferred stock, no par value:
    Authorized shares--3,000,000     
    None issued and outstanding                                                  --                         --
  Common stock, no par value:
     Authorized shares--50,000,000
     Issued and outstanding shares -- 17,569,033 at 
     December 1998 and 14,642,000 at March 1998                             120,360                     57,196
  Additional paid-in capital                                                    724                        724
  Retained Earnings                                                          52,202                     39,308
                                                                     --------------             --------------
     Total shareholders' equity                                             173,286                     97,228
                                                                     --------------             --------------
     Total liabilities and shareholders' equity                      $      199,109             $      119,696
                                                                     ==============             ==============
</TABLE>

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 
NOTE:  The balance sheet at March 27, 1998 has been derived from the audited
       consolidated financial statements at that date but does not include all
       of the information and footnotes required by generally accepted
       accounting principles for complete financial statements.

                                       3
<PAGE>
 
                      Keystone Automotive Industries, Inc.
                  Condensed Consolidated Statements of Income
               (In thousands, except share and per share amounts)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                          
                                                      Three Months Ended                   Nine Months Ended
                                                -------------------------------      -------------------------------
                                                 December 25,      December 26,      December  25,      December 26, 
                                                         1998              1997               1998              1997
                                                 ------------      ------------      -------------      ------------
<S>                                              <C>               <C>               <C>                 <C>
Net sales                                         $    84,017       $    66,247       $    235,327       $   192,388

Cost of sales                                          47,059            37,003            132,997           109,217
                                                 ------------      ------------      -------------      ------------
Gross profit                                           36,958            29,244            102,330            83,171
 
Operating expenses:

     Selling and distribution expenses                 22,935            19,155             64,747            53,659
     General and administrative                         6,590             4,104             17,717            12,788
     Service Center consolidation costs                   103               --                 505               --
     Merger costs                                         --                323                --                323
     Severance costs                                      --                --                 --                705
                                                 ------------      ------------      -------------      ------------
Operating income                                        7,330             5,662             19,361            15,696
 
Other Income                                              973               203              2,155               639

Interest expense                                           (3)              (68)               (26)             (471)
                                                 ------------      ------------      -------------      ------------
Income before income taxes                              8,300             5,797             21,490            15,864
 
Income tax provision                                    3,348             2,106              8,596             4,996

                                                 ------------      ------------      -------------      ------------
Net income                                        $     4,952       $     3,691       $     12,894       $    10,868
                                                 ============      ============      =============      ============
Net Income
     Basic                                        $      0.28       $      0.25       $       0.78       $      0.79
                                                 ============      ============      =============      ============
     Diluted                                      $      0.28       $      0.25       $       0.77       $      0.78
                                                 ============      ============      =============      ============
 
Weighted average shares outstanding:
     Basic                                         17,603,000        14,642,000         16,605,000        13,674,000
                                                 ============      ============      =============      ============
     Diluted                                       17,779,000        14,876,000         16,837,000        13,851,000
                                                 ============      ============      =============      ============
(Unaudited pro forma information) (Note 4)
 
     Net income, as previously reported           $     4,953        $    3,691        $    12,894       $    10,868
     Pro forma tax adjustment                             --               (295)               --             (1,345)
                                                 ------------      ------------      -------------      ------------
     Pro forma net income                         $     4,953       $     3,396        $    12,894       $     9,523
                                                 ============      ============      =============      ============
     Pro forma net income per share - basic       $      0.28       $      0.23        $      0.78       $      0.70
                                                 ============      ============      =============      ============
     Pro forma net income per share - diluted     $      0.28       $      0.23        $      0.77       $      0.69
                                                 ============      ============      =============      ============
</TABLE>


The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

                                       4
<PAGE>
 
                      Keystone Automotive Industries, Inc.
                Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Nine months Ended
                                                                         ---------------------------------------------
                                                                          December 25, 1998          December 26, 1997
                                                                         ------------------          -----------------
<S>                                                                           <C>                        <C>
OPERATING ACTIVITIES
Net income                                                                     $ 12,894                   $ 10,868
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                                                  3,282                      2,662
   Deferred taxes                                                                   719                         --
   Provision for losses on uncollectible accounts                                   266                        (73)
   Provision for losses on inventory                                                 --                        107
   (Gain) loss on sales of assets                                                   (16)                         9
Changes in operating assets and liabilities:                                    
   Accounts receivable                                                           (1,039)                    (1,382)
   Inventories                                                                      507                     (2,913)
   Prepaid expenses, other receivables and other assets                          (8,433)                       391
   Accounts payable, and other accrued liabilities                               (7,597)                   (10,382)
                                                                                -------                   --------
Net cash provided by (used in) operating activities                                 583                       (713)

INVESTING ACTIVITIES
Proceeds from sale of assets                                                     50,261                        128
Purchases of property, plant and equipment                                       (3,603)                    (2,695)
Cash paid for acquisitions                                                       (3,114)                    (5,647)
                                                                                -------                   --------
Net cash provided by (used in) investing activities                              43,544                     (8,214)

FINANCING ACTIVITIES
Borrowings under bank credit facility                                                --                        716
Payments under bank credit facility                                             (19,477)                   (13,157)
Bankers acceptances and other short-term debt, net                                  666                       (963)
S corp distributions                                                                 --                     (3,491)
Principal payments on long-term debt                                               (262)                      (360)
Net proceeds on option exercise                                                   1,694                        507
Repurchase of common stock                                                       (1,594)                        --
Net proceeds on secondary offering                                                   --                     37,776
                                                                                -------                   --------
Net cash (used in) provided by financing activities                             (18,973)                    21,028
                                                                                -------                   --------
Net increase in cash and cash equivalents                                        25,154                     12,101

Cash and cash equivalents at beginning of period                                 10,859                      1,804
Cash from Republic stock acquisition                                              5,365                         --
                                                                                -------                   --------
Cash and cash equivalents at end of period                                     $ 41,378                   $ 13,905
                                                                               ========                   ========

Supplemental disclosures
  Interest paid during the period                                              $    213                   $    567
  Income taxes paid during the period                                          $  8,719                   $  3,290
                                                                               ========                   ========

</TABLE>



    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.

                                       5
<PAGE>
 
                      Keystone Automotive Industries, Inc.

              Notes to Condensed Consolidated Financial Statements
              ----------------------------------------------------
                                  (Unaudited)
                               December 25, 1998
                                        

1.   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of Form 10-Q and Article
10 of Regulation S-X.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for fair presentation,
with respect to the interim financial statements have been included.  The
results of operations for the three month and nine month periods ended December
25, 1998 are not necessarily indicative of the results that may be expected for
the full year ending March 26, 1999.  For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended March
27, 1998, included in the Company's Form 10-K filed with the Securities and
Exchange Commission on June 25, 1998.

2.   New Accounting Standards

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.

3.   Severance/Service Center Consolidation Costs

     In May 1997, the Company incurred approximately $705,000 of costs related
to the severance of its former Chairman and Chief Executive Officer.

     During the nine months ended December 25, 1998, the Company consolidated 
certain service centers in locations with more than one operation. The cost of
the consolidation was approximately $505,000.

4.   Unaudited Pro Forma Information

     Pro forma net income and pro forma net income per share information for the
three month and nine month periods ended December 26, 1997 gives effect to an
income tax adjustment to reflect taxation of the income of two corporations
acquired by the Company in January 1998  (accounted for as poolings of interest)
as "C" corporations, rather than "S" corporations, at an estimated rate of
approximately 39%.

5.   Acquisitions

     On June 27, 1998, the Company completed its acquisition of Republic
Automotive Parts, Inc. ("Republic"). The Company issued approximately 2,907,456
shares of its common stock in exchange for the outstanding common stock of
Republic for a total purchase price of approximately $63.1 million using an
average share price of $21.69. The fair value of the assets acquired
approximated $48 million net of approximately $29 million of liabilities
assumed. The excess of the purchase price over assets acquired (goodwill)
approximated $15 million and is being amortized over 30 years. The acquisition
of Republic is being accounted for under the purchase method of accounting. At
the time of the acquisition, Republic was engaged in the distribution of
automotive mechanical hard parts and aftermarket collision replacement parts.

     The net assets acquired as part of the Republic transaction, which related
to the Republic mechanical hard parts operations, were recorded as assets held
for sale in the allocation of the opening balance sheet at June 27, 1998, as
adjusted to reflect the mechanical hard parts results of operations from the
opening balance sheet date to the date of the sale and the difference between
net book value of the assets disposed of and the purchase price. The operating
results of the Company from June 27, 1998, excluded any effects from the
mechanical hard parts business.

                                       6
<PAGE>
 
     At December 25, 1998, other long-term assets includes $3.8 million,
consisting of assets of the one Republic mechanical hard parts operating
location yet to be sold, net of various reserves. The amounts reflected on the
balance sheet represents the Company's estimate of the fair value of the assets
held for sale.

The pro forma results of operations for the nine months ended December 25, 1998,
as through Republic had been combined with the Company at the beginning of
fiscal 1999, are as follows (in thousands, except share and per share amounts):

<TABLE>
<CAPTION>
                                                             December 25, 1998
                                                             -----------------
<S>                                                          <C>
Net sales                                                     $  250,626
Net income                                                    $   12,454
Net income per share                                          $      .72
Weighted average shares outstanding - diluted                 17,322,000
</TABLE>

6.   Shareholders' Equity

     In September 1998, the Board of Directors authorized the Company to
purchase up to 1,000,000 shares of its common stock at such times and at such
prices as the President and Chief Financial Officer deem appropriate.
Repurchased shares are redeemed and treated as authorized but unissued shares.
At December 25, 1998, the Company had repurchased a total of 84,500 shares of
its common stock at an average cost of $18.86 per share.
 

                                       7
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

                                        


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

     Except for the historical information contained herein, certain matters
addressed in this Item 2 constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking
statements are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those anticipated by the Company's
management.  The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements.  All
forward-looking statements made in this Quarterly Report on Form 10-Q are made
pursuant to the Act and are subject to the cautionary statement set forth
herein, in Item 5, and in the Company's Annual Report on Form 10-K for the year
ended March 27, 1998.


General
-------

     On January 1, 1998, the Company completed the acquisition of two
corporations, for which the Company issued 2,000,000 shares of its Common Stock.
Each of these transactions was accounted for under the pooling of interests
method of accounting, which requires that financial information be presented on
an historical combined basis for all periods presented. Therefore, the following
discussion of results of operations and liquidity and capital resources reflects
the combined companies.

     On June 27, 1998, the Company completed its acquisition of Republic issuing
approximately 2,907,456 shares of its common stock for a total purchase price of
approximately $63.1 million, using an average share price per share of $21.69.
This acquisition was accounted for using the purchase method of accounting. On
August 31, 1998, the Company sold substantially all of Republic's mechanical
hard parts operations for approximately $50.0 million in cash. Results of
operations of the Company include the results of operations of Republic, except
for results from its mechanical hard parts operations, beginning June 27, 1998
(the date of acquisition).

                                       8
<PAGE>
 
                      KEYSTONE AUTOMOTIVE INDUSTRIES, INC.


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>
                                                          Three months Ended                           Nine months Ended
                                                 --------------------------------------       --------------------------------------
                                                 December 25, 1998    December 26, 1997       December 25, 1998    December 26, 1997
                                                 --------------------------------------       --------------------------------------
<S>                                              <C>                  <C>                     <C>                  <C>
Net sales                                              100.0%               100.0%                  100.0%               100.0%
Cost of sales                                           56.0                 55.9                    56.5                 56.8
                                                       -----                -----                   -----                -----
Gross profit                                            44.0                 44.1                    43.5                 43.2
Selling and distribution expenses                       27.3                 28.9                    27.5                 27.9
General and administrative expenses                      7.9                  6.2                     7.5                  6.6
Service Center consolidation costs                       0.1                  0.0                     0.2                  0.0
Merger Costs                                             0.0                  0.5                     0.0                  0.2
Severance costs                                          0.0                  0.0                     0.0                  0.4
                                                       -----                -----                   -----                -----
Income from operations                                   8.7                  8.5                     8.3                  8.1
Other income                                             1.2                  0.3                     0.9                  0.3
Interest expense                                         0.0                 (0.1)                    0.0                 (0.2)
Income tax provision                                     4.0                  3.2                     3.7                  2.6
                                                       -----                -----                   -----                -----
Net income                                               5.9                  5.5                     5.5                  5.6
                                                       =====                =====                   =====                =====
Pro forma net income (1)                                 5.9                  5.1                     5.5                  4.9
                                                       =====                =====                   =====                =====
</TABLE>
---------------

(1)  Pro forma net income for the periods ended December 26, 1997, gives effect
     to an income tax adjustment to reflect taxation of the income of two
     corporations acquired in January 1998 (accounted for as poolings of
     interests), as "C" corporations, rather than "S" corporations, at an
     estimated statutory rate of approximately 39%.


Three months ended December 25, 1998 compared to three months ended December 26,
--------------------------------------------------------------------------------
1997
----

     Net sales were $84.0 million for the three months ended December 25, 1998
(the "December 1998 Quarter") compared to $66.2 million for the three months
ended December 26, 1997 (the "December 1997 Quarter"), an increase of $17.8
million or 26.8%.  This increase was made up of  increases of $9.6 million in
sales of automotive body parts (including fenders, hoods, headlights, radiators,
grilles and other crash parts), $2.5 million in sales of new and recycled
bumpers and $2.5 million in sales of paint and related materials, which
increases represent increases of approximately 33.7%, 10.9% and 25.3%,
respectively, over the comparable period in the prior fiscal year. In addition,
the Company sold approximately $4.4 million of remanufactured alloy wheels in
the December 1998 Quarter compared to $2.2 million in the December 1997 Quarter,
an increase of 100%. Increased net sales were attributable primarily to an
increase in the number of service centers in operation, principally as a result
of the Republic acquisition, and a combination of increased unit volume and
price increases.

     Gross profit increased in the December 1998 Quarter to $37.0 million (44.0%
of net sales) from $29.2 million (44.1% of net 

                                       9
<PAGE>
 
sales) in the December 1997 Quarter, an increase of 26.7%, primarily as a result
of the increase in net sales. The Company's gross profit margin decreased, in
part, due to the factors described in the next sentence. 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, competition and currency exchange rates.

     Selling and distribution expenses increased to $22.9 million (27.3% of net
sales) in the December 1998 Quarter from $19.2 million (28.9% of net sales) in
the December 1997 Quarter, an increase of 19.7%. The increase in these expenses
is primarily due to additional costs related to the Republic operations.

     General and administrative expenses increased to $6.6 million (7.8% of net
sales) in the December 1998 Quarter from $4.1 million (6.2% of net sales) in the
December 1997 Quarter, a increase of 60.6%. The increase in these expenses is
also primarily due to additional costs related to the Republic operations.

     Other income increased during the December 1998 Quarter primarily as a
result of increased interest income as a result of the investment of funds
obtained in connection with the sale of the Republic mechanical hard parts
operations in August 1998.

     As a result of the above factors, net income increased to $5.0 million
(5.9% of net sales) in the December 1998 Quarter from $3.4 million (5.1% of net
sales) on a pro forma basis in the December 1997 Quarter.  The increase in net
income was primarily the result of increased sales.


Nine months ended December 25, 1998 compared to nine months ended December 26,
------------------------------------------------------------------------------
1997
----

     Net sales were $235.3 million for the nine months ended December 25, 1998
compared to $192.4 million for the nine months ended December 26, 1997 an
increase of $42.9 million or 22.3%.  This increase was made up of increases of
$22.2 million in sales of automotive body parts (including fenders, hoods,
headlights, radiators, grilles and other crash parts), $5.6 million in sales of
new and recycled bumpers and $7.0 million in sales of paint and related
materials, which increases represent increases of approximately 27.5%, 8.3% and
23.1%, respectively, over the comparable period in the prior fiscal year. In
addition, the Company sold approximately $12.1 million of remanufactured alloy
wheels in the nine months ended December 25, 1998  compared to $5.7 million in
the nine months ended December 26, 1997, an increase of 112.3%. Increased net
sales were attributable primarily to an increase in the number of service
centers in operation, principally as a result of the Republic acquisition, and
a combination of increased unit volume and price increases.


     Gross profit increased in the nine months ended December 25, 1998 to $102.3
million (43.5% of net sales) from $83.2 million (43.2% of net sales) in the nine
months ended December 26, 1997, an increase of 23.0%, primarily as a result of
the increase in net sales. The Company's gross profit margin improved during the
first nine months, due in part, to increased purchasing leverage (a direct
result of acquisitions), internal growth and the strengthening of the U.S.
dollar relative to the Taiwanese dollar. 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, competition and
currency exchange rates.

     Selling and distribution expenses increased to $64.7 million (27.5% of net
sales) in nine months ended December 25, 1998  from $53.7 million  (27.9% of net
sales) in the nine months ended December 26, 1997, an increase of 20.7%. The
decrease in these expenses as a percentage of net sales was due in part to
eliminating certain costs associated with facilities that were consolidated.

     General and administrative expenses increased to $17.7 million (7.5% of net
sales) in the nine months ended December 25, 1998 from $12.8 million (6.6% of
net sales) in the nine months ended December 26, 1997, a increase of 38.5%.  The
increase in these expenses in the nine months ended December 25, 1998 was
primarily the result of the acquisition of Republic in June 1998. During the
nine months ended December 26, 1997,  the Company incurred approximately
$705,000 of costs related to severance payments to its former Chairman and Chief
Executive Officer.

     As a result of the above factors, net income increased to $12.9 million
(5.5% of net sales) in the nine months ended December 25, 1998 from $9.5
million (4.9% of net sales) on a pro forma basis in the nine months ended
December 26, 1997. The increase in net income as a percentage of net sales was
primarily the result of an increase in gross profit and other income.

                                       10
<PAGE>
 
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. The impact of seasonality may be
reduced somewhat in the future as Keystone continues to become more
geographically diversified. Other factors which influence quarterly variations
include the reduced number of business days during the holiday season, 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 consumer delivery requirements.

Liquidity and Capital Resources
-------------------------------

     The Company has entered into an amended revolving loan agreement with its
commercial lender that provides for a $25 million unsecured credit facility that
expires in September 1999. Advances under the revolving line of credit bear
interest at LIBOR plus 0.75%. At December 25, 1998, no funds had been drawn
under the line of credit. The revolving loan agreement is subject to certain
restrictive covenants. At of December 25, 1998, and as of the date of the filing
of this quarterly report, the Company was in compliance with its covenants.

     During the nine months ended December 25, 1998, the Company's cash and cash
equivalents increased by $25.2 million. This increase is primarily attributable 
to the sale of substantially all of the mechanical hard parts operations 
acquired in connection with the Republic transaction for approximately $50.3
million, offset by funds used (i) to pay down amounts outstanding under the bank
credit facility, (ii) to purchase property, plant and equipment and (iii) to
fund acquisitions. In addition, the Company used approximately $1.6 million to
repurchase shares of its Common Stock. Except for minor additional sales of
mechanical hard parts assets in the fourth quarter of this fiscal year, the
Company does not anticipate selling assets in the foreseeable future. Cash and
cash equivalents provided from operating activities during the nine month period
were negligible.

     On August 31, 1998, the Company sold substantially all of the mechanical
hard parts operations of Republic for approximately $50.0 million in cash. The
cash proceeds were used to retire substantially all of the Company's outstanding
debt with the balance of the proceeds being invested in money market funds. The
Company ended the third quarter of fiscal 1999 with approximately $41.4 million
in cash.

     The Company's Board of Directors has determined that the current cash
position is more than adequate to meet the Company's foreseeable financial
requirements and has authorized a share repurchase program of up to 1,000,000
shares of its Common Stock over the next nine months.  As of December 25, 1999,
the Company had repurchased 84,500 shares of its Common Stock. The Company's
primary need for funds has been to finance the growth of inventory and accounts
receivable and for acquisitions. At December 25, 1998, working capital was
$124.6 million compared to $72.5 million at March 27, 1998. Historically, the
Company has financed its working capital requirements from its cash flow from
operations, proceeds from public offerings of its Common Stock and advances
drawn under lines of credit. The Company believes that its existing working
capital, estimated cash flow from operations and the funds available under its
line of credit will enable it to finance its anticipated growth in sales, to
complete anticipated acquisitions and to fund the share repurchase program for
at least the next 12 months.

                                       11
<PAGE>
 
     The Company believes that the ongoing consolidation among independent
distributors of aftermarket collision parts creates 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 primarily by issuing
shares of its Common Stock or paying cash obtained from (i) operations, (ii)
proceeds from public offerings of its Common Stock or (iii) advances drawn under
credit facilities. In the future, 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 needed, will be available on terms acceptable to
the Company, or at all. In addition, the issuance of equity securities will
result in dilution to the shareholders of the Company.

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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Not Applicable

                                       12
<PAGE>
 
PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.  None
          -----------------       

Item 2.   Changes in Securities and Use of Proceeds.   None
          ------------------------------------------       

Item 3.   Defaults Upon Senior Securities.   None
          -------------------------------        

Item 4.   Submission of Matters to a Vote of Security Holders.   None
          ---------------------------------------------------        

Item 5.   Other Information.
          ----------------- 

          a. In January 1998, the Company purchased a comprehensive enterprise
software package for accounting, distribution and inventory planning. During the
initial phases of the implementation of the package, the Company determined that
the package would not meet the needs of the Company. In October 1998, the
Company entered into an agreement with a new vendor for the purchase of a new
software package to be installed on an enterprise basis. To date, the Company
has expended an aggregate of approximately $1.2 million on hardware and software
relating to the installation of the enterprise software package and estimates
that it will spend an additional $4.8 million over the next 24 months to
complete the installation and to make the system fully operational. As the
Company is still in the initial phases of the implementation and such an
implementation involves uncertainty, there can be no assurance that the actual
costs will not exceed the estimate. To date, the costs have been paid using
funds generated from operating cash flow or the sale of assets and it is
anticipated that future costs will be paid from existing working capital or from
cash flow from operations.

          At the present time, the Company estimates that the new enterprise
software system, which will consolidate the Company's various systems and
address a number of management concerns including Year 2000 issues, will be
installed and operating company-wide in 18 to 24 months. Because this
installation will not be operational in time to address the Year 2000 issues,
the Company is engaging consultants to modify its various operating systems and
it expects to have all systems Year 2000 complaint before the end of 1999, at a
cost which the Company estimates to be $500,000. Because of the uncertainties
involved, there can be no assurance that the modifications will be completed on
time, that they will be effective in addressing all the Year 2000 issues or that
the costs will not exceed estimates. A failure of the modification program could
have a material adverse impact on the Company and its operations .

          Management is uncertain about the Year 2000 compliance status of its
major suppliers and intends to open discussions with these suppliers to
ascertain whether the Company needs to implement contingency purchasing of
critical parts in anticipation of Year 2000.  Because of the nature of the
Company's customers (numerous collision repair shops located throughout most of
the United States that primarily place orders telephonically), it does not
anticipate any significant Year 2000 problems with customers.

          The costs of the projects described above, and the date on which the
Company believes it will complete the Year 2000 modifications, are forward-
looking statements and are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors.  However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
materially from those anticipated.  Specific 

                                       13
<PAGE>
 
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.

          b. In July 1997, certain individuals (the "plaintiffs") initiated a
class action lawsuit against State Farm Mutual Automobile Insurance Company
("State Farm") in the Illinois Circuit Court in Williamson County (Marion,
Illinois), which asserts claims for breach of contract, consumer fraud and
equitable relief relating to State Farm's practice of sometimes specifying the
use of parts manufactured by sources other than the original equipment
manufacturer ("non-OEM crash parts") when adjusting claims for damage to insured
vehicles. It is alleged that this practice breaches State Farm's insurance
agreements with its policyholders and is a violation of the Illinois Consumer
Fraud and Deceptive Business Practices Act because non-OEM crash parts are
inherently inferior to OEM crash parts and, consequently, vehicles are not
restored to their "pre-loss condition" as specified in the policy. While the
Company is not a party to this lawsuit, a substantial portion of the Company's
business consists of the distribution of non-OEM crash parts to collision repair
shops for use in repairing automobiles, the vast majority of which are covered
by insurance policies.

     The Williamson County Court certified a near-nationwide class on an ex
parte basis on the date the lawsuit was filed. Subsequently, after a hearing on
December 5, 1997, the Circuit Court again certified a national class, consisting
of all persons in the United States (except residents of Arkansas and Tennessee)
insured by a State Farm vehicle casualty insurance policy who had non-OEM crash
parts installed on their vehicles (or were compensated based upon the cost of
these non-OEM crash parts).  In December 1997, State Farm petitioned the
Illinois Supreme Court, for an order that the certification violated State
Farm's due process rights and infringed the sovereignty of other states.  The
petition was neither granted nor denied.  Again in February 1998, State Farm
filed a petition with the Illinois Supreme Court which was denied without
comment on March 24, 1998.  In June 1998, State Farm filed a petition for a writ
of certiorari with the United States Supreme Court on various constitutional
grounds, unrelated to the breach of contract issue.  State Farm's petition was
supported by nine amicus briefs, including briefs filed by four public interest
groups - Public Citizen, the Center for Auto Safety, the Consumer Federation of
America and the Massachusetts Public Interest Research Group.  The petition was
denied.  A trial on the merits is scheduled to commence in August 1999.

          The plaintiffs acknowledged in their filings with the United States
Supreme Court that to prevail on the merits in the class action, they must prove
that all non-OEM crash parts (estimated to be over 30,000 unique crash parts,
     ---                                                                     
manufactured by many companies around the world) are categorically and
inherently inferior to OEM crash parts.  Many of these non-OEM crash parts are
evaluated by the Certified Automotive Parts Association ("CAPA"), a non-profit
association of insurance companies, manufacturers, distributors, collision
repair shops and consumer groups.  Using an independent testing laboratory,
which compares the functional equivalence of non-OEM crash and OEM crash parts,
CAPA certifies the quality of these non-OEM crash parts.

          While a recent media report has questioned the quality of some non-OEM
crash parts, the Company, which is the largest distributor of non-OEM crash
parts in the United States, believes that substantially all of the non-OEM crash
parts which it distributes are of similar quality to OEM crash parts and when
installed in a competent manner by collision repair shops, vehicles are restored
to their "pre-loss condition."  Consequently, the Company does not believe that
the plaintiffs in this class action should prevail.

          However, the Company is not a party to the litigation, does not
control the defense in any manner and it is impossible to predict the outcome of
a jury trial on the merits.  If a jury were to find against State Farm, it could
become financially unacceptable for State Farm and other automobile insurers to
specify non-OEM crash parts similar to those distributed by the Company.  Such
an event would have a material adverse effect on the Company.

                                       14
<PAGE>
 
Item 6.   Exhibits and Reports on Form 8-K.
          -------------------------------- 

          a.   Exhibits.  None
          b.   Reports on Form 8-K.  None


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

                              KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

                         By:   /S/ John M. Palumbo
                              --------------------------------------------------
                              John M. Palumbo
                              Chief Financial Officer
                              (Duly Authorized Officer and Principal Financial
                              and Accounting Officer)

     Date:  February 8, 1999

                                       15