SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

(X)  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE  ACT OF 1934 For the  transition  period  from  April  1,  1996 to
     December 31, 1996

                         Commission File Number 0-23222


                               FINISHMASTER, INC.
             (Exact Name of Registrant as Specified in its Charter)

         Indiana                                        38-2252096
  (State or other Jurisdiction of                   (I.R.S. Employer
  Incorporation or Organization)                  Identification Number)

   4259 40th Street, SE, Kentwood, Michigan                49512
   (Address of principal executive offices)               (Zip Code)

Registrant's Telephone Number, including area code:    (616) 949-7604


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

    Title of each class               Name of each exchange on which registered
            NONE                                          NONE

           Securities registered pursuant to Section 12(g) of the Act
                                  Common stock
                                (Title of Class)

Indicate  by check  mark  whether  the  registrant  (1) has  filed  all  annual,
quarterly and other  reports  required to be filed by Section 13 or 15(d) of the
Securities  Exchange Act of 1934 during the preceding  twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
                                                  Yes  x        No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (ss.  229.405 of this chapter) is not contained  herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of February 28, 1997 $12,111,000.

At December 31, 1996,  there were  outstanding  6,000,140 shares of Registrant's
common stock.

                       Documents Incorporated By Reference

Portions of the annual proxy  statement  for the nine months ended  December 31,
1996 are incorporated by reference into Part III.


                                  Page 1 of 52
<PAGE>

                               FINISHMASTER, INC.
                           ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS



ITEM                                                                       PAGE

   1       Business...........................................................3

   2       Properties.........................................................7

   3       Legal Proceedings..................................................7

   4       Submission of Matters to a Vote of Security Holders................7

   5       Market for Registrant's Common Equity
           and Related Shareholder Matters....................................8

   6       Selected Financial Data............................................9

   7       Management's Discussion and Analysis of Financial
           Condition and Results of Operations...............................10

   8       Financial Statements and Supplemental Data........................16

   9       Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure...............................16

  10       Directors and Executive Officers of the Registrant................16

  11       Executive Compensation............................................16

  12       Security Ownership of Certain Beneficial Owners and Management....16

  13       Certain Relationships and Related Transactions....................16

  14       Exhibits, Financial Statement Schedules,
           and Reports on Form 8-K...........................................16

  15       Signatures........................................................18

  16       List of Financial Statements and Financial Statement Schedules....19






<PAGE>
                                     PART I

ITEM 1 - BUSINESS

General
FinishMaster,  Inc. ("FinishMaster") began operation as a single outlet in Grand
Rapids,  Michigan in 1968 and was acquired by Maxco,  Inc. in 1973.  The current
FinishMaster  corporation was incorporated in 1979 in Michigan as a wholly owned
subsidiary  of Maxco.  On February 23, 1994 the Company  made an initial  public
offering of 1,700,000  shares of its common stock to provide funds to accelerate
its growth and take  advantage  of its  industry's  consolidation.  This reduced
Maxco's  ownership  of the Company to 67.4%.  A change in control of the Company
occurred  on July 9,  1996.  On that  date,  LDI  AutoPaints,  Inc.  an  Indiana
corporation, and Maxco consummated the purchase and sale of all 4,045,000 shares
of common stock of the Company which were owned by Maxco. Effective December 31,
1996, LDI, Ltd. transferred to AutoPaints 100 shares of the Company which it had
purchased on the open market in August, 1995. As a result of these transactions,
LDI AutoPaints' ownership of FinishMaster stock was 4,045,100 shares or 67.4% at
December 31, 1996.  On December 20,  1996,  FinishMaster  changed its  corporate
domicile from Michigan to Indiana by merging with and into  FinishMaster,  Inc.,
an Indiana corporation  originally organized as a wholly owned subsidiary of the
Michigan corporation.

The  Company  is a  leading  distributor  of  automotive  paints,  coatings  and
paint-related  accessories to the automotive collision repair industry operating
as a single business  segment.  As of December 31, 1996 the Company  operated 54
sales outlets and two  distribution  centers in twelve  states.  The Company has
approximately  12,000  customers that it provides a  comprehensive  selection of
brand name products supplied by BASF, DuPont, 3M and PPG, in addition to its own
FinishMaster PrivateBrand refinishing accessory products.


Industry Overview
FinishMaster's  principal  market for  automotive  finishing is divided  between
independent automotive body repair shops and automobile dealerships.  Automotive
finishing  products  consist of paints,  coatings and related  supplies  used in
automobile production and after-market refinishing, including topcoats, primers,
clear coats,  abrasives,  masking materials and body fillers. A relatively large
number of small distributors  serving narrow geographic markets distribute these
products.

The Company believes that regulatory  pressures,  technological  advancements in
paints and  coatings,  and general  economic  factors are creating an attractive
opportunity  for  consolidation  in the  distribution  of refinishing  products.
Historically,  the  application of paints and coatings has released  potentially
harmful  emissions due to the products'  high solvent  content.  In an effort to
reduce  these  emissions,   environmental  regulations  have  been  proposed  or
implemented  at  federal,  state  and local  levels.  Paint  manufacturers  have
responded to these  regulations  by introducing  technologically  advanced lower
volatile  organic  compounds  ("VOC") and water-borne  paints which require more
advanced application techniques.  As a result, automotive refinishing has become
a complex  process,  often requiring spray booths and air filtration  systems to
reduce unwanted dust, air currents and harmful emissions. This complexity places
new  challenges  on  automotive  refinishers  who may not have the  training  or
expertise  necessary to apply the new paints and coatings.  The Company believes
it has the  technical  expertise and  resources to provide  needed  training and
consulting services to its customers.

The Company benefits from MIS capabilities,  standardized  operating  procedures
and volume purchasing. Through volume purchasing, the Company takes advantage of
periodic supplier incentive programs which provide additional purchase discounts
and extend the due dates of  purchases  beyond  normal  terms with large  volume
purchases.  The Company  believes the  distribution  segment of the  refinishing
business is consolidating as a result of the above factors and that FinishMaster
is one of the leading consolidators.


Business Strategy

The  Company's  goal is to be the dominant  distributor  of  automotive  paints,
coatings and related products to the after-market in its existing regions, while
pursuing  additional  growth  opportunities  by  entering  new  markets  through
acquisition. The following are key elements of the Company's business strategy:

Comprehensive  Product  Selection.  The  breadth  and  depth  of  the  Company's
selection of approximately 9,000 SKUs enables it to fulfill virtually all of its

<PAGE>

customers'  refinishing  needs.  The Company  carries the most  frequently  used
products in the refinishing  industry today,  including the three leading brands
of automotive  paints and coatings,  and the products  manufactured by a leading
supplier of related accessories.

Value-Added  Services.  The  Company  offers a wide array of  customer  services
including  technical  training and support,  management  seminars,  trade shows,
productivity and profitability  consulting,  and PC-based color matching. In the
past, automotive body repair shops required only a spray gun and a compressor in
order  to  apply  high   solvent-based   paints.   As  a  result  of  increasing
environmental   regulation,   manufacturers   have  introduced   technologically
advanced,   lower  VOC  paints.   These  products  require   significantly  more
sophisticated   application  techniques  and  equipment.  The  Company  provides
training  services to its  customers  addressing  the necessary  techniques  for
application  of these  products.  The  Company  continuously  seeks  to  provide
additional  services  that add value to its  products  and improve its  customer
relations.

Private  Labeling.  The Company  sells and markets its own line of  FinishMaster
PrivateBrand  products.  These products include some of the most frequently used
refinishing  accessories  such as masking  materials,  body  fillers,  thinners,
reducers and cleaners.  The Company believes this product line enhances its name
recognition.

Efficient  Operations.  The Company has  established  central  warehouses  and a
streamlined  system of distribution to its sales outlets.  The Company  believes
this  regional hub approach  allows it to  effectively  serve all major  markets
within its regions.  This approach allows the Company to leverage the operations
of its  central  distribution  centers to  achieve  operating  efficiencies.  In
addition,  the Company  maintains a high degree of operating  efficiency  in its
sales  outlets  by  employing  consistent  interior  layout,  computer  systems,
procedures and inventory management.

Expansion
The Company's  annual  revenues have increased  rapidly from  approximately  $32
million in fiscal 1991 to  approximately  $96 million for the nine months  ended
December 31, 1996 due to both  acquisitions  and increases in same outlet sales.
Since 1991,  the Company has acquired 31 refinishing  distributors  in Michigan,
Illinois, Wisconsin, Indiana, Ohio, Pennsylvania,  Delaware, Maryland, Virginia,
New Jersey,  Oklahoma,  and Texas.  The Company has also expanded into a limited
number of  markets  by opening  new  outlets,  and may  utilize  this  method of
expansion in the future.  Internal  growth has resulted from the addition of new
customers and increased sales to existing customers.

In  considering  potential  acquisitions,  the Company  seeks  opportunities  to
increase sales while improving  operating  efficiencies and profitability of the
outlets to be  acquired.  These  efficiencies  are  achieved by reducing  outlet
inventory levels, streamlining outlet operations and centralizing administrative
functions such as accounts payable,  payroll,  credit management and accounting.
To further increase efficiencies, the Company has consolidated the operations of
certain outlets it has acquired.

Increasing  Sales of Existing  Outlets.  The  Company's  business  strategy  has
enabled it to obtain new customers as well as expand sales to current  customers
at existing individual outlets.

Acquisitions  Within the Great Lakes Region. The Company's expansion strategy is
to continue  to be a leader in  consolidating  the  distribution  of  automotive
refinishing  products in the Great Lakes Region.  The Company believes there are
attractive  acquisition  opportunities  which  will  enable  it to  continue  to
consolidate  its  leading  position  in the  Great  Lakes  Region,  attract  new
customers,  improve operating  margins,  and increase service levels to existing
customers. The Company continually evaluates potential acquisitions.

New Regional Markets. A significant element of FinishMaster's expansion strategy
is to pursue growth  opportunities by entering new markets. In the twelve months
ended March 31, 1995 a new Southwest Region was established with the acquisition
of seven outlets in the Dallas/Fort  Worth area of Texas with annual revenues of
approximately   $11  million.   In  the  twelve  months  ended  March  31,  1996
FinishMaster supplemented this new region with acquisitions in Lubbock, Houston,
Midland,  and  Odessa,  Texas and Tulsa,  Oklahoma.  These  acquisitions  in the
Southwest Region will bring annual revenues to approximately $26 million for the
twelve months ended  December 31, 1997 with 13 outlets  operating in this region
after consolidations.  FinishMaster also established an East Coast Region in the
year ended March 31, 1996. This East Coast Region was established by acquiring 5
distributors  operating 15 outlets  with annual  revenues of  approximately  $18
million in the year ended  March 31, 1996 and  another  distributor  with annual
revenues of approximately $8 million in the nine months ended December 31, 1996.
The Company  currently  operates 17 outlets after  consolidations in New Jersey,
Pennsylvania,   Delaware,   Maryland  and  Virginia  with  annual   revenues  of
approximately $27 million for the twelve months ended December 31, 1997.


<PAGE>

Products
The Company  offers its customers a  comprehensive  selection of brand names and
its own  FinishMaster  PrivateBrand  products.  The  product  line  consists  of
approximately  9,000 SKUs,  including  the three  leading  brands of  automotive
paints and coatings,  and a leading brand of related  accessories.  FinishMaster
PrivateBrand  products  include  some of the most  frequently  used  refinishing
accessories  such as masking  materials,  body fillers,  thinners,  reducers and
cleaners.

The following table  illustrates the approximate  number of SKUs,  suppliers and
selected  brand names in each of the  Company's  major product  categories.  The
Company may change from time to time the selection and mix of its products.


<TABLE>
<CAPTION>
                               Approximate
                                Number of          Approximate            Selected
                              Manufacturers         Number of            Vendors and
 Product Category             and Suppliers           SKUs               Brand Names
-----------------------     -----------------  -------------------   ----------------------

<S>                               <C>                 <C>              <C>
Paints and Coatings                3                   3,400                BASF
                                                                           DuPont
                                                                             PPG


Paint-related Accessories          3                   2,700                 3M
                                                                          Dynatron
                                                                         US Chemical


Private Label                      25                  100              FinishMaster
                                                                        PrivateBrand

</TABLE>

Historically,   products  supplied  by  BASF,   DuPont,   and  PPG  account  for
approximately 70% and 3M approximately 15% of revenues. The Company continuously
seeks  opportunities with new and existing vendors to supply the highest quality
products.

Sales, Services and Customers
The Company  employs a direct sales force  consisting of sales  representatives,
regional managers, equipment specialists,  technicians and general managers. The
Company assigns its sales personnel to specific  customer  accounts in an effort
to build long-term relationships.  Sales representatives make frequent visits to
customer sites in order to review  customer  requirements  and to offer general,
technical  and product  support.  The  Company's  sales  personnel are generally
compensated  through a combination of sales  commissions and base salaries.  The
Company emphasizes continuing education and training of its sales force in order
to provide a high degree of support for its customers.  The Company's  customers
primarily  consist of  independent  automotive  body repair shops and automobile
dealerships.  The  Company  does  not  maintain  long-term  contracts  with  its
customers and sales are made on a per order basis.

The  Company  offers  comprehensive  value-added  services  designed  to  assist
customers  in  operating  their  businesses  more  effectively.  These  services
include:

Rapid Delivery. The Company can generally deliver products within two hours from
the time the Company  receives an order.  Products  are  delivered  to customers
using the Company's delivery fleet of approximately 300 trucks.

Technical  Support.  The Company's  technical support personnel  demonstrate and
recommend products. In addition,  they assist customers with problems related to
their particular applications.  Equipment specialists provide expert information
to customers regarding their heavy equipment requirements,  such as spray booths
and frame straightening equipment which are sold by the Company.

Product  Training.  As a result of increasing  regulations,  manufacturers  have
introduced   technologically   advanced,   lower  VOC  paints,   which   require
significantly more sophisticated  application  techniques.  The Company provides
training  services  to its  customers  in  order to  teach  them the  techniques
required to work with these products.  Training sessions are typically conducted
jointly  by the  Company  and  by one or  more  of its  major  suppliers  at the
customer's location or at an off-site location.

Management  Seminars.  Management seminars are conducted at convenient locations
to inform  customers about  regulations,  compliance,  and techniques to improve
productivity and industry trends.


<PAGE>

Trade Shows. The Company sponsors trade shows in which its suppliers display and
demonstrate  products and the latest  technical  innovations to its customers at
one convenient location. Trade shows also provide opportunities for customers to
make large volume purchases at special prices.

Color  Matching.  The  growing  number of paint  colors is a  challenge  for the
refinishing  industry.  DuPont, for example, has more than 120,000 mix formulas.
With its sophisticated  PC-based color matching  equipment and specialists,  the
Company provides color matching services to its customers.

Operations
Warehouse.  The Company  operates a 38,500  square foot  distribution  center in
Kentwood and a 10,000 square foot  distribution  center in  Arlington,  Texas to
service its product requirements.  Corporate offices occupy 8,000 square feet of
the  facility in  Kentwood,  with the  remainder  used for the storage of paint,
accessories and equipment inventories. Products are delivered from the Kentwood,
Michigan  distribution center to the outlets serviced at least twice per week by
one of the Company's  semi-trucks.  The Kentwood  distribution  center currently
operates on two shifts.  Products are delivered from the Arlington  distribution
center  via  common  carriers.  A  decision  has been  made to close  the  Texas
distribution  center.  The Company  expects to cease all operations of the Texas
distribution center before April 1, 1997.

Sales Outlets.  As of December 31, 1996,  the Company  operated 54 sales outlets
servicing  customers in twelve states with a delivery fleet of approximately 300
vehicles.  These  vehicles are easily  identified by their  standard  colors and
prominent display of the Company's logo. Sales outlets are strategically located
in order to provide prompt service to the Company's customers. Each sales outlet
maintains a comprehensive selection of competitively priced products tailored to
the specific  market needs of its  customers.  While  supplier  commitments in a
given market may prevent some outlets from carrying all of the Company's product
lines, each outlet is authorized to carry the majority of the products including
at least two major  paint  brands.  Sales  outlets  electronically  order  their
inventory  requirements  on a  regular  basis  from the  Company's  distribution
center.  In order to convey a consistent,  professional  image to its customers,
all of the Company's sales outlet  employees wear  FinishMaster  apparel.  These
employees  are  also  provided  with  ongoing  customer  support  and  technical
training.

Management  Information  Systems.  Each of the  Company's  sales  outlets uses a
stand-alone computer for inventory control, order processing and invoicing.  The
Company's  main  computer,  an IBM AS/400,  is used to collect data required for
receivables and inventory  management,  operations analysis,  as well as general
finance,  warehouse and administrative  functions. The Company believes that its
current systems are adequate and intends to continuously  enhance its systems to
meet  future  requirements.  The  Company's  systems  are  currently  year  2000
compliant.

Suppliers The Company  relies on four leading  suppliers for the majority of its
product requirements. BASF, DuPont and PPG supply virtually all of the Company's
paint  products,  while 3M is the Company's  largest  supplier of  paint-related
accessories.  The Company believes that BASF, DuPont and PPG are market leaders,
accounting for a majority of total domestic  automotive paint sales. The Company
enters into written  agreements  with most of its major suppliers for each sales
outlet.   These  agreements  are  nonexclusive  and  set  forth  the  suppliers'
warranties,  procedures for resolving  disputes and provisions  which  generally
allow for annual  returns of obsolete  inventory  to the  supplier in return for
credit or new  inventory.  Prices and terms are  established  by the  suppliers'
invoices and published price lists,  and may be changed by the supplier  without
notice.  In addition,  the agreements  require the Company to maintain  adequate
inventories at a regularly  established  place of business,  to train and manage
its sales  staff,  and to use its best  efforts to promote the  products.  These
agreements typically contain reciprocal clauses allowing cancellation on written
notice ranging from 30 to 90 days.

Competition
The  distribution  segment  of the  automotive  refinishing  industry  is highly
fragmented  and  competitive,   with  many  independent  distributors  competing
primarily on the basis of technical  assistance and expertise,  price,  speed of
delivery and breadth of product offering.  The Company principally competes with
these independent distributors.  In addition, the Company faces competition from
certain  paint  manufacturers  who operate  distribution  outlets.  For example,
Sherwin-Williams  distributes its own automotive paints through its outlets.  In
addition,  BASF, one of the Company's principal  suppliers,  distributes through
its own  outlets.  While  the  Company  does not  believe  that  current  direct
distribution  efforts  by  automotive  paint  manufacturers  have  significantly
impacted  its  sales,  there  can be no  assurance  that  the  Company  will not
encounter increased competition in the future. The Company may also compete with
its  suppliers  in  selling  to  certain  large  volume  end users such as small
manufacturers  and  large  fleet  operators.  Additional  competition  may occur
between the Company and other automotive refinishing  distributors that are also
pursuing growth through acquisitions.

<PAGE>

Employees
As of December 31, 1996,  the Company  employed  approximately  650 persons on a
full and  part-time  basis.  None of the  employees  are covered by a collective
bargaining  agreement and the Company considers its relations with its employees
to be good.

Government Regulation
The Company is subject to various federal, state and local laws and regulations.
Pursuant to the  regulations of the United States  Department of  Transportation
and certain state transportation departments, a license is required to transport
the Company's  products and annual permits are required due to classification of
certain of the  Company's  products as  "hazardous."  Various  state and federal
regulatory agencies,  such as the Occupational Safety and Health  Administration
and the United States  Environmental  Protection Agency,  have jurisdiction over
the operation of the Company's distribution center and outlets, including worker
safety,  community and employee  "right-to-know"  laws, and laws regarding clean
air and water. In addition, state and local fire regulations extensively control
the design and  operation of the  Company's  facilities.  Such  regulations  are
complex  and  subject to change.  Regulatory  or  legislative  changes may cause
future increases in the Company's operating costs or otherwise negatively affect
operations.  Although  the  Company  believes  it has been and is  currently  in
compliance  with the  applicable  standards  imposed  pursuant  to such laws and
regulations, there can be no assurance that in the future the Company may not be
adversely  affected by such  regulations or incur  increased  operation costs in
complying with such  regulations.  Under various federal,  state and local laws,
ordinances and regulations,  an owner or lessee of real estate may be liable for
the costs of removal or  remediation  of certain  hazardous or toxic  substances
located on or in , or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability without
regard to  whether  the owner or lessee  knew of, or was  responsible  for,  the
presence  of such  hazardous  or toxic  substances.  The  Company  has  obtained
environmental  reports (which typically involve inspection without soil sampling
or ground water analysis) by independent environmental consultants for its newly
acquired  acquisitions.  Although  the  Company  is not  aware of  environmental
problems at any of its outlets,  no assurance can be given that a prior owner or
lessee did not create a material environmental  condition or that future uses or
conditions  (including  without  limitation,  changes  in  applicable  laws  and
regulations)  will not result in imposition of environmental  liability upon the
Company. The Company does not at present, and has not in its history had a claim
for environmental damage.

Compliance by the Company with environmental protection laws has had no material
effect upon capital expenditures, earnings or competitive position.

ITEM 2 - PROPERTIES

As of  December  31,  1996,  the Company  operated  eleven  sales  outlets and a
distribution center located in Michigan,  five sales outlets in Illinois,  three
outlets in  Wisconsin,  three  outlets in Indiana,  two  outlets in Ohio,  three
outlets in  Pennsylvania,  one outlet in Delaware,  seven outlets in New Jersey,
one outlet in Oklahoma, three outlets in Maryland, three outlets in Virginia and
twelve outlets and a  distribution  center in Texas. A decision has been made to
close the Texas distribution center. The Company expects to cease all operations
of the Texas  distribution  center  before April 1, 1997.  The Company has 8,000
square feet of executive  offices  which are located in Kentwood,  Michigan,  as
part of the  distribution  center  facilities.  Sales outlets are  strategically
located  in  major  markets  to  maximize  market  penetration,   transportation
logistics and overall customer service.

The  Company's  sales  outlets  range in size from 1,200  square  feet to 13,000
square  feet.  Some of the larger  sales  outlets  are also used as "drop  ship"
points to service other sales  outlets.  Sales outlets  consist of stock storage
areas,  display and counter  space and in some  instances,  sales office  space.
Sales outlets are equipped with some of the latest  technology to minimize space
and maximize customer  service.  The Company's  distribution  centers are 10,000
square feet and 38,500 square feet. The  distribution  centers are equipped with
efficient  material  handling  and  storage  equipment.  The  Company  owns  the
distribution center and two outlets in Michigan and one sales outlet in Indiana.
The remainder of the sales outlets and the other distribution  center are leased
with  terms  expiring  from 1997 to 2006,  with  options to renew.  The  Company
typically  assumes the lease of the former  owner in  acquisitions.  The Company
believes  that all of its leases were at fair market  rates when  entered  into,
that  presently  no  single  lease  is  material  to its  operations,  and  that
alternative sites are presently available at market rates.

ITEM 3 - LEGAL PROCEEDINGS
None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED  SHAREHOLDER MATTERS
-------------------------------------------------------------------------------
FinishMaster's  common  stock trades on The NASDAQ stock market under the symbol
FMST. The number of beneficial owners of FinishMaster's common stock at December
31, 1996 was approximately 824.

The range of high and low sales prices reported by NASDAQ were:

   YEAR            QUARTER ENDED                       HIGH              LOW
   ----          -----------------                    ------            -----
   1994          March 31                             11-1/2            9-1/8
   1994          June 30                              11-5/8            8
   1994          September 30                          9-1/2            7-1/2
   1994          December 31                          10-7/8            8
   1995          March 31                             15-3/8            9-1/4
   1995          June 30                              15-7/8            13
   1995          September 30                         16-1/4            14
   1995          December 31                          15-1/2            9
   1996          March 31                             15                9-1/2
   1996          June 30                              15-1/4            9-9/16
   1996          September 30                         11-5/8            8-1/4
   1996          December 31                          9-3/8             6-1/2



No cash  dividends on common stock have been paid during any period and none are
expected to be paid in the foreseeable  future. The Company anticipates that all
earnings and other cash resources of the Company will be retained by the Company
for investment in its business.


<PAGE>





ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated  financial data as of and for the nine month
period ended  December 31, 1996 and 1995 and four years ended March  31,1996 are
derived  from the  Company's  audited  consolidated  financial  statements.  The
financial  data  should  be read  in  conjunction  with  the  Company's  audited
consolidated   financial  statements  and  notes  thereto,  which  are  included
elsewhere herein,  and with  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                       Nine Months
                                     Nine Months         Ended
                                        Ended          December 31,
                                     December 31,        1995(1)                       Fiscal Year Ended March 31,

                                       1996(1)          (unaudited)         1996            1995           1994           1993
                                    ---------------------------------------------------------------------------------------------
                                                                   (in thousands, except per share data)
<S>                                    <C>                <C>              <C>              <C>          <C>            <C>
Statements of Operations Data
Net sales                              $ 95,822           $ 77,538         $107,511         $ 79,382     $ 64,693       $ 50,551


Gross margin                             33,891             27,699           38,012           28,048       22,068         17,147


Income from operations(2)                 2,566              4,619            5,073            5,394        3,710          2,238


Net income                             $    660           $  2,647         $  2,649         $  3,462     $  2,145       $  1,356
                                       ========           ========         ========         ========     ========       ========

Net income per share                   $   0.11           $   0.44         $   0.44         $   0.58     $   0.48       $   0.32
                                       ========           ========         ========         ========     ========       ========

Shares used in the computation
of net income per share                   6,000              6,000            6,000            6,000        4,472          4,300
</TABLE>

(1)  The Company elected to change its fiscal year-end from March 31 to December
     31,  effective for the period ended  December 31, 1996. As a result of this
     change the Company has shown unaudited comparative information for the nine
     months ended December 31, 1995.

(2)  State income taxes have been reclassified from operating expenses to income
     tax expense in the prior year amounts to conform with the  presentation  of
     corresponding amounts in the current period.



                                December
                                  31,                  March 31,
                                 1996      1996      1995      1994      1993
                               -------   -------   -------   -------   -------
                                               (in thousands)
Balance Sheet Data

Working capital                $22,819   $25,036   $17,763   $21,734   $ 4,531

Total assets                    66,477    66,772    46,442    39,287    21,138

Long-term debt                  21,970    23,248     7,208     3,967     4,573

Stockholders' equity            32,326    31,665    28,956    25,554     7,201





Acquisition Data
Acquisitions  made by  FinishMaster  have been  accounted  for as purchases  and
accordingly,  the acquired  assets and  liabilities  have been recorded at their
estimated fair values at the dates of  acquisition.  Operating  results of these
acquired organizations are included in FinishMaster's  financial statements from
the respective dates of purchase. Details of these acquisitions are contained in
the notes to the consolidated financial statements.

<PAGE>

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

The Company was founded in 1968 as a single outlet in Grand Rapids, Michigan. As
of December 31, 1996, the Company had grown to 54 outlets in twelve states.  The
Great  Lakes  and  East  Coast  Regions  (Illinois,   Indiana,  Michigan,  Ohio,
Wisconsin,  Pennsylvania,  Delaware,  New Jersey,  Maryland  and  Virginia)  are
supported  by a 38,500  square  foot  distribution  center  near  Grand  Rapids,
Michigan.  In addition  the  Company  operates a total of  approximately  10,000
square  feet of  warehouse  space in  Arlington,  Texas to service  its  present
product  requirements in the Southwest  Region.  As a result of the efficiencies
gained in the  Southwest  Region,  the Company  plans to close the  distribution
center located in Arlington, Texas during the first quarter of 1997.

The  increase  in the  number  of  outlets  has  primarily  been a result of the
Company's  acquisition strategy. In 1986 the Company entered the Detroit market,
its first expansion into a major metropolitan area. In 1989 the Company expanded
into  Illinois  by  acquiring  businesses  in  metropolitan  Chicago and began a
strategy to achieve  dominance  in the Great  Lakes  Region  focused  around its
central  distribution center. To further its strategy of dominating this region,
in 1992 the Company  expanded  into the  Wisconsin  market and also  entered the
specialty  manufacturing  market,  primarily  the van  conversion  and truck cap
markets,  in northern Indiana. In 1993, the Company further expanded the Indiana
market with acquisitions in the Indianapolis  area. In twelve months ended March
31, 1995,  the Company  entered the Ohio market and during the third  quarter of
fiscal 1995,  the Company  established  a Southwest  Region by  acquiring  seven
outlets in Texas. FinishMaster intensified acquisitions in fiscal 1996 acquiring
a total of 16 separate entities  totaling 35 outlets in Michigan,  Pennsylvania,
Delaware, New Jersey, Oklahoma, and Texas. The 35 outlets have been consolidated
to 19  outlets.  In  the  nine  months  ended  December  31,  1996  the  Company
strengthened  its East Coast Region by acquiring  three  outlets in Virginia and
three outlets in Maryland.

The Company's revenues are derived primarily from the sales of automotive paints
and related  supplies to independent  automotive  body repair shops,  automobile
dealerships and specialty manufacturers.  While the margins on automotive paints
and those on related accessories  differ,  historically the mix of the Company's
revenues and margins have been relatively consistent. For example, the Company's
revenues for the nine months ended  December 31, 1996,  were  approximately  70%
attributable to automotive paints and 30% to all refinishing accessories,  which
include FinishMaster  PrivateBrand products.  These products include some of the
most frequently used refinishing  accessories,  such as masking materials,  body
fillers, thinners, reducers and cleaners.

The Company purchases the majority of its products from four major manufacturers
of  automotive  paint and  refinishing  supplies;  BASF,  DuPont,  3M,  and PPG.
Purchases are generally  made in large volumes to maximize  manufacturer  volume
discounts  and optimize  payment  terms.  The Company  often takes  advantage of
periodic supplier special incentive programs which provide  additional  purchase
discounts  and extend the due date of purchases  beyond  normal terms with large
volume purchases. The Company also benefits from manufacturer provided discounts
upon early payment of certain accounts.

Inventory  obsolesce  is minimal as branded  products  carry the  manufacturers'
guaranties,  with  defective  products  returned at no charge to the Company and
obsolete  products  are accepted  for a slight  restocking  fee. The Company has
arrangements  with its suppliers to balance  inventory and/or credit the Company
for a certain percentage of returned merchandise.

The  results of  operations  and  financial  condition  are  presented  based on
historical cost.  While it is difficult to measure the impact of inflation,  the
Company  believes  that the  effect  of  inflation  on its  operations  has been
immaterial.

<PAGE>

RESULTS OF OPERATIONS
The following table sets forth for the periods  indicated certain items from the
Company's Statement of Operations as a percentage of net sales.

<TABLE>
<CAPTION>
                                          Nine Months        Nine Months
                                        Ended December      Ended December     Year Ended March 31,
                                             31,              31, 1995
                                            1996            (unaudited)        1996            1995
                                        --------------      --------------    ------          ------
<S>                                        <C>                <C>             <C>             <C>
Net sales                                  100.0%             100.0%          100.0%          100.0%

Cost of sales                               64.6               64.3            64.6            64.7
                                           -----              -----           -----           -----
Gross margin                                35.4               35.7            35.4            35.3

Operating expenses(1)                       16.0               14.7            15.3            13.3

Selling, general and administrative         13.8               13.2            13.5            13.5

Depreciation and amortization                2.9                1.9             1.9             1.7
                                           -----              -----           -----           -----
                                            32.7               29.8            30.7            28.5
                                           -----              -----           -----           -----
Income from operations (1)                   2.7                5.9             4.7             6.8

Investment income                            0.1                0.2             0.2             1.0

Interest expense                            (1.5)              (0.6)           (0.8)           (0.7)
                                           -----              -----           -----           -----

Income before income taxes                   1.3                5.5             4.1             7.1

Income tax expense(1)                         .6                2.1             1.6             2.7
                                           -----              -----           -----           -----
Net income                                    .7%               3.4%            2.5%            4.4%
                                           =====              =====           =====           =====

</TABLE>

(1)  State income taxes have been reclassified from operating expenses to income
     tax expense in the prior year  percentages to conform with the presentation
     of corresponding percentages in the current period.

RESULTS OF OPERATIONS

Nine months ended December 31, 1996 versus Nine months ended December 31, 1995

For purposes of  management's  discussion and analysis,  the audited amounts for
the nine months  ended  December  31,  1996 are  presented  with the  comparable
unaudited amounts for the nine months ended December 31, 1995.

Net Sales.  Net sales for the nine  months  ended  December  31, 1996 were $95.8
million,  an increase of  approximately  24%,  compared to $77.5 million for the
nine months ended  December 31, 1995.  The sales  increase  resulted  from sales
generated  by  acquisitions  in Maryland  and  Virginia in the nine months ended
December 31, 1996. In addition,  acquisitions in Delaware, Michigan, New Jersey,
Oklahoma,  Pennsylvania,  and Texas in the prior  fiscal  year have  contributed
sales to the entire nine months ended December 31, 1996.

Gross Margin. Gross margin for the nine months ended December 31, 1996 was $33.9
million  compared to $27.7  million for the nine months ended  December 31, 1995
and as a percentage  of net sales  decreased  to 35.4% from 35.7%.  Gross margin
percentage  declined  as a  percentage  of  net  sales  as  competitive  pricing
pressures  increased  in the  nine  months  ended  December  31,  1996 as  paint
manufacturers intensified efforts to gain market share.

Operating  expenses.  Operating  expenses for the nine months ended December 31,
1996 were $15.3  million  compared to $11.4  million  for the nine months  ended
December 31, 1995.  Operating expenses as a percentage of net sales increased to
16.0% for the nine months ended December 31, 1996 compared to 14.7% for the nine
months ended December 31, 1995.  Operating  expenses consist of wages,  building
and vehicle costs for the outlets and the distribution  centers. The increase as
a  percentage  of net  sales  resulted  from  higher  operating  costs of recent
acquisitions   along  with  one-time   expenses  related  to  consolidating  and
relocating several facilities.  Efficiencies gained from store consolidations in
the  Southwest  Region has enabled  the Company to close its Texas  distribution
center during the first quarter of 1997. Certain expenses related to the closing
of the Texas  distribution  center  affected the nine months ended  December 31,
1996.  The  additional  expense  increase was partially  offset by the Company's
programs to reduce costs.

<PAGE>

Selling,  general  and  administrative.  S, G, & A expenses  for the nine months
ended  December 31, 1996 were $13.2  million  compared to $10.2  million for the
nine months ended  December 31, 1995.  S, G, & A expenses as a percentage of net
sales increased to 13.8% for the nine months ended December 31, 1996 compared to
13.2% for the nine months ended  December 31, 1995.  General and  administrative
expenses  consist of corporate  support staff and expenses for  marketing,  data
processing, accounting, credit, purchasing and human resources. Selling expenses
include  sales  commissions,  wages,  and  expenses  supporting  customer  sales
activity.  The  higher  expense  level  resulted  from  higher  costs of  recent
acquisitions  along  with an  increase  in bad debt  expense  due to a  customer
dispute over the collectability of an account  receivable.  The Company believes
this account is  collectible  in the future,  but because of the  uncertainty of
this  transaction,  the Company  reserved an  allowance  for this  account.  The
Company expects a reduction in expenses as a percentage of sales as efficiencies
are gained from recent acquisitions and the cost reduction programs developed by
the Company are in place for an extended period of time.

Depreciation and amortization.  Depreciation and amortization for the nine month
period was $2.8  million  compared to $1.4  million  for the nine  months  ended
December 31, 1995.  Depreciation  and  amortization as a percentage of net sales
increased to 2.9% for the nine months ended  December 31, 1996  compared to 1.9%
for the nine months  ended  December  31, 1995.  Depreciation  and  amortization
consists   primarily  of   depreciation   expenses   related  to  the  corporate
distribution  center  and store  locations  and  amortization  of  goodwill  and
non-compete   costs  related  to   acquisitions.   The  increase   results  from
amortization  of  intangibles  and  depreciation  of fixed  assets  incurred  in
connection  with the Company's  acquisitions in Virginia and Maryland during the
current period and a full year's  amortization and depreciation for prior year's
acquisitions along with revisions to the estimated lives of certain intangibles.

Operating Income.  As a result of the foregoing,  income from operations for the
nine months ended  December  31, 1996 was $2.6 million  compared to $4.6 million
for the nine  months  ended  December  31,  1995.  Income from  operations  as a
percentage of net sales decreased to 2.7% for the nine months ended December 31,
1996 compared to 5.9% for the nine months ended December 31, 1995.

Investment income. Investment income for the nine months ended December 31, 1996
was $0.1 million compared to $0.2 million for the nine months ended December 31,
1995. Investment income includes primarily earnings on investments.

Interest  expense.  Interest expense for the nine months ended December 31, 1996
was $1.4 million compared to $0.5 million for the nine months ended December 31,
1995.  Interest  expense  primarily  includes  interest on  mortgages  and notes
payable to former  owners of  acquired  businesses  as well as  interest  on the
Company's  line of credit.  The increase was the result of interest  incurred in
connection with seller financing for current year acquisitions and the increased
use of the Company's line of credit to support  acquisitions and working capital
requirements.

Provision for Income Tax. The Company's  effective tax rate for the for the nine
months ended December 31, 1996 was 48% compared to 38% for the nine months ended
December 31, 1995. This rate varied from the Company's statutory tax rate of 34%
primarily  due to  state  taxes  along  with  certain  expenses  which  are  not
deductible for tax purposes.


Twelve months ended March 31, 1996 versus Twelve months ended March 31, 1995

Net Sales. Net sales increased $28.1 million or 35.4% from $79.4 million for the
twelve months ended March 31, 1995 to $107.5 million for the twelve months ended
March 31, 1996. Of the net sales  increase,  $26.4  million  resulted from sales
generated by  acquisitions  in  Michigan,  Pennsylvania,  Delaware,  New Jersey,
Oklahoma,  and Texas,  with the remainder  coming from same outlet sales growth.
Same outlet  sales  growth  represents  the increase in sales for a given outlet
open for the period compared to the same period of the prior year.

Gross Margin. Gross margin increased from $28.0 million in 1995 to $38.0 million
in 1996 and as a  percentage  of net sales  from  35.3% to 35.4%.  Gross  margin
percentage remained high due to the Company's  participation in vendor discounts
and volume buying to maximize profit opportunities.

Operating  expenses.  Operating expenses increased from $10.6 in 1995 million to
$16.4  million  in 1996 and as a  percentage  of net sales  from 13.3% to 15.3%.
Operating expenses consist of wages,  building and vehicle costs for the outlets
and the distribution  center. The increase as a percentage of net sales resulted
from rapid expansion in two new regions where  additional fixed costs were added
to support growth.

<PAGE>

Selling,  general and  administrative.  S, G, & A expenses  increased from $10.7
million  in 1995 to $14.5  million  in 1996,  however,  remained  constant  as a
percentage of net sales at 13.5%. General and administrative expenses consist of
corporate support staff and expenses for marketing, data processing, accounting,
credit,   purchasing  and  human  resources.   Selling  expenses  include  sales
commissions,  wages, and expenses supporting customer sales activity. The higher
expense  level  resulted  from  increased   staffing  and  programs  to  support
additional  training,  employee  development,  sales and customer  service,  and
marketing  programs  to  increase  market  penetration.  In  addition,  expenses
increased to support the new Southwest and East Coast Regions.

Depreciation and amortization. Depreciation and amortization increased from $1.4
million in 1995 to $2.1  million in 1996 and as a  percentage  of net sales from
1.7% to 1.9%.  Depreciation and amortization  consists primarily of depreciation
expenses  related  to the  corporate  distribution  center and  amortization  of
goodwill and non-compete  costs related to  acquisitions.  The increase  results
from  amortization  of  intangibles  incurred in  connection  with the Company's
acquisitions in Michigan,  Pennsylvania,  Delaware,  New Jersey,  Oklahoma,  and
Texas during fiscal 1996 and a full year's amortization of intangibles for prior
year's acquisitions.

Operating Income. As a result of the foregoing, income from operations decreased
by 6.0% from $5.4  million in 1995 to $5.1  million in 1996 and  decreased  from
6.8% to 4.7% of net sales.

Investment income. Investment income decreased from $0.8 million in 1995 to $0.2
million in 1996 and  decreased as a  percentage  of net sales from 1.0% to 0.2%.
Investment  income includes  primarily  earnings on the investments.  Investment
income was lower as funds  from the  Company's  IPO were used to fund  continued
growth of the business.

Interest  expense.  Interest expense increased from $0.5 million in 1995 to $0.8
million in 1996 and  increased as a  percentage  of net sales from 0.7% to 0.8%.
Interest expense  primarily  includes interest on mortgages and notes payable to
former  owners of acquired  businesses.  The increase was the result of interest
incurred in connection with seller financing for current year acquisitions.

Provision  for Income Tax. The  Company's  effective tax rate for the year ended
March 31, 1996 and 1995 was 40% and 38% respectively.  This rate varied from the
Company's  statutory  tax rate of 34%  primarily due to state income taxes along
with certain expenses which are not deductible for tax purposes.



<PAGE>



QUARTERLY INFORMATION
The following  table sets forth  consolidated  statements of operations data for
each of the seven  quarters  ended  December 31, 1996.  The unaudited  quarterly
information has been prepared on the same basis as the annual  information  and,
in management's  opinion,  includes all  adjustments,  consisting of only normal
recurring entries,  necessary for a fair presentation of the information for the
quarters  presented.  The operating  results for any quarter are not necessarily
indicative of results for any future period.


<TABLE>
<CAPTION>
                                                          Quarterly Results for the Periods Ended


                                             December 31, 1996                           March 31, 1996
                                   -------------------------------------------------------------------------------------
                                    6/30/96    9/30/96     12/31/96     6/30/95     9/30/95   12/31/95      3/31/96
                                                           (in thousands, except per share data)


<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>
Net sales                          $ 33,149    $ 33,399    $ 29,274    $ 23,485    $ 26,928    $ 27,125    $ 29,973

Cost of sales                        21,222      21,584      19,125      15,019      17,417      17,403      19,660
                                   --------    --------    --------    --------    --------    --------    --------
Gross margin                         11,927      11,815      10,149       8,466       9,511       9,722      10,313

Operating expenses (1)                5,062       5,182       5,069       3,337       3,886       4,176       4,982

Selling, general and
   administration                     4,425       4,062       4,705       3,154       3,494       3,584       4,235

Depreciation and amortization(2)        705         769       1,346         425         483         541         641
                                   --------    --------    --------    --------    --------    --------    --------
Income(loss) from operations (1)      1,735       1,802        (971)      1,550       1,648       1,421         455

Investment income, net                   29          12          36         104          37          20          22

Interest expense                       (478)       (509)       (386)       (151)       (164)       (186)       (340)
                                   --------    --------    --------    --------    --------    --------    --------
Income(loss) before income taxes      1,286       1,305      (1,321)      1,503       1,521       1,255         137

Income tax expense(benefit)(1)          587         478        (455)        571         572         489         135
                                   --------    --------    --------    --------    --------    --------    --------

Net income                         $    699    $    827    $   (866)   $    932    $    949    $    766    $      2

Net income per share(3)            $   0.12    $   0.14    $  (0.14)   $   0.16    $   0.16    $   0.13    $   0.00
</TABLE>

(1)      State income taxes have been  reclassified  from operating  expenses to
         income tax expense to conform with the  presentation  of  corresponding
         amounts in the current period.

(2)      The increase in depreciation and amortization results from amortization
         of intangibles and  depreciation of fixed assets incurred in connection
         with the Company's  acquisitions  in the nine months ended December 31,
         1996 and a full year's  amortization  and depreciation for prior year's
         acquisitions  along with  revisions to the  estimated  lives of certain
         intangibles in the quarter ending December 31, 1996.

 (3)     The sum of the  quarterly  net  income(loss)  per share amounts for the
         periods  presented  may not equal the  annual  amount  reported  as net
         income per share is computed independently for each quarter.



Seasonality  and  Quarterly  Fluctuations.  The  Company's  sales and  operating
results  have  varied  from  quarter to quarter  due to certain  factors and the
Company expects these  fluctuations  to continue.  Chief among these factors are
seasonal  buying  patterns  of  the  Company's   customers  and  the  timing  of
acquisitions. Historically, outlet sales have slowed in the late fall and winter
of each year largely due to inclement weather and the reduced number of business
days during the  holiday  season.  As a result,  financial  performance  for the
Company's  outlets is generally  lower  during the  December and March  quarters
compared  to the June  and  September  quarters.  In  addition,  the  timing  of
acquisitions  may cause  substantial  fluctuations  of  operating  results  from
quarter to quarter.  The Company takes  advantage of periodic  supplier  special
incentive  programs  which extend the due date of purchases  beyond normal terms
with large volume purchases. The timing of these programs can contribute to wide
fluctuations  in  the  Company's  quarterly  cash  flow.  Although  the  Company
continues  to  investigate  strategies  to smooth  the  seasonal  pattern of its
quarterly  results of  operations,  there can be no assurance that the Company's
net sales,  results of  operations  and cash flow will not  continue  to display
these seasonal patterns.


<PAGE>

INFLATION AND OTHER ECONOMIC FACTORS
Inflation  impacts  FinishMaster's  costs of materials sold,  salaries and other
related  costs  of  distribution.   To  the  extent  permitted  by  competition,
FinishMaster has offset these higher costs of materials  through selective price
increases.

The Company's business may be negatively affected by cyclical economic downturns
in the markets in which it operates. In addition,  markets in the van conversion
industry may increase the cyclical nature of the Company's operations.  Sales in
this market accounted for approximately 5-10% of sales for the periods reported.
There is no assurance that the Company will not be materially adversely affected
in the future by cyclical  downturns in its  markets.  The  Company's  financial
performance  is  also  dependent  on  its  ability  to  acquire  businesses  and
profitably  integrate  them into their  operations.  The Company  believes  that
future  acquisitions in the Southwest and East Coast Regions,  increased  market
penetration, store consolidations and improved operating efficiencies will bring
the performance of recent acquisitions in line with existing outlets.


LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity and capital resources are significantly  affected by its
acquisition  activity.  Acquisitions  typically are financed by a combination of
internally  generated  cash flow,  seller  financing  and  borrowings  under the
Company's loan facilities.  The net proceeds from the public stock offering were
$16.2  million and have been used for  acquisitions  as well as to meet  working
capital and other  obligations in the prior periods.  See notes to  Consolidated
Financial Statements.

The  Company's  operating  activities  provided $2.3 million of cash in the nine
months ended December 31, used $0.5 million of cash for the year ended March 31,
1996 and provided $1.0 million in the year ended March 31, 1995.

The  accounts  receivable  decrease  of $2.3  million  since  March 31, 1996 was
primarily the result of intensive collection activity with certain slower paying
customers during the period.  The accounts  receivable  increase of $4.7 million
from March 31, 1995 to March 31, 1996 was primarily  the result of  acquisitions
during that period.

The  inventory  increase of $1.3 million  since March 31, 1996 was the result of
$0.5  million  from  acquisition  activity,  with the  remainder  being  special
truckload  purchases in advance of supplier price  increases.  Inventory days on
hand were  approximately 108 days in the period ended December 31, 1996 compared
to 123 days in the period ended March 31, 1996. The decrease in days compared to
the prior year is  primarily  due to the volume and timing of  acquisitions  and
large inventory purchases. The inventory increase of $9.3 million from March 31,
1995 to March 31, 1996 was primarily the result of acquisition activity.

Accounts  payable  decreased  approximately  $2.3  million  since March 31, 1996
primarily  due to extended  term  purchases  near the end of March 31, 1996 with
payments  coming due in the period ended  December 31,  1996.  Accounts  payable
increased  approximately  $1.0  million  from March 31,  1995 to March 31,  1996
primarily  due to a high  volume of  inventory  purchases,  which were offset by
payment discounts to major vendors.

The  Company's  investing  activities  in the period  ended  December  31,  1996
primarily  consisted  of an  acquisition  with a purchase  price of $3.1 million
financed in part by $1.2 million of  long-term  obligations  to the seller.  The
twelve months ended March 31, 1996 investing  activities  primarily consisted of
the sale of  marketable  securities  of $6.9  million  used to fund  acquisition
downpayments  of $11.4 million.  The balance of  acquisition  down payments were
funded through the Company's credit facilities.

The Company  believes its cash and other liquid  resources,  cash flow generated
from  operating  activities,  and the $10.8 million of available line of credit,
will be sufficient to support  operations and general capital  requirements  for
the next twelve  months.  Depending on the  availability  of  acquisitions,  the
Company may incur additional debit or issue equity  securities.  There can be no
assurance that such additional capital will be available to the Company.


<PAGE>




ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted in a separate section of this report.

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

NONE

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is  incorporated  by reference from the  Registrant's  definitive  proxy
statement to be filed within 120 days of December 31, 1996.

ITEM 11 - EXECUTIVE COMPENSATION
Item 11 is  incorporated  by reference from the  Registrant's  definitive  proxy
statement to be filed within 120 days of December 31, 1996.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is  incorporated  by reference from the  Registrant's  definitive  proxy
statement to be filed within 120 days of December 31, 1996.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is  incorporated  by reference from the  Registrant's  definitive  proxy
statement to be filed within 120 days of December 31, 1996.

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)  and  (2)--The  response  to this  portion of Item 14 is  submitted  as a
separate section of this report.

     (3) Listing of Exhibits
                  The following exhibits,  unless otherwise indicated, have been
                  filed as  exhibits  to Form S-1  Registration  Statement,  No.
                  33-73804,  effective  date of February 22, 1994 and are hereby
                  incorporated by reference.

           Exhibit
             No.                               Description of Document

         2.1*     Agreement  and Plan of  Merger  by and  between  FinishMaster,
                  Inc.,  a Michigan  corporation,  and  FinishMaster,  Inc.,  an
                  Indiana corporation, dated November 12, 1996

         3.1*     Articles of Incorporation  of  FinishMaster,  Inc., an Indiana
                  corporation


         3.2*     Bylaws of  FinishMaster,  Inc.,  an Indiana  corporation

         10.1     Deferred  Compensation  Agreement  dated  April 1, 1977 by and
                  between the Company and James F. White

         10.11    Amendment to Deferred  Compensation  Agreement  dated December
                  15,   1995  by  and   between   the   Company   and  James  F.
                  White(incorporated  by reference  to Form 10-Q dated  December
                  31, 1995)

         10.12    Loan  Agreement  dated June 7, 1990 between the Company and FB
                  Annuity  Company  relating to the  purchase  of the  Company's
                  Kentwood, Michigan central distribution facility

         10.13    FinishMaster Inc. Stock Option Plan

         10.14    Stock Transfer  Agreement  dated November 30, 1993 between the
                  Company and Maxco, Inc.

         10.15    Intercompany  Agreement  dated  December  31, 1993 between the
                  Company and Maxco, Inc.

         10.16    Credit Agreement dated August 24, 1995 between the Company and
                  National  Bank of Detroit  to fund  acquisitions  and  working
                  capital  requirements(incorporated  by  reference to Form 10-Q
                  dated September 30, 1995)

         10.17    Amendment to Credit Agreement dated July 1, 1996

         10.18*   Amendment to Credit Agreement dated February 18, 1997

         11.1*    Statement regarding computation of per share earnings

         21.1*    Subsidiary of the Registrant

         27.1*    Financial Data Schedule

         *        Filed herewith

<PAGE>

(b)     Reports on Form 8-K:
                           Form  8-K  was  originally  filed  on July  16,  1996
                           regarding  a change in  control of  Registrant  and a
                           change  in  Registrant's  certifying  accountant,  as
                           amended  by a Form  8-K/A  filed  on  July  29,  1996
                           regarding a clarification  with respect to the change
                           in Registrant's certifying accountant.


                           Form 8-K was filed on  November  8, 1996  regarding a
                           change in the fiscal  year of the  Registrant  from a
                           fiscal year  ending  March 31 to a fiscal year ending
                           December 31.


(c)     Exhibits
        -Amendment to Credit Agreement
        -Subsidiary of the Registrant
        -Financial Data Schedule

(d)     Financial Statement Schedules

         The  response  to this  portion of Item 14 is  submitted  as a separate
         section of this report.





<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date March 14, 1997 FINISHMASTER, INC.

                              By   /S/THOMAS U. YOUNG
                                   -------------------------------------
                                   Thomas U. Young, President,
                                   Vice Chairman of the Board, and
                                   Chief Operating Officer


                              By   /S/ROGER A. SOROKIN
                                   -------------------------------------
                                   Roger A. Sorokin, Vice President-Finance
                                   (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.



/S/ANDRE B. LACY                 March 14, 1997         Chairman of the Board,
-----------------------------------------------         Chief Executive Officer
Andre B. Lacy                      Date                 and Director


/S/WILLIAM J. FENNESSY           March 14, 1997         Treasurer and Director
-----------------------------------------------
William J. Fennessy                Date


/S/ROBERT H. REYNOLDS            March 14, 1997         Secretary
-----------------------------------------------
Robert H. Reynolds                 Date


/S/MARGOT L. ECCLES              March 14, 1997         Director
-----------------------------------------------
Margot L. Eccles                   Date


/S/PETER L. FRECHETTE            March 14, 1997         Director
-----------------------------------------------
Peter L. Frechette                 Date


/S/MICHAEL J. SIEREVELD          March 14, 1997         Director
-----------------------------------------------
Michael J. Siereveld               Date


/S/WALTER S. WISEMAN             March 14, 1997         Director
-----------------------------------------------
Walter S. Wiseman                  Date



<PAGE>




                           ANNUAL REPORT ON FORM 10-K

                       ITEM 14(a)(1) AND (2), (c), AND (d)

          LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                CERTAIN EXHIBITS

                          FINANCIAL STATEMENT SCHEDULE

                       NINE MONTHS ENDED DECEMBER 31,1996

                               FINISHMASTER, INC.

                               KENTWOOD, MICHIGAN






<PAGE>



FORM 10-K--ITEM 14(a)(1) AND (2)

FINISHMASTER, INC. AND SUBSIDIARY

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

The  following  consolidated  financial  statements  of  FinishMaster,  Inc. and
Subsidiary are included in Item 8:

                                                              Page

Reports of Independent Auditors ............................   21

Consolidated Balance Sheets ................................   24

Consolidated Statements of Operations ......................   25

Consolidated Statements of Cash Flows ......................   26

Consolidated Statements of Stockholders' Equity.............   27

Notes to Consolidated Financial Statements .................   28


The following  consolidated  financial statement schedule of FinishMaster,  Inc.
and Subsidiary is submitted herewith:

Schedule II.................................................   35


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



<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
FinishMaster, Inc.

We have audited the  accompanying  consolidated  balance sheet of  FinishMaster,
Inc.  and  Subsidiary  as of December  31,  1996,  and the related  consolidated
statements  of  operations,   stockholders'  equity,  and  cash  flows  for  the
nine-month period ended December 31, 1996. Our audit also included the financial
statement schedule listed in the index at Item 14(a). These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion  on these  financial  statements  and  schedule  based on our
audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
FinishMaster,  Inc. and  Subsidiary  at December  31, 1996 and the  consolidated
results of their operations and their cash flows for the nine-month period ended
December 31, 1996, in conformity with generally accepted accounting  principles.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic financial statements taken as a whole,  presents fairly
in all material respects the information set forth therein.







                                                           COOPERS & LYBRAND LLP

Grand Rapids, Michigan
February 18, 1997






<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors and Stockholders
FinishMaster, Inc.



We have audited the  accompanying  consolidated  balance sheet of  FinishMaster,
Inc.  and  Subsidiary  as of  March  31,  1996,  and  the  related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
two years in the period ended March 31, 1996. 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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
FinishMaster, Inc. and Subsidiary at March 31, 1996 and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended  March  31,  1996,  in  conformity  with  generally  accepted   accounting
principles.


                                                 ERNST & YOUNG LLP
Detroit, Michigan
April 18,1996





<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders
FinishMaster, Inc.



We have audited the consolidated  financial statements of FinishMaster,  Inc. as
of March 31,  1996 and 1995 and for the years then  ended,  and have  issued our
report  thereon dated April 18, 1996.  Our audits also  included  Schedule II of
FinishMaster,  Inc. which is included in the related  schedule of  FinishMaster,
Inc. in its Annual  Report on Form 10-K for the year ended March 31, 1996.  This
financial  statement  schedule  is  the  responsibility  of  FinishMaster,  Inc.
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statements schedule of FinishMaster, Inc. referred
to above, when considered in relation to the FinishMaster,  Inc. basic financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.


                                                  ERNST & YOUNG LLP
Detroit, Michigan
April 18, 1996


<PAGE>



CONSOLIDATED BALANCE SHEETS

FINISHMASTER, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                  December 31,  March 31,
                                                                      1996        1996
                                                                    --------    --------
                                                                        (in thousands)
ASSETS

CURRENT ASSETS
<S>                                                                 <C>         <C>
     Cash and cash equivalents
                                                                    $    300    $  1,109

     Accounts receivable, net of allowance for doubtful
         accounts of $700,000 and $350,000, respectively              12,752      15,119

     Inventory                                                        24,828      23,502

     Deferred income taxes
                                                                         474         293

     Prepaid expenses and other current assets                           785         515
                                                                    --------    --------
TOTAL CURRENT ASSETS                                                  39,139      40,538

PROPERTY AND EQUIPMENT

     Land                                                                368         368

     Buildings and improvements                                        3,105       2,927

     Machinery, equipment and fixtures                                 5,964       5,809
                                                                    --------    --------
                                                                       9,437       9,104

     Accumulated depreciation
                                                                      (2,866)     (2,855)
                                                                    --------    --------
                                                                       6,571       6,249
OTHER ASSETS

     Intangible assets, net                                           20,357      19,805

     Deferred income taxes                                               289          70

     Other                                                               121         110
                                                                    --------    --------
                                                                      20,767      19,985
                                                                    --------    --------
                                                                    $ 66,477    $ 66,772
                                                                    ========    ========



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

     Note payable, bank                                             $  1,841    $   ----

     Accounts payable                                                  7,786      10,093

     Accrued expenses and other current liabilities                    2,554       1,766

     Current maturities of long-term obligations                       4,139       3,643
                                                                    --------    --------


TOTAL CURRENT LIABILITIES                                             16,320      15,502



LONG-TERM OBLIGATIONS, less current maturities                        17,831      19,605

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY

     Preferred stock, no par value, 1,000,000 shares authorized;
         no shares issued and outstanding

     Common stock, $1 stated value; 10,000,000 shares authorized;
         6,000,140 and 6,000,000 shares issued and outstanding         6,000       6,000

     Additional paid-in capital                                       14,509      14,508

     Retained earnings
                                                                      11,817      11,157
                                                                    --------    --------


                                                                      32,326      31,665
                                                                    --------    --------

                                                                    $ 66,477    $ 66,772
                                                                    ========    ========
</TABLE>





The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.





<PAGE>



CONSOLIDATED STATEMENTS OF OPERATIONS

FINISHMASTER, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

                                              Nine Months
                                                Ended        Year Ended March 31,
                                              December 31,
                                                1996         1996         1995
                                              ---------    ---------    ---------
                                              (in thousands, except per share data)
<S>                                           <C>          <C>          <C>
NET SALES                                     $  95,822    $ 107,511    $  79,382

COST OF SALES                                    61,931       69,499       51,334
                                              ---------    ---------    ---------

                   GROSS PROFIT                  33,891       38,012       28,048

EXPENSES:

   Operating                                     15,313       16,382       10,556
   Selling, general and administrative           13,192       14,467       10,700
   Depreciation                                     755          779          560
   Amortization of intangible assets              2,065        1,311          838
                                              ---------    ---------    ---------
                                                 31,325       32,939       22,654
                                              ---------    ---------    ---------

INCOME FROM OPERATIONS                            2,566        5,073        5,394

OTHER INCOME (EXPENSE):
   Investment income                                 77          183          755
   Interest expense                              (1,373)        (841)        (520)
                                              ---------    ---------    ---------

                                                 (1,296)        (658)         235
                                              ---------    ---------    ---------



INCOME BEFORE INCOME TAXES                        1,270        4,415        5,629
   Income tax expense                               610        1,766        2,167
                                              ---------    ---------    ---------

                 NET INCOME                   $     660    $   2,649    $   3,462
                                              =========    =========    =========
     NET INCOME PER SHARE                     $     .11    $     .44    $     .58
                                              =========    =========    =========


       WEIGHTED AVERAGE NUMBER OF SHARES OF       6,000        6,000        6,000
       COMMON STOCK OUTSTANDING               =========    =========    =========

</TABLE>



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.






<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS

FINISHMASTER, INC. AND SUBSIDIARY



<TABLE>
<CAPTION>
                                                      Nine months
                                                         ended       Year ended March 31,
                                                       December 31,
                                                          1996       1996         1995
                                                       ---------------------------------
                                                                  (in thousands)
OPERATING ACTIVITIES:

<S>                                                    <C>         <C>         <C>
Net Income                                             $    660    $  2,649    $  3,462
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Depreciation and amortization                           2,820       2,090       1,398
  Bad debt expense                                          798         548         439
  Deferred income taxes                                    (400)        (38)       (109)
  Changes in operating assets and liabilities:
  Account receivable                                      2,324      (1,997)     (1,467)
  Inventories                                              (815)       (778)     (1,664)
  Prepaids and other current assets                        (270)       (243)       (167)
  Accounts payable and other current liabilities         (2,775)     (2,694)       (843)
                                                       --------    --------    --------

NET CASH PROVIDED BY (USED IN) OPERATING  ACTIVITIES      2,342        (463)      1,049

INVESTING ACTIVITIES:

Business acquisitions                                    (3,083)    (22,193)     (8,851)
Purchases of property and equipment                        (620)       (762)       (439)
Sale of (investment in) marketable securities                --       6,906      (6,920)
Other                                                       (11)       (313)       (166)
                                                       --------    --------    --------
NET CASH USED IN INVESTING ACTIVITIES                    (3,714)    (16,362)    (16,376)

FINANCING ACTIVITIES:

Net borrowings under note payable, bank                   1,841          --          --
Proceeds from long-term obligations                       1,191      18,583       4,670
Repayment of long-term obligations                       (2,469)     (2,787)     (1,429)
                                                       --------    --------    --------
NET CASH PROVIDED BY FINANCING  ACTIVITIES                 563      15,796        3,241
                                                       --------    --------    --------

DECREASE IN CASH AND CASH EQUIVALENTS                      (809)     (1,029)    (12,086)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          1,109       2,138      14,224
                                                       --------    --------    --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD             $    300    $  1,109    $  2,138
                                                       ========    ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


Cash paid during the period for:
     Interest                                          $  1,313    $    762    $    511
                                                       ========    ========    ========
     Taxes                                             $    687    $    774    $  2,313
                                                       ========    ========    ========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.





<PAGE>



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FINISHMASTER, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

                                                         Additional      Net
                                              Common       paid-in   Unrealized     Retained
                                               Stock      Capital    Gain/(Loss)    Earnings     Totals
                                              ---------------------------------------------------------
                                                                    (in thousands)
<S>                                           <C>         <C>         <C>         <C>        <C>
BALANCES AT APRIL 1, 1994                      $  6,000    $ 14,508    $     --    $  5,046   $ 25,554

     Net unrealized loss on
     marketable securities                                                  (60)                   (60)

     Net income for the year                                                          3,462      3,462
                                               --------    --------    --------    --------   --------
BALANCES AT MARCH 31, 1995                        6,000      14,508         (60)      8,508     28,956

     Adjustment related to sale of marketable                                60                     60

     Net income for the year                                                          2,649      2,649
                                               --------    --------    --------    --------   --------
BALANCES AT MARCH 31, 1996                        6,000      14,508          --      11,157     31,665

     Options exercised                                                        1                      1

     Net income for the nine month period                                               660        660
                                               --------    --------    --------    --------   --------
BALANCES AT DECEMBER 31, 1996                  $  6,000    $ 14,509    $     --    $ 11,817   $ 32,326
                                               ========    ========    ========    ========   ========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FINISHMASTER, INC. AND SUBSIDIARY


1.  SIGNIFICANT ACCOUNTING POLICIES

Nature of Business:  The Company is a leading  distributor of automotive paints,
coatings  and  paint-related  accessories  to the  automotive  collision  repair
industry.  As of December 31, 1996 the Company operated 54 sales outlets and two
distribution  centers in twelve  states  organized  into three major  geographic
regions,  the Great Lakes Region,  the Southwest  Region and the Eastern Region.
The Company has approximately  12,000 customers that it provides a comprehensive
selection  of brand name  products  supplied  by BASF,  DuPont,  3M and PPG,  in
addition to its own FinishMaster PrivateBrand refinishing accessory products.

Majority  Stockholder:  On February 23, 1994, the Company  completed the initial
public  offering of common stock on the NASDAQ national market under the trading
symbol "FMST." The Company sold 1.7 million shares of common stock at an initial
public offering price of $10.50 per share. The net proceeds from the offering of
approximately  $16.2  million were used by  FinishMaster  to fund  acquisitions,
repay indebtedness,  finance working capital and for general corporate purposes.
As a result of these  transactions,  4,045,000  shares or 67.4% of the Company's
outstanding  stock was owned by Maxco at March 31,  1996.  On July 9, 1996,  LDI
AutoPaints, Inc., an Indiana corporation,  purchased all of the shares of common
stock owned by Maxco, Inc. Effective December 31, 1996, LDI, Ltd. transferred to
LDI  AutoPaints  100 shares of the Company  which it had  purchased  on the open
market in  August,  1995.  As a result of these  transactions,  LDI  AutoPaints,
Inc.'s ownership of FinishMaster stock was 4,045,100 shares or 67.4% at December
31, 1996.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Principles of Consolidation:  The consolidated  financial statements include the
consolidated accounts of FinishMaster and Refinishers  Warehouse,  Inc. Sales by
Refinishers  Warehouse  are  primarily to  FinishMaster  and are  eliminated  in
consolidation.  All other  significant  intercompany  and  equity  accounts  and
transactions   are  eliminated.   References  to  the  Company  or  FinishMaster
throughout this report the consolidated entity.

Transactions  with  Majority  Stockholder:  Prior to July 9, 1996,  the  company
received  certain  services from Maxco,  Inc.  These services  included  central
processing of all insurance,  including employee benefit coverages,  general and
automobile liability,  property and casualty. All expenses directly attributable
to FinishMaster were allocated by Maxco to FinishMaster.

Preferred Stock: FinishMaster has authorized up to 1,000,000 shares of preferred
stock for possible future issuance.

Cash and Cash  Equivalents:  The Company  considers cash and other highly liquid
investments  with  maturities  of 90  days or  less,  including  investments  in
interest bearing repurchase agreements, as cash and cash equivalents.

Receivables:  Trade  accounts  receivable  represent  amounts due primarily from
automotive body repair shops and  dealerships.  Trade  receivables are typically
not collateralized.

Inventories:  Inventories are stated at the lower of first-in, first-out cost or
market and  consist  primarily  of  purchased  paint and  refinishing  supplies.
Substantially all inventories consist of finished goods.

Properties and  Depreciation:  Property and equipment are stated on the basis of
cost and include  expenditures  for new facilities and equipment and those which
materially extend the useful lives of existing facilities and equipment.

Expenditures  for normal  repairs and  maintenance  are charged to operations as
incurred.  Depreciation  for  financial  reporting  purposes  is computed by the
straight-line method based on the estimated useful lives of the assets.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY


1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: Deferred income taxes are recognized for the temporary differences
between the tax bases of assets and liabilities  and their  financial  reporting
amounts. The income tax provision is the tax  payable/recoverable for the period
and the change during the period in deferred tax assets and liabilities.

Intangibles:  Intangibles  primarily  consist  of the  excess  of cost over fair
market value of net assets of acquired businesses.  Intangible assets, including
non-compete  agreements,  are  amortized on a  straight-line  basis over periods
ranging from 5 to 40 years.

The  carrying  value of goodwill is  periodically  reviewed to  determine  if an
impairment,  has  occurred.  The Company  measures the  potential  impairment of
recorded  goodwill based on the  undiscounted  cash flows of the entity acquired
over the remaining amortization period.

Advertising:  Advertising  costs are  expensed as  incurred.  The  amounts  were
immaterial for all periods presented.

Earnings per Share:  In February of 1997,  the  Financial  Accounting  Standards
Board issued Statement of Financial  Accounting Standards No. 128, "Earnings per
Share".  This  Statement  simplifies  the standards  for computing  earnings per
share,  replacing  the  presentation  of  primary  earnings  per  share  with  a
presentation  of basic  earnings  per  share.  SFAS No. 128 also  requires  dual
presentation  of basic and diluted  earnings per share on the face of the income
statement for all entities with complex capital  structures.  Basic earnings per
share is computed by dividing  income  available to common  stockholders  by the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings  per share is computed  similarly to fully  diluted  earnings per share
pursuant to APB Opinion No. 15, Earnings per Share,  which is superseded by this
Statement.  This  Statement is effective  for  financial  statements  issued for
periods ending after December 15, 1997, with early application being prohibited.
The  Company  has  not yet  determined  the  impact  of  this  Statement  on the
consolidated financial statements.

Reclassification:  Certain  reclassifications  have been reflected in prior year
amounts to conform with the presentation of corresponding amounts in the current
period.



2.  CHANGE IN FISCAL YEAR

The Company  elected to change its fiscal year-end from March 31 to December 31,
effective for the period ending December 31, 1996.  Comparative  information for
the nine months ended December 31, 1996, 1995 and 1994 is as follows:


                                 1996              1995                1994
                                                (unaudited)         (unaudited)
                              --------------------------------------------------
                                   (in thousands, except per share data)

Net sales                      $  95,822          $  77,538         $  57,685

Gross margin                      33,891             27,699            20,080

Income taxes                         610              1,645             1,596

Net income                           660              2,647             2,639

Net income per share                0.11               0.44              0.44


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY


3.  ACQUISITIONS

The following  table  summarizes the assets  purchased in  acquisitions  made by
FinishMaster  in each of the periods  presented.  These  acquisitions  have been
accounted for as purchases and accordingly,  the acquired assets and liabilities
have been recorded at their  estimated fair values at the dates of  acquisition.
Intangible assets related to goodwill and covenants not to compete were recorded
with each acquisition.


                                      Nine Months
                                        Ended
                                      December 31,      Year Ended March 31,

                                         1996            1996          1995
                                       --------------------------------------
                                                    (in thousands)

Accounts receivable                    $   755         $ 3,229       $ 1,313

Inventory                                  511           8,500         2,392

Equipment and other                        456           1,492           878

Intangible assets                        2,617          13,247         5,624
                                       -------         -------       -------
                                         4,339          26,468        10,207

Accounts payable                         1,256           4,275         1,356
                                       -------         -------       -------


ACQUISITION PRICE                        3,083          22,193         8,851

Acquisition debt                         1,191          10,774         4,670
                                       -------         -------       -------


NET ASSETS OF BUSINESSES ACQUIRED,
NET OF ACQUISITION DEBT
                                       $ 1,892         $11,419       $ 4,181
                                       =======         =======       =======

Number of acquisitions                       1              16             5




The  acquisitions  were  funded with cash and debt.  Operating  results of these
acquired organizations are included in FinishMaster's  financial statements from
the respective dates of purchase.  The acquisitions  made during the nine months
ended  December  31,  1996 and  years  ended  March  31,  1996 and 1995 were not
significant to reported results of operations, cash flows or financial position.

The following table sets forth the unaudited pro forma results of operations for
the  current  period  in which  acquisitions  occurred  and for the  immediately
preceding period as if the acquisitions were consummated at the beginning of the
immediately  preceding period. This proforma  information does not purport to be
indicative  of what would have been made as of those  dates or of results  which
may occur in the future.

                                            Nine Months
                                              Ended
                                            December 31,   Year Ended March 31,

                                                 1996             1996
                                           ----------------------------------
                                            (in thousands except per share data)

Net Sales                                     $  96,456       $  115,104

Net Income                                          667            2,737

Net Income per common share                        0.11             0.46

Weighted average number of common shares          6,000            6,000



<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY


4. INTANGIBLE ASSETS

Intangible assets consisted of the following:




                                              December 31,          March 31,
                                                  1996                1996

                                              ----------------------------------
                                                        (in thousands)

Non-compete agreements                          $  10,860             $   9,760


Goodwill                                           16,044                14,552
                                                ---------             ---------
                                                   26,904                24,312


Less accumulated amortization                       6,547                 4,507
                                                ---------             ---------

Intangible assets, net                          $  20,357             $  19,805
                                                =========             =========



5.  LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following:

<TABLE>
<CAPTION>
                                                                            December 31,          March 31,
                                                                                1996                1996
                                                                             ---------------------------------
                                                                                      (in thousands)

<S>                                                                          <C>                 <C>
Notes payable, to former owners of acquired businesses with
     interest at various rates up to 9%, due 1997 though 2004                 $ 12,911            $13,535

Note payable,  to bank under line of credit with
     interest rate not exceeding the
     prime interest rate(7.71% at December
     31,1996),  due in 2001                                                      7,288              7,809

Mortgage note payable, collateralized by a building, to an
     insurance corporation with interest at  8.05%, due July, 2000               1,587              1,625

Other long-term financing at various rates                                         184                279
                                                                             ---------          ---------
                                                                                21,970             23,248

Less current maturities                                                          4,139              3,643
                                                                              --------           --------

                                                                              $ 17,831            $19,605
                                                                              ========           ========
</TABLE>





The aggregate  principal payments for the next five years subsequent to December
31, 1996 are as follows:


                1997                     $  4,139,000
                1998                        3,921,000
                1999                        3,733,000
                2000                        4,354,000
                2001                        4,852,000
                Thereafter                    971,000
                                         ------------
                                         $ 21,970,000
                                         ============



The Company has a $5.0  million  unsecured  line of credit at a rate of 8.25% to
fund  periodic  working  capital  requirements  and  a  separate  $15.0  million
unsecured  line of credit to fund  acquisitions.  At December 31, 1996 there was
$10.8  million  of  these  credit  facilities  available.  These  lines  contain
restrictive  covenants  which require  maintenance of certain  financial  ratios
including working capital, debt and interest coverage.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY


5. LONG-TERM OBLIGATIONS (continued)

The  carrying  amounts  of  certain  financial  instruments  such  as  cash  and
equivalents,  accounts  receivable and accounts payable  approximate  their fair
values.  The fair value of the long-term debt is estimated using discounted cash
flow analysis and the Company's current incremental  borrowing rates for similar
types of  arrangements.  A table comparing  December 31, 1996 and March 31, 1996
carrying amounts and estimated fair values is as follows:

                                       December 31,                 March 31,
                                          1996                       1996
                                      -----------------------------------------
                                                   (in thousands)

    Carrying amount                      $  23,811                  $  23,248
                                         =========                  =========
    Fair value                           $  23,500                  $  22,800
                                         =========                  =========



6.  EMPLOYEE SAVINGS PLAN

The  Company  has an  Employee  Savings  Plan  which  covers  substantially  all
employees who have met certain requirements as to date of service.  FinishMaster
contributes  $.20 for each $1  contributed by employees up to 6% of their annual
compensation.  In addition,  FinishMaster contributes,  at the discretion of the
Board of Directors,  an additional  amount equal to 1% of the employees'  annual
compensation.  Company  contributions  charged to operations under the Plan were
approximately  $189,000 for the nine months ended December 31, 1996 and $198,000
and $178,000 for the years ended March 31, 1996 and 1995, respectively.


7.  STOCK OPTIONS

On November  30,  1993,  an  Employee  Stock  Option Plan was  ratified to grant
options on up to 600,000 shares of the Company's  common stock to officers,  key
employees and non-employee  directors of the Company.  All options granted under
this plan have been  granted at a price equal to the market price at the date of
the grant. Options granted in the year ended March 31, 1994 had a vesting period
of two years. Options granted in the year ended March 31, 1996 were fully vested
when granted. All options granted have a maximum life of ten years from the date
of the grant.

Options  are  granted at not less than the fair  market  value of the  Company's
common stock on the date of grant, therefore, no compensation is recognized. Had
compensation  expense been determined at the date of the grant based on the fair
value of the  awards  consistent  with the  Statement  of  Financial  Accounting
Standards No. 123, "Accounting for Stock Based Compensation",  the Company's net
income and earnings  per share would have been  reduced to the proforma  amounts
indicated in the following table:


                                   Nine Months           Year Ended
                                 Ended December 31,        March 31,
                                      1996                  1996
                                ------------------------------------
      Net Income
          As Reported                 $ 660                $ 2,649
          Pro Forma                   $ 660                $ 2,010

      Earnings per share
          As Reported                 $0.11                $  0.44
          Pro Forma                   $0.11                $  0.34

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY



7.  STOCK OPTIONS(continued)

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes  option pricing model with the following  assumptions for December
31,  1996 and March 31, 1996  respectively:  risk free rate of 5.7  percent;  no
dividend  yield for all years;  expected  life 8 years;  and  volatility of 46.8
percent.  Option valuation  models,  like the stock price  Black-Scholes  model,
require the input of highly subjective  assumptions including the expected stock
price  volatility.  Because  changes in the  subjective  input  assumptions  can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.

<TABLE>
<CAPTION>
                                      December 31, 1996                  March 31, 1996                  March 31, 1995

                                                 Weighted-Avg.                   Weighted-Avg.                   Weighted-Avg.
                                                   Exercise                         Exercise                         Exercise
                                   Options           Price           Options          Price          Options          Price

Outstanding-beginning
<S>                                 <C>              <C>              <C>             <C>              <C>             <C>
of year                            222,085          $10.72           123,800         $10.50           124,540         $10.50

Granted                                                               99,500         $11.00                           $10.50
Exercised                              140          $10.50

Forfeited                           52,635          $10.76             1,215         $10.50               740         $10.50
                                    ------          ------             -----         ------           -------         ------
Outstanding-end of year            169,310          $10.71           222,085         $10.72           123,800         $10.50
                                   =======          ======           =======         ======           =======         ======

Exerciseable at end of
year($10.50 to $11.00
per share)                         169,310          $10.71           222,085         $10.72
                                   =======          ======           =======         ======

</TABLE>


The  weighted-average  fair value of options granted during the year ended March
31,  1996 was  $6.65 per  option.  The  remaining  contractual  life of  options
outstanding at December 31, 1996 is 7.9 years.



8.  INCOME TAXES

The provision for federal and state income taxes consisted of the following:


                 Nine Months Ended               Year Ended March 31,
                 December 31, 1996             1996               1995
                 -------------------------------------------------------------
                                    (in thousands)

Current:
   Federal         $ 778                     $1,477             $   1,976
   State             232                        327                   300
Deferred            (400)                       (38)                 (109)
                    ----                        ---                  ----
                   $ 610                     $1,766             $   2,167
                   =====                     ======             =========




<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINISHMASTER, INC. AND SUBSIDIARY


8.  INCOME TAXES(continued)

The reconciliation of income taxes computed at the federal statutory tax rate to
the Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                         Nine Months
                                                            Ended                        Year Ended March 31,
                                                          December
                                                          31, 1996                      1996            1995
                                                     -------------------       ---------------    ----------------

<S>                                                         <C>                         <C>               <C>
Federal statutory tax rate                                  34.0%                       34.0%             34.0%

State tax provision(net of federal income tax
    benefit of state taxes)                                  8.3                         4.9               3.5

Other                                                        5.7                         1.1               1.0
                                                     -------------------       ---------------    ----------------
Effective tax rate                                          48.0%                       40.0%             38.5%
                                                     ===================       ===============    ================
</TABLE>


Significant  components of the Company's  deferred tax assets and liabilities as
of December 31, 1996 and March 31, 1996, are as follows:


                                          December 31, 1996   March 31, 1996
                                          ---------------------------------
                                                      (in thousands)


Deferred tax assets
     Amortization of intangibles            $  647                     $ 287
     Allowance for doubtful accounts           277                       119
     Inventory                                 190                       188
     Other, net                                 23                         6
                                           -------                   -------
                                             1,137                       600

Deferred tax liabilities
     Depreciation                              374                       237
                                           -------                   -------
                                            $  763                     $ 363
                                            ======                   =======




9.  CONTINGENCIES AND COMMITMENTS

FinishMaster  occupies  facilities  and uses  equipment  under  operating  lease
agreements requiring annual rental payments  approximating the following amounts
for the five years subsequent to December 31, 1996:



                               1997               $  2,679,000
                               1998                  2,223,000
                               1999                  1,855,000
                               2000                  1,284,000
                               2001                    336,000
                               Thereafter              563,000
                                                  ------------
                                                  $  8,940,000
                                                  ============

Rent expense  charged to  operations  including  short-term  leases for the nine
months ended December 31, 1996 aggregated $2,783,000. Rent expense for the years
ended  March  31,  1996  and  1995   aggregated   $2,500,000   and   $1,706,000,
respectively.

FinishMaster is not involved in any material legal actions.


<PAGE>



                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                                 (In Thousands)


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------

        COL. A                COL. B                             COL. C                           COL. D                 COL. E
-----------------------------------------------------------------------------------------------------------------------------------
                                                                             ADDITIONS
                                                                     ---------------------------
                                                                                        Charged
                                                     Balance at       Charged to       to Other
                                                    Beginning of       Costs and       Accounts--   Deductions--        Balance at
                   DESCRIPTION                         Period          Expenses      Describe        Describe         End of Period
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>                           <C>              <C>
Nine months ended December 31, 1996:
       Allowance for doubtful accounts               $  350               $798                          $448  (A)        $700
                                                     ------               ----                          ----             ----

Year ended March 31, 1996:
       Allowance for doubtful accounts               $  260               $548                          $458  (A)        $350
                                                     ------               ----                          ----             ----

Year ended March 31, 1995:
       Allowance for doubtful accounts               $  155               $439                          $334  (A)        $260
                                                     ------               ----                          ----             ----
</TABLE>


(A) Represents uncollectible accounts written off, less recoveries.





<PAGE>



                        FINISHMASTER, INC. AND SUBSIDIARY
                           ANNUAL REPORT ON FORM 10-K

EXHIBITS


Exhibit       ......................... ..............................     PAGE

    2.1         Agreement and Plan of Merger by and between
                FinishMaster, Inc.,  a Michigan corporation,
                and FinishMaster, Inc., an Indiana corporation,
                dated November 12, 1996......................................37

    3.1         Articles of Incorporation of FinishMaster, Inc.,
                an Indiana corporation.......................................41

    3.2         Bylaws of FinishMaster, Inc., an Indiana corporation.........44

  10.18         Amendment to Credit Agreement ...............................47

   11.1         Statement regarding computation of per share earnings........49

   21.1         Subsidiary of the Registrant.................................50

   23.1         Consent of Independent Auditors..............................51

   27.1         Financial Data Schedule......................................52






<PAGE>



FINISHMASTER INC. AND SUBSIDIARY

EXHIBIT 2.1-AGREEMENT AND PLAN OF MERGER

                          AGREEMENT AND PLAN OF MERGER
                               FINISHMASTER, INC.

Parties:

         THIS AGREEMENT AND PLAN OF MERGER ("Merger  Agreement") is entered into
by    and    between     FinishMaster,     Inc.,    a    Michigan    corporation
("FinishMaster-Michigan")   and  FinishMaster,   Inc.,  an  Indiana  corporation
("FinishMaster-Indiana").

Recitals:

         1.       FinishMaster-Michigan  is a  corporation  duly  organized  and
                  existing under the laws of the State of Michigan.

         2.       FinishMaster-Indiana  is  a  corporation  duly  organized  and
                  existing under the laws of the State of Indiana.

         3. On the date of this Merger Agreement,  the authorized  capital stock
of  FinishMaster-Michigan  consists  of (i) ten million  (10,000,000)  shares of
common stock, without par value (the  "FinishMaster-Michigan  Common Stock"), of
which six million  (6,000,000)  shares are issued and outstanding,  and (ii) one
million (1,000,000) shares of preferred stock,  without par value, of which none
are outstanding.

         4. On the date of this Merger Agreement,  the authorized  capital stock
of  FinishMaster-Indiana  consists  of (i) ten  million  (10,000,000)  shares of
common stock,  without par value (the  "FinishMaster-Indiana  Common Stock"), of
which   ten   (10)   shares   are   issued   and   outstanding   and   owned  by
FinishMaster-Michigan,  and (ii) one  million  (1,000,000)  shares of  preferred
stock, without par value, of which none are outstanding.

         5. The  respective  Boards of  Directors of  FinishMaster-Michigan  and
FinishMaster-Indiana  have  determined  that  it is  advisable  and in the  best
interests of each such  corporation  that  FinishMaster-Michigan  merge with and
into  FinishMaster-Indiana  upon the terms and subject to the conditions of this
Merger   Agreement  for  the  purpose  of  effecting  the   reincorporation   of
FinishMaster-Michigan in the State of Indiana.

         6. The  respective  Boards of  Directors of  FinishMaster-Michigan  and
FinishMaster-Indiana  have  approved  and  adopted  this Merger  Agreement.  The
affirmative  vote of the  holders of a  majority  of the  outstanding  shares of
FinishMaster-Michigan  Common  Stock  entitled to vote on this Merger  Agreement
must approve this Merger Agreement for the merger to become effective. The Board
of Directors of  FinishMaster-Michigan  has therefore  directed that this Merger
Agreement be submitted  to a vote of its  shareholders,  which vote was taken at
the  duly   called  and   constituted   annual   meeting  of   shareholders   of
FinishMaster-Michigan  on September  18,  1996,  and resulted in the approval of
this Merger Agreement by such shareholders.  FinishMaster-Michigan,  as the sole
shareholder  of  FinishMaster-Indiana,  has  unanimously  approved  this  Merger
Agreement by written consent dated as of November 12, 1996.

         7.  The  parties   intend  by  this  Merger   Agreement   to  effect  a
"reorganization"  under  Section 368 of the Internal  Revenue  Code of 1986,  as
amended.



Terms and Provisions:

         In consideration  of the foregoing  recitals and of the following terms
and provisions, and subject to the following conditions, it is agreed:

         1.  Merger.  At the  Effective  Time (as  defined in this  Section  1),
FinishMaster-Michigan  shall be merged with and into  FinishMaster-Indiana  (the
"Merger"). FinishMaster-Indiana shall be the surviving corporation of the Merger
and the separate corporate existence of  FinishMaster-Michigan  shall cease. The
Merger shall become  effective  upon the later of: (i) the filing of Articles of
Merger with the  Secretary of State of the State of Indiana,  or (ii) the filing
of a Certificate of Merger with the Secretary of State of the State of Michigan.
The date and time when the Merger shall become  effective is herein  referred to
as the "Effective Time."

<PAGE>

2.       Governing Documents.

                  a. The Articles of Incorporation of FinishMaster-Indiana as it
may be amended or restated  subject to applicable law, as in effect  immediately
prior to the Effective Time,  shall  constitute the Articles of Incorporation of
FinishMaster-Indiana  without  further  change  or  amendment  until  thereafter
amended in accordance with the provisions thereof and applicable law.

                  b. The Bylaws of FinishMaster-Indiana as in effect immediately
prior to the Effective Time shall constitute the Bylaws of  FinishMaster-Indiana
without  change or amendment  until  thereafter  amended in accordance  with the
provisions thereof and applicable law.

         3. Officers and  Directors.  The persons who are officers and directors
of  FinishMaster-Michigan  immediately prior to the Effective Time shall,  after
the  Effective  Time,  be the  officers and  directors of  FinishMaster-Indiana,
without  change until their  successors  have been duly elected or appointed and
qualified or until their  earlier  death,  resignation  or removal in accordance
with FinishMaster-Indiana's  Articles of Incorporation and Bylaws and applicable
law.

         4.  Name.  The  name  of  FinishMaster-Indiana  shall  continue  to  be
FinishMaster, Inc.

         5. Succession.  At the Effective Time, the separate corporate existence
of FinishMaster-Michigan shall cease, and FinishMaster-Indiana shall possess all
the rights, privileges,  powers and franchises of a public or private nature and
be   subject   to   all   the   restrictions,    liabilities   and   duties   of
FinishMaster-Michigan and all the rights,  privileges,  powers and franchises of
FinishMaster-Michigan, and all property, real, personal and mixed, and all debts
due  to   FinishMaster-Michigan   on  whatever   account,   as  well  for  share
subscriptions   and  all   other   things   in   action,   shall  be  vested  in
FinishMaster-Indiana;   and  all  property,  rights,   privileges,   powers  and
franchises,  and all and every other interest shall be thereafter as effectively
the property of FinishMaster-Indiana as the same were of  FinishMaster-Michigan,
and the title to any real estate vested by deed or otherwise shall not revert or
be in any way impaired by reason of the Merger,  but all rights of creditors and
liens upon any property of FinishMaster-Michigan  shall be preserved unimpaired,
and all debts, liabilities and duties of FinishMaster-Michigan shall thenceforth
attach to FinishMaster-Indiana and may be enforced against it to the same extent
as if such debts,  liabilities and duties had been incurred or contracted by it;
provided,  however, that such liens upon property of FinishMaster-Michigan  will
be limited to the property  affected  thereby  immediately  prior to the Merger.
FinishMaster-Indiana shall be substituted for FinishMaster-Michigan in any suit,
action,  proceeding,  or other litigation pending against  FinishMaster-Michigan
prior to the Effective Time. All corporate acts,  plans,  policies,  agreements,
arrangements,   approvals  and  authorizations  of  FinishMaster-Michigan,   its
shareholders,  Board of Directors and  committees  thereof,  officers and agents
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies,  agreements,  arrangements,
approvals and authorizations of FinishMaster-Indiana, its shareholders, Board of
Directors and committees  thereof,  respectively,  and shall be as effective and
binding thereon as the same were with respect to FinishMaster-Michigan.

         6. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:

                  a.   Each   share  of   FinishMaster-Michigan   Common   Stock
outstanding immediately prior to the Effective Time shall be converted into, and
shall become,  one fully paid and  nonassessable  share of  FinishMaster-Indiana
Common Stock.

                  b. The ten (10) shares of  FinishMaster-Indiana  Common  Stock
issued and  outstanding in the name of  FinishMaster-Michigan  shall be canceled
and retired,  and no payment shall be made with respect thereto, and such shares
shall   resume   the   status   of   unauthorized   and   unissued   shares   of
FinishMaster-Indiana Common Stock.

         7. Stock  Certificates.  At and after the  Effective  Time,  all of the
outstanding   certificates   which  immediately  prior  to  the  Effective  Time
represented shares of FinishMaster-Michigan Common Stock shall be deemed for all
purposes   to   evidence   ownership   of,   and   to   represent   shares   of,
FinishMaster-Indiana Common Stock into which the shares of FinishMaster-Michigan
Common Stock formerly  represented by such  certificates  have been converted as
herein   provided.   The   registered   owner  on  the  books  and   records  of
FinishMaster-Michigan  or its  transfer  agent  of any  such  outstanding  stock
certificate  shall,  until  such  certificate  shall have been  surrendered  for
transfer or  otherwise  accounted  for to  FinishMaster-Indiana  or its transfer
agent,  have and be entitled to exercise any voting or other rights with respect
to and to  receive  any  dividends  and other  distributions  upon the shares of
FinishMaster-Indiana  Common Stock evidenced by such outstanding  certificate as
above provided.  Nothing  contained herein shall be deemed to require the holder
of any shares of FinishMaster-Michigan Common Stock to surrender the certificate
or  certificates  representing  such shares in  exchange  for a  certificate  or
certificates representing shares of FinishMaster-Indiana Common Stock.

         8.  Other   Employee   Benefit  Plans.   As  of  the  Effective   Time,
FinishMaster-Indiana  hereby assumes all  obligations  of  FinishMaster-Michigan
under any and all employee  benefit plans in effect as of the Effective  Time or
with respect to which employee rights or accrued  benefits are outstanding as of
the Effective Time.


<PAGE>

         9.   Conditions.   The   consummation  of  the  Merger  is  subject  to
satisfaction of the following conditions prior to the Effective Time.

                  a. The Merger shall have  received the  requisite  approval of
         the holders of  FinishMaster-Michigan  Common  Stock and all  necessary
         action shall have been taken to authorize the  execution,  delivery and
         performance  of  the  Merger  Agreement  by  FinishMaster-Michigan  and
         FinishMaster-Indiana.

                  b. All approvals and consents necessary or desirable,  if any,
         in  connection  with the  consummation  of the  Merger  shall have been
         obtained.

                  c. No suit, action,  proceeding or other litigation shall have
         been commenced or threatened to be commenced  which,  in the opinion of
         FinishMaster-Michigan  or  FinishMaster-Indiana,  would pose a material
         restriction  on or impair  consummation  of the Merger,  performance of
         this   Merger   Agreement   or  the   conduct   of  the   business   of
         FinishMaster-Indiana  after  the  Effective  Time,  or create a risk of
         subjecting  FinishMaster-Michigan  or  FinishMaster-Indiana,  or  their
         respective  shareholders,  officers or directors,  to material damages,
         costs,  liability or other relief in connection with the Merger or this
         Merger Agreement.

         10.  Governing  Law.  This  Merger  Agreement  shall be governed by and
construed  in  accordance  with the laws of the State of Indiana  applicable  to
contracts  entered into and to be performed  wholly within the State of Indiana,
except to the  extent  that the laws of the State of  Michigan  are  mandatorily
applicable to the Merger.

         11.  Amendment.  Subject to applicable law and subject to the rights of
FinishMaster-Michigan's  shareholders  further to approve  any  amendment  which
would have a material adverse effect on such shareholders, this Merger Agreement
may be amended,  modified or  supplemented  by written  agreement of the parties
hereto at any time prior to the Effective  Time with respect to any of the terms
contained herein.

         12. Deferral or  Abandonment.  At any time prior to the Effective Time,
this Merger  Agreement may be terminated  and the Merger may be abandoned or the
time of  consummation of the Merger may be deferred for a reasonable time by the
Board of Directors of either  FinishMaster-Michigan  or  FinishMaster-Indiana or
both,  notwithstanding  approval of this Merger Agreement by the shareholders of
FinishMaster-Michigan  or the shareholders of  FinishMaster-Indiana  or both, if
circumstances  arise  which,  in  the  opinion  of the  Board  of  Directors  of
FinishMaster-Michigan  or  FinishMaster-Indiana,  make the Merger inadvisable or
such deferral of the time of consummation thereof advisable.

         13.  Counterparts.  This Merger Agreement may be executed in any number
of  counterparts,  each of which when taken alone shall  constitute  an original
instrument and when taken together shall constitute one and the same Agreement.

         14.  Further  Assurances.  From time to time,  as and when  required or
requested   by  either   FinishMaster-Michigan   or   FinishMaster-Indiana,   as
applicable, or by its respective successors and assigns, there shall be executed
and  delivered  on  behalf  of  the  other  corporation,  or by  its  respective
successors and assigns, such deeds, assignments and other instruments, and there
shall be taken or caused to be taken by it all such further and other action, as
shall be  appropriate  or  necessary  in order to vest,  perfect or confirm,  of
record or otherwise,  in  FinishMaster-Indiana,  title to and  possession of all
property, interests, assets, rights, privileges,  immunities,  powers, franchise
and authority of  FinishMaster-Michigan  and otherwise to carry out the purposes
of this Merger Agreement, and the officers and directors of each corporation are
fully  authorized in the name and on behalf of such  corporation or otherwise to
take any and all such  action and to execute and deliver any and all such deeds,
assignments and other instruments.

                            [signature page follows]



<PAGE>




         IN WITNESS WHEREOF, FinishMaster-Michigan and FinishMaster-Indiana have
caused this Merger  Agreement to be signed by their  respective  duly authorized
officers and delivered this 12th day of November, 1996.

                                               FINISHMASTER INC.,
                                                a Michigan corporation



                                               /s/ Andre B. Lacy
                                               Andre B. Lacy
                                               Chairman of the Board & C.E.O.
ATTEST:


By:      /s/ Robert H. Reynolds
         Robert H. Reynolds
         Secretary



                                                FINISHMASTER, INC.,
                                                  a Indiana corporation


                                                /s/ Andre B. Lacy
                                                Andre B. Lacy
                                                Chairman of the Board & C.E.O.
ATTEST:


By:      /s/ Robert H. Reynolds
         Robert H. Reynolds
         Secretary