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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

For the fiscal year ended April 30, 2003

OR

For the transition period from                               to                              

Commission file number 1-4822

EARL SCHEIB, INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:    (818) 981-9992
Securities registered pursuant to Section 12(b) of the Act:

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

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ý

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý

        As of October 31, 2002 the aggregate market value of the voting stock held by non-affiliates of the Registrant was $11,255,783 (approximately based upon the closing price of the Capital Stock on the American Stock Exchange on such date).

        As of July 14, 2003, the Registrant had 4,379,682 shares of its Capital Stock, $1.00 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        None.

PART I

ITEM 1. Business

General

        Earl Scheib, Inc., a Delaware corporation, and its subsidiaries (collectively referred to as the "Company") is celebrating 66 years in the automobile paint and repair business as the successor to a business founded as a sole proprietorship by Earl A. Scheib in 1937. The Company's principal executive offices are located at 15206 Ventura Boulevard, Suite 200, Sherman Oaks, California, 91403. The Company maintains personnel, systems, advertising, legal, real estate and accounting functions at its principal executive offices. See ITEM 2. "Properties."

        The Company operates in the automobile paint and repair industry. At April 30, 2003, the Company operated a chain of 124 retail production paint and body shops which specialize in affordably priced repainting of automobiles and performing body repairs other than major collision repair, frame straightening (in most instances) or axle work, and one large industrial painting and collision center dedicated to large fleet vehicles and other over-sized equipment (see "Fleet Service"). The Company also offers the replacement of certain car body parts using new, used and aftermarket parts, glass replacement as well as factory style pinstriping, molding and vinyl top replacement. The majority of the Company's sales are paid by either cash or credit cards with the exception of the Company's fleet and trade sales which may be made upon credit terms.

        The Company's retail shops operate under the name of the New Earl Scheib Paint and Body Shop. The industrial facilities operate under the name Quality Fleet & Truck Centers. The Company's shops are currently located in over 100 cities throughout 24 states in the United States with 53 shops and one Fleet Center in California.

        During the fiscal year ended April 30, 1998 ("fiscal 1998"), the Company opened 12 new shops in existing markets where the Company felt that it underserved the market. New shops included installation of state of the industry cross-draft or semi-downdraft paint booths with combination fully enclosed dryers, the separation of the production process into three distinct areas, vehicle preparation, masking and detail to further improve quality; and the installation of exterior graphics to emphasize the Company's core business and attractive prices.

        During fiscal 1998, the Company implemented an extensive Division Manager training program. This program is designed to attract and train individuals from both inside and outside the industry for eventual promotion to a Division Manager position. The program is considered a "fast track" program which involves 4 to 12 months training.

        During the fiscal year ended April 30, 1999 ("fiscal 1999"), the Company continued its expansion and opened 19 new shops. These shops were located in California, Arizona, Texas, Indiana, Illinois, Virginia, Washington and Michigan. All of these new shops provided the Company with greater penetration into these existing markets. With this expansion, the Company had hoped to improve its overall performance in these markets.

        During the fiscal year ended April 30, 2000 ("fiscal 2000"), the Company opened 8 new shops and closed 12 shops. During fiscal 2000, the Company began to evaluate certain of its shops which were located in single markets and shops which were under-performing and which did not possess suitable sales growth potential for possible closure. Furthermore, in fiscal 2000, the Company decided to focus future expansion on the larger fleet centers discussed under the heading "Fleet Service."

        During the fiscal year ended April 30, 2001 ("fiscal 2001"), the Company continued to evaluate its shop operations. As a result, the Company closed 12 shops and opened one shop. Additionally, in the fourth quarter of fiscal 2001, the Company's Board of Directors approved a restructuring plan (the "Plan") which will result in the eventual closing of approximately 40 shops over the subsequent three

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fiscal years, generally as lease obligations expire. The Company hopes that by exiting certain markets where operations have suffered and where seasonal weather adversely impacts operating results and growth opportunities, and concentrating its efforts in historically profitable areas, it should improve its performance. Primarily, as a result of this Plan, the Company's fiscal 2001 results included restructuring and impairment of fixed assets charges totaling $1,887,000. As a result of the reliance on estimates and potential changing conditions for shop closures after one year and as mandated by certain accounting rules, the Company believes that further Plan related charges against its financial results are possible during future fiscal years in which the shops actually close.

        In the fiscal year ended April 30, 2002 ("fiscal 2002"), the Company began implementing the Plan. Pursuant to the Plan, the Company closed 27 shops which included six shops where the Company negotiated early terminations to longer term leases. The Company owned the real estate under 14 of the closed shops and generated net proceeds of $4,037,000 from the sale of these real estate assets.

        In the fiscal year ended April 30, 2003 ("fiscal 2003"), the Company continued to execute the Plan. The Company closed nine shops and opened one shop, the former large fleet center in Los Angeles (see "Fleet Service"). The Company owned the real estate under one of the closed shops and generated proceeds of $410,000 from the sale. In addition, the Company sold the real estate of one shop that was closed in fiscal 2002, an inactive location, and another shop in which the location was leased back for two years, for aggregate net proceeds of $1,526,000.

        During the fourth quarter of fiscal 2003, the Company engaged an investment banking firm as its exclusive financial advisor with respect to the evaluation, report and recommendation to the Board of Directors of strategic options designed to maximize shareholder value. See Note 8 to the Consolidated Financial Statements.

Services

        The Company currently offers primarily three paint packages which range in price based upon the color of the paint, number of coats of paint applied, additional services and length of warranty provided in each package. Customers may also purchase options to the paint packages such as UV Supergloss, Pearlescent paint colors and Euroclear® clear coat for an additional cost.

        The Company paints vehicles on a production line basis. The vehicle is sanded to prepare the surface for paint adhesion. Removal of scratches, chips, rust and peeling also occurs at this time for an extra charge. The vehicle is then air-blown using a high pressured air hose to remove excess dust. The exposed chrome and glass areas are masked and the vehicle is spray painted in a dust-free, enclosed fully filtered and sprinklered spray booth. The vehicle is then dried in either a semi-enclosed or fully enclosed Infrared Quartz Finish Drying System. This drying process dries the paint by quartz infrared waves increasing the metal temperature just enough to heat the paint such that the paint on the vehicle dries from the inside to the outside. The quartz heat tubes utilize high intensity electromagnetic waves to heat the metal and are controlled by infrared sensors and computer aided temperature controls. Finally, the vehicle is detailed, which involves removing the masking paper and tape, removing overspray and reinstalling any accessories removed during the painting process.

        In connection with its painting operations, the Company also performs, for an additional cost, body repair work as well as extra sanding and preparation mentioned above. All bodywork performed is incidental to the painting process. Body work accounted for approximately 20% of the Company's sales during fiscal 2003, 22% in fiscal 2002 and 22% in fiscal 2001.

        During fiscal 1997, the Company began the manufacture and distribution of its new EuroPaint® coating system. EuroPaint® is a two component acrylic polyurethane coating which offers superior quality and performance. EuroPaint® is characterized by having extremely high gloss and distinctness of image, outstanding exterior durability and exceptional chemical resistance. This type of paint is

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generally considered the highest quality after market paint and far superior to many of the paint formulations used by the Company's competitors and is commonly used by many European luxury car manufacturers. EuroPaint® was rated best in a blind test conducted, in fiscal 1997, by an independent laboratory against the best paints used in popular production auto painting. The test measured gloss (the ability of paint to reflect light), distinctiveness of image (which represents the ability of the painted surface to reflect images like a mirror) and the ability of the paint to resist harmful chemicals and UV rays.

        The Company offers a companion product called EuroClear®. EuroClear® is an option which provides customers a true and separate clear coat with the same superior quality and performance properties offered by EuroPaint®. EuroClear® enhances and intensifies the high gloss and distinctiveness of image of EuroPaint® providing a very deep gloss look characteristic of basecoat/clearcoat (two stage) paint systems. The Company also offers an internally developed product called UV Supergloss. This product is sold as an additive for two of the Company's paint packages. The UV Supergloss provides the car with a brighter shine and is designed to protect the paint from the harmful effects of Ultraviolet rays.

        The Company also provides a line of colors which capture the glamour and allure of pearlescence. Such colors offer an iridescence and lustre creating a visual effect which can only be achieved by the use of pearlescent pigments. Pearlescent colors are two- and three-stage color systems, which offer customers a unique production shop product.

Commercial Coatings

        During fiscal 2000, the Company, through its wholly owned subsidiary, Precision Coatings, Inc. ("PCI"), established the foundation for the commercial sales of Company-manufactured industrial coatings. The Company believes that it can leverage the extra capacity at its manufacturing facility by manufacturing and selling coating systems, similar to the paints it currently produces for its retail automotive needs, to small to mid-sized original equipment manufacturers. The Company also believes with its competitive pricing that eventually it will be able to compete effectively with existing manufacturers in this niche market.

        PCI, in fiscal 2001, finalized the product line and began marketing and selling its products. PCI recorded sales of $456,000 in fiscal 2003, $383,000 in fiscal 2002 and $170,000 in fiscal 2001. While, to date, the Company is disappointed with the performance of PCI and it appears that entry into the commercial coatings business may be slower than it had expected, the Company remains hopeful that it will be able to improve PCI's performance. In that regard, the Company, during fiscal 2002, decided to narrow PCI's target markets to those near its manufacturing and distribution facility in Springfield, Missouri. The Company hopes that its ability to service such regional customers, while reducing PCI's costs, will enable PCI to establish a strong foundation from which it may grow over time.

Fleet Service

        The Company generates fleet sales primarily from two separate sources. Local shop managers and Division Managers, may, from time to time, market the Company's services to fleet accounts. These accounts range from smaller neighborhood businesses to large municipal, state and federal governmental agencies, and national companies. These accounts are generally serviced by the Company's retail shops.

        The Company's second source of fleet sales is through the Company's "Quality Fleet and Truck Centers" division ("QFTC"). The QFTC location is an approximately 25,000 square foot, industrial facility dedicated to painting and collision repair work for large fleets and oversized vehicles, and "rolling" equipment, such as trucks, cabs, trailers, buses, recreational vehicles and airport equipment. The first center, located near downtown Los Angeles, opened at the end of the first quarter of fiscal

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2001 and recorded sales of $708,000 in fiscal 2001, which resulted in an operating loss of $426,000. The Company opened its second center in Southern California, near Gardena, in July, 2001 and the two facilities recorded sales of $1,669,000 in fiscal 2002, which resulted in an operating loss of $959,000. During fiscal 2003, the Company converted the Los Angeles QFTC location to a retail shop after temporarily closing it from May 2002 to October 2002.

        During fiscal 2003, the QFTC operation recorded sales of $1,663,000 and incurred an operating loss of $379,000.

        QFTC employs sales people whose function is to land fleet accounts in the target markets described above. Unsatisfied with QFTC's performance, the Company in fiscal 2002 retained the services of a consulting firm which helped revise QFTC's previous marketing and human resources strategies. The Company hopes by continuing to implement the revised marketing and human resources strategies at the Gardena, California location (which has better physical capacity) it will be able to test its success more efficiently. The Company hopes that the implementation will prove successful, which would enable the Company to grow the QFTC concept.

        Total Company-wide fleet sales were $3,534,000 in fiscal 2003, as compared to $3,972,000 in fiscal 2002 and $3,200,000 in fiscal 2001.

Raw Materials

        Most of the raw materials used by the Company in manufacturing its paint, including silicones, resins and pigments, are available from a number of sources. A majority of such raw materials are provided to the Company by a variety of wholesale chemical companies, including DuPont, Sherwin-Williams and Akzo-Nobel. The Company has not encountered any major difficulty in obtaining adequate supplies of its major raw materials and does not expect to encounter any such difficulty in the foreseeable future.

        By manufacturing its own paint and paint related products, including primers and sealers, the Company is better able to ensure the quality of its products, to comply with environmental regulations and to control product availability and cost. However, if necessary, automobile paint can be obtained from other wholesale manufacturers.

Seasonality

        The Company's sales are seasonal in nature. Because of weather conditions and Christmas holidays, sales for the months of November, December, January and February are usually lower than the sales in the remaining months of the year. As a result, a proportionately greater share of the Company's sales and earnings have historically occurred in the first half of its fiscal year.

Competition

        The automobile painting business in which the Company is engaged is highly competitive. The Company competes not only with nationally and regionally based companies and franchisees engaged in production style automobile painting utilizing techniques similar to its own, but also with thousands of individual automobile paint and body shops. Most of the Company's competitors generally price their services much higher than those charged by the Company.

        In the field of non-franchised production line automobile painting, the Company believes that it is substantially larger than any of its competitors and that its experience, and the reasonable prices of its services, will enable it to continue to compete effectively. The Company expects that the combination of its superior name recognition, its shop restructuring plan discussed under the "General" heading above, its efforts to improve fleet sales, ongoing shop renovations and technological improvements, and training programs enable it to continue to be an effective competitor.

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Trademarks

        The Company's success is dependent upon, among other things, its name. The Company relies primarily on a combination of the protections provided in applicable copyright, trademark and trade secret laws. The Company owns various trademarks but believes that Earl Scheib®, Europaint®, and Euroclear®are material to the business of the Company.

Research and Development

        The Company is engaged in certain research and development to continue to improve its existing paint products, update product lines, change formulations in order to comply with changing environmental regulations, and develop new products which can be introduced to the shops without significant cost or training such as the Europaint® and Euroclear®, UV Supergloss and new colors. The Company constantly reviews new products and techniques developed by its suppliers and others in its and related industries for their applicability to the Company's operations. Although the Company's research and development costs are increasing to accomplish these objectives, such expenditures during the three years ended April 30, 2003 were not a material percentage of sales.

Compliance With Environmental Regulations

        The Company's automobile painting and paint manufacturing operations are subject to federal, state and local environmental regulations in many of the areas in which it operates. The Company believes its operations substantially comply with existing regulations in those geographic areas in which it now operates. The Company, since it manufactures its own products, has the ability to modify and/or develop paint and paint related product formulations to reasonably ensure continued compliance with new and changing environmental regulations. In addition, since the Company primarily paints vehicles in its own colors, there is generally little waste product produced.

Employees

        At April 30, 2003, the Company employed approximately 805 employees, of which 228 were sales, administrative, management or executive personnel and 577 were production personnel. Production employees are represented by the International Brotherhood of Teamsters under a collective bargaining agreement which extends through September 15, 2005. None of the Company's executive, administrative, shop management or clerical personnel are represented by a union. Management believes its employee and labor relations are good.

Company Website and Information

        The Company's website address is www.earlscheib.com. The Company makes available, free of charge, through a link from its website to the Securities and Exchange Commission website, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. These reports can be found under the "Corporate Info.—SEC Filings" section of the Company's home page. The information contained in the Company's website is not incorporated by reference into this Annual Report on Form 10-K.

ITEM 2. Properties

        The Company owns the land and buildings occupied by 43 of the Company's operating shops as of April 30, 2003. The remaining 81 of the Company's 124 shops, at April 30, 2003, are leased from outside third parties. The 124 retail shops and one fleet center are located in over 100 cities in 24 states and the District of Columbia. 53 of the Company's retail shops and its QFTC center are located

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in California. In fiscal 2003, the Company ceased operations in 9 shops and opened one shop, the former QFTC center in Los Angeles (see Item 1. "Business"—"Fleet Service").

        Leases for shop premises vary as to their terms, rental provisions, expiration dates and the existence of renewal options. The number of years remaining on leases for the Company's shops (excluding unexercised options) range from a month to month tenancy to approximately 10 years. All of the leases, with two exceptions, have fixed rentals with no additional rents based upon shop sales. Many leases also require the Company to pay all or a portion of the real estate taxes, insurance charges and maintenance expenses relating to the leased premises. The Company maintains fire and liability insurance as well as umbrella earthquake coverage for its shops and other real estate interests.

        The Company historically secured sites for new stores by a variety of methods, including lease, purchase, assignment or sublease of existing facilities, build-to-suit leases, or purchase and development of sites that may be owned by the Company or sold and leased back by the Company under sale-and-leaseback arrangements. In many cases, the Company was able to lease or sublease existing buildings that have been previously used for other purposes, such as automobile repair shops or retail establishments. These sites must be suitable for the Company's needs, at a lease rate that is within the Company's guidelines and without the need for substantial expenditures to convert the facilities to the Company's needs. In connection with the opening of new shops, the Company generally makes capital investments and incurs expenditures (excluding expenditures to purchase land, buildings or leasehold interest) of approximately $175,000. These costs consist of construction of improvements, paint and supply inventories, fixtures, equipment, signs and pre-opening expense. The Company does not intend to open any new retail locations during the fiscal year ending April 30, 2004, but may open replacement shops for existing shops that may close as a result of expired leases. In connection with the opening of a QFTC location, the Company expects expenses and capital investments (excluding expenditures to purchase land, buildings or leasehold interest) to be approximately $300,000 to $400,000. These costs consist of construction of improvements, paint and supply inventories, fixtures, equipment, signs and pre-opening expense. The Company primarily secures sites for its QFTC operation using the same methods as described above.

        The majority of the Company's stores are in stand-alone sites on main streets and have adjacent parking facilities. Store hours are generally from 7:30 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 12:00 p.m. on Saturday. The Company's shops are generally 7,000 square feet with most shops ranging from approximately 4,000 square feet to 9,000 square feet and one as large as approximately 20,000 square feet.

        The Company owns a manufacturing and warehousing facility in Springfield, Missouri. The Company manufactures and warehouses paint and related products and warehouses other necessary supplies used by the shops in this facility until needed by the Company's shops. This facility occupies approximately 31,600 square feet.

        In July 2001, the Company sold its Corporate headquarters real estate for net proceeds of $1,913,000. The Company currently occupies Corporate offices in Sherman Oaks, California under a 10-year lease.

        The Company believes its operating properties are in good operating condition.

ITEM 3. Legal Proceedings

        The Company is a defendant in a lawsuit filed in Superior Court in Los Angeles, California in March 2000. The lawsuit essentially alleges that the Company, in California, failed to pay overtime benefits to shop managers and assistant managers and made unlawful deductions from the compensation of certain managers and assistant managers. The plaintiff subsequently added certain directors and officers as defendants (the "Individual Defendants"). The applicable law provides for up

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to a four-year statute of limitations for unpaid overtime and the plaintiff is seeking class certification in this case. The Company intends to vigorously defend against this action, but at this point the ultimate outcome of this matter cannot be determined with certainty. Unfavorable rulings and/or the cost of resolution of any unfavorable rulings cannot be determined at this time. The Company tendered this claim to its insurance carrier seeking coverage, which was denied. The Company then submitted the insurance matter to binding arbitration, which was held in September 2001. In October 2001, the arbitrator ruled that the insurance carrier has a duty to advance the Company's defense costs in this case and ordered the carrier to reimburse the Company for its past and future defense costs, less the applicable deductible. The arbitrator was not asked to, nor did, rule on whether the numbers of claims made, or any of them, are indemnifiable under the applicable policy and reserved jurisdiction to resolve that dispute at a later date. The policy has an aggregate limit of liability of $3,000,000, all of which is available for this claim less reimbursements made to the Company to date by the insurance carrier. In February 2002, the Court sustained the demurrer of the Individual Defendants to all causes of action pleaded against them. A final judgment dismissing all claims against the Individual Defendants was entered on March 27, 2002. On May 23, 2002, the plaintiff filed and served a Notice of Appeal against the Individual Defendants. On June 5, 2002, the trial judge in the underlying action against the Company issued an Order which stays further action in the case until the appeal is resolved.

        On April 2, 2003, the Court of Appeals affirmed the dismissal on the demurrer of the Individual Defendants. On May 16, 2003, the plaintiff filed and served a Petition for Review with the California Supreme Court. On July 23, 2003, the California Supreme Court granted the Petition for Review and will review the Court of Appeals decision.

        The Company is involved in certain other legal proceedings and claims arising in the ordinary course of its business. Management currently believes that the final disposition of such matters should not have a material adverse effect on the Company's operations and/or financial position.

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

        Not applicable.

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PART II

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters

        Earl Scheib, Inc. is listed and traded on the American Stock Exchange under the ticker symbol "ESH". As of April 30, 2003, there were 235 shareholders of record of the Company's stock according to records maintained by the Company's transfer agent. The approximate number of beneficial shareholders was 850. The high and low sales prices of the stock for each of the quarters of Fiscal 2003 and Fiscal 2002 are as follows:

No dividends were paid in either Fiscal 2003 or Fiscal 2002 and the Company does not expect to pay any dividends in the forseeable future.

Equity Compensation Plan Information

        The following table sets forth the number and weighted-average exercise prices of securities to be issued upon the exercise of outstanding options, warrants and rights, and the number of securities remaining available for future issuance under equity compensation plans, at April 30, 2003. See Note 5 to the Consolidated Financial Statements for further information.

(1)

Shares issuable pursuant to outstanding options under the Earl Scheib, Inc. 1994 Performance Employee Stock Option Plan, the Earl Scheib, Inc. 1994 Board Of Directors Stock Option Plan and the Earl Scheib, Inc. 1995 Stock Option Agreement Plan.

ITEM 6. Selected Financial Data

        The following selected Results of Operations data for each of the three years in the period ended April 30, 2003 and the Balance Sheet data as of April 30, 2003 and 2002 are derived from the audited Financial Statements included elsewhere herein. The selected Results of Operations data for the two years in the period ended April 30, 2000 and the Balance Sheet data as of April 30, 2001, 2000 and 1999 were derived from audited Financial Statements, which are not included in this Form 10-K. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, including the notes thereto, included elsewhere in this Form 10-K.

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(Dollars in thousands, except per share data)

Selected Quarterly Financial Data (Unaudited)

        The following table sets forth unaudited operating data for each of the specified quarters of Fiscal 2003 and 2002. This quarterly information has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, contains all significant adjustments necessary to state fairly the information set forth herein.

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

        The following table sets forth the Company's operating results for the periods indicated. Amounts are shown in thousands of dollars and as a percentage of sales.

Fiscal Year Ended April 30, 2003 ("Fiscal 2003") compared to Fiscal Year Ended April 30, 2002 ("Fiscal 2003")

        Net sales for Fiscal 2003 decreased by $4,891, or 9.4%, compared to Fiscal 2002. This was due primarily to the loss of sales from a weighted average 16 fewer retail shops since Fiscal 2002 ($4,347), a decrease in same-shop sales (shops still open one year or more) of $611, or 1.3%, partially offset by increased sales from the Company's fleet and truck center and commercial coatings operations ($67). The Company closed the operations of its fleet and truck center in Los Angeles during Fiscal 2003.

        The gross profit margin percentage decreased to 18.9% for Fiscal 2003 from 21.9% during Fiscal 2002. The decrease in gross margin percentage was primarily due to increased insurance expense and, despite the overall reduction in the other components of cost of sales, the adverse effect of cost reductions that were not proportionate to the decrease in net sales.

        Selling, general and administrative expenses decreased by $1,960 in absolute dollars in Fiscal 2003 from Fiscal 2002, and as a percentage of net sales to 25.9% from 27.2%, due to overall reductions in administrative expenses, partially offset by increased professional fees of $420.

        The provision for impairment of fixed assets of $169 in Fiscal 2003 was recorded to write-down the carrying value of fixed assets in three shops (including the former fleet and truck center in Los Angeles) to their estimated net recoverable value. The provision for Fiscal 2002 was $183, also for three shops.

        During Fiscal 2003, the Company sold four parcels of real estate and disposed of other fixed assets for a pretax gain of $1,479. During Fiscal 2002, pursuant to the restructuring plan, the Company sold 15 parcels of real estate (including its corporate office building) and disposed of other fixed assets for a pretax gain of $4,088. Interest expense was $458 in Fiscal 2003, as compared to $434 in Fiscal 2002, and relates primarily to the accrual of interest on the IRS's disallowance of a net operating loss carryback received during fiscal 1997 (which was appealed by the Company as discussed in Note 2 to the Consolidated Financial Statements) and life insurance loans. During Fiscal 2003, the Company recorded interest income of $164 on refunds of federal income taxes paid for fiscal years 1999 and 1998. In addition, the Company recorded a benefit of $425 for the excess of previously accrued interest

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expense over that required at February 24, 2003 by the Internal Revenue Service ("IRS"). The accrued interest relates to the protest regarding the disallowance by the IRS of the net operating loss carryback refund received during fiscal 1997.

        The Company did not recognize any federal or state income tax benefit for its operating loss in Fiscal 2003. Due to income allocation and state income tax laws, the Company provided $105 in state income taxes during Fiscal 2003. The Company provided for federal and state income taxes at an effective rate of 38% during Fiscal 2002.

Fiscal Year Ended April 30, 2002 ("Fiscal 2002") compared to Fiscal Year Ended April 30, 2001 ("Fiscal 2001")

        Net sales for Fiscal 2002 decreased by $2,935, or 5.3%, compared to Fiscal 2001. This was due primarily to the loss of sales from 27 retail shops closed since the end of Fiscal 2001 ($4,585), partially offset by increased same shop (shops open one year or more) sales of $476, or 1.0%, and increased sales of $1,174 from the Company's fleet and truck centers and commercial coatings business. The 27 shops were closed pursuant to the restructuring and reorganization of the Company's paint and body business approved by the Board of Directors in February 2001.

        The gross profit margin percentage decreased slightly to 21.9% for Fiscal 2002 compared with 22.1% for Fiscal 2001. The decrease in gross margin percentage was primarily due to increased insurance expense and the impact of increased per unit manufacturing costs on lower car volume, significantly offset by a reduction in depreciation.

        Selling, general and administrative expenses decreased by $635 in absolute dollars in Fiscal 2002 from Fiscal 2001, and increased as a percentage of net sales to 27.2% from 26.9%. The decrease in absolute dollars is primarily due to lower administrative expenses, including salaries and wages and advertising, partially offset by higher legal costs and increased rent for the leased corporate office.

        Restructuring charges of $9 relate to the planned closure of eight leased shops through April 30, 2003 ("Fiscal 2003"), pursuant to the restructuring plan, and consist of exit costs of $70, a write down of $73 to the estimated net recoverable value of the fixed assets in these shops and a reversal to the benefit of operating results of $134 for exit costs recorded in Fiscal 2001. Restructuring charges of $645 recorded in Fiscal 2001 relate to the planned closure of 25 shops during Fiscal 2002 and includes a write down of $357 to the estimated net recoverable of the fixed assets in these shops.

        The provision for impairment of fixed assets of $183 in Fiscal 2002 was recorded to write down the carrying value of fixed assets in three shops to their net recoverable value. The provision for Fiscal 2001 was $1,242 for 13 shops.

        During Fiscal 2002, pursuant to the restructuring plan, the Company sold 14 parcels of real estate and its corporate office building for a net gain of $2,374 and $1,779, respectively. The Company moved into its leased corporate offices in Sherman Oaks, California on October 8, 2001. The net gain on the sale of six parcels of real estate in Fiscal 2001 was $310. Net interest expense was $390 in Fiscal 2002, as compared to $431 in Fiscal 2001, and relates primarily to the accrual of interest on the IRS's disallowance of a net operating loss carryback (which has been appealed by the Company, as discussed in Note 2 to the Consolidated Financial Statements) and life insurance loans. In Fiscal 2002 and Fiscal 2001, the Company disposed of $65 in fixed assets from closed retail shops and wrote-off $68 in un-utilizable factory MIS equipment, respectively.

        The Company provided for federal and state taxes at an effective rate of 38% in Fiscal 2002. The Company did not recognize any federal income tax benefit for its operating loss in Fiscal 2001. Due to income allocation and state income tax laws, only part of the Company's state income taxes in Fiscal 2001 were offset by operating losses. The Company provided $63 in state taxes during Fiscal 2001.

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Liquidity and Capital Resources

        The Company's cash requirements are based upon its seasonal working capital needs and capital requirements for new shops, if any, fleet and truck centers, if any, and for additions and improvements. The first and second quarters and, occasionally, the fourth quarter of a fiscal year usually have positive cash flow from operations, while the third and, occasionally, the fourth quarters are net users of cash.

        As of April 30, 2003, the Company had current assets of $9,922 and current liabilities of $8,614 for a net working capital of $1,308. During Fiscal 2003, net cash used in operating activities was $354, compared with $2,446 net cash used in Fiscal 2002, and capitalized expenditures were $244 in Fiscal 2003. The Company expects that future cash flow from operations will be enhanced by these capital additions. During Fiscal 2004, the Company plans to perform various capital improvements for an estimated cost of approximately $200.

        The Company's long-term financial obligations consist of its deferred management compensation plan and loans against various life insurance policies. The Company has no specific assets dedicated to its deferred compensation plan but has entered into life insurance contracts on behalf of certain participants to partially fund its obligations under the deferred compensation plan. Obligations under the deferred compensation plan are generally payable over a 15-year period after the participant attains age 65 and has been employed by the Company for at least 10 years. The Company expects to satisfy these obligations by utilizing the accumulated cash values in the insurance contracts (net of the related loans), cash to be received through the death benefits in these insurance contracts and cash to be provided in its operating and investing activities. Accumulated cash values under the insurance contracts and the related loan and accrued interest balances at April 30, 2003 totaled $2,433, $1,683 and $124, respectively, compared to $2,257, $1,683 and $127, respectively, at April 30, 2002.

        The Company believes that the death benefits under the life insurance contracts along with the accumulated net cash values and cash to be provided from its operating and investing activities, should be adequate to meet its obligations under the deferred compensation plan. At April 30, 2003 and 2002, the face value of the life insurance policies totaled $4,954 and $4,811, respectively.

        The loans and related accrued interest (each of which is against a specific life insurance contract) would become immediately payable upon the death of the covered deferred compensation plan participant. In that event, the Company intends to satisfy this liability from the proceeds received from the death benefit. The proceeds not utilized to repay the loan and accrued interest would be available to satisfy the benefit obligations under the deferred compensation plan. Assuming that all covered participants had died and the Company then repaid the related loans and accrued interest at April 30, 2003, the proceeds from the death benefits that would be available to satisfy the undiscounted deferred compensation plan obligations of $4,031 (generally payable over 15 years) totaled $3,148.

        The Company arranges for the issuance of standby letters of credit to the benefit of its insurance carriers primarily for the unfunded portion of estimated workers compensation liabilities over different policy years. During the year ended April 30, 2003, this arrangement was made with the Company's bank and required the purchase of certificates of deposit totaling $1,378 to secure 59% of the standby letters of credit issued. At April 30, 2002, certificates of deposit totaling $963 secured 50% of the standby letters of credit issued. The Company believes that any future arrangements will not be on terms significantly less favorable than its existing terms.

        In February 1999, the Company received a Notice of Disallowance from the Internal Revenue Service ("IRS") disallowing a refund of $1,845 from a net operating loss carryback received by the Company during its year ended April 30, 1997. The IRS is also seeking interest (but not penalties) on the amount of the refund. The Company protested the IRS's position and in a notice dated February 24, 2003, the IRS allowed a portion of the refund and stated that the amount of the disallowance and interest thereon would total $2,629 as of that date. As a result, the Company

12

recorded a benefit of $425 during the third quarter ended January 31, 2003 for the excess of previously accrued interest expense over that required by the IRS at February 24, 2003. Though the amount of the disallowance and interest thereon is accrued in the consolidated financial statements at April 30, 2003, such a large single payment would effectively deplete the Company's available cash and would require the Company to evaluate other financial resources that may be available to it in order to satisfy the payment to the IRS. As a result, the Company has filed an Offer In Compromise with the IRS for both the total amount and the payment period.

        As of April 30, 2003, the Company owned 44 parcels of unencumbered real estate, including the Company's paint factory and warehouse, which could be either sold or used as security to obtain additional financing. The Company believes that it has, or has the ability to have, the liquidity and capital resources necessary to meet its cash needs for the foreseeable future.

        During the fourth quarter of Fiscal 2003, the Company engaged an investment banking firm as its exclusive financial advisor with respect to the evaluation, report and recommendation to the Board of Directors of strategic options designed to maximize shareholder value.

        As of April 30, 2003, the Company had deferred income tax assets totaling $1,941, which realization would require a significant increase from Fiscal 2003 taxable income to approximately $5,708. The Company believes, however, that because of the relatively long 20-year expiration period of its federal net operating loss carryforward, combined with its ability to devise tax-planning strategies involving the sales of owned real estate, or the likelihood of the consummation of a transaction through the services of the investment banking firm recently engaged, or both; it is more likely than not that the deferred income tax assets will be realized. See Note 2 in the Notes to the Consolidated Financial Statements for further discussion of the Company's income taxes and the components of the deferred income tax assets.

Inflation

        Inflation has not had a significant impact on the Company's results of operations for the three years ended April 30, 2003.

Recent Accounting Pronouncements

        In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS No. 146 and EITF Issue No. 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 were effective for exit or disposal activities that are initiated after December 31, 2002, and its adoption did not have a material effect on the Company's results of operations and financial position.

        In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." SFAS No. 148 provides alternative methods of transition to SFAF No. 123's fair value mehtod of accounting for stock-based employee compensation. It also amends the disclosure provision of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure requirements of SFAS No. 123 are efective for fiscal

13

years ending after December 15, 2002. SFAS No. 148's amendment of the disclosure requirements of Opinion 28 is effective for interim periods beginning after December 15, 2002. The adoption of SFAS No. 148 is reflected in Note 1 to the Consolidated Financial Statements.

Critical Accounting Policies

        Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management evaluates its estimates and judgments, including those related to its most critical accounting policies, on an ongoing basis. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

        The Company's significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements. The Company believes its critical accounting policies to be in the area of risk management, specifically workers compensation, which records the uninsured or deductible portion of the liability based on estimates of the development of incurred claims; and in the provision for impairment to long-lived assets, which is based on the estimate of future cash flows for the operating unit. Changing conditions and the use of different assumptions in deriving these estimates could have a material effect on reported financial results.

        The estimate of the Company's workers compensation deductible liability is performed by its risk management department, based on claims incurred as of the date of the balance sheet and is reviewed by senior management. The estimate for this liability is established upon analysis of historical data, discussions with third-party insurance carriers and estimates provided by the Company's workers compensation third party administrators. The estimates are subject to a high degree of variability. On at least an annual basis, the claims are actuarially reviewed. Sources for the variability are numerous and include, but are not limited to, severity and frequency of claims, future economic conditions, court decisions and legislative actions. The Company's workers compensation liability estimates anticipate no change in the benefit structure, but statutory changes could have an impact on the estimated liability.

        Because of the seasonality of its business, the Company reviews its long-lived assets for impairment annually as part of the fiscal year end procedures, unless there are events or changes in circumstances that indicate there is a significant question as to whether the respective carrying amounts are recoverable. The most significant long-lived asset is the economic unit of the individual retail paint and body shop. An evaluation is performed annually on all shops operating for at least a year and an impairment write-down is recognized if a shop's estimated undiscounted future cash flows are less than its carrying amount. The Company primarily uses historical performance in determining its estimate of the undiscounted future cash flows; but future cash flows are influenced by, among other factors, changes in competition, marketing strategy, human resources and general market conditions. These factors could affect the amount, if any, of the impairment provision recognized.

        Changing conditions and the use of different assumptions in deriving the estimates described above could have a material effect on reported financial results.

14

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

        As of April 30, 2003, the Company had no significant exposure to the market risks related to changes in interest rates, currency exchange rates, commodity prices and equity values.

ITEM 8. Financial Statements and Supplementary Data

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

Changes in Company's Certifying Accountant.

        On June 19, 2002, the Board of Directors of the Company, upon recommendation of its Audit Committee, dismissed Arthur Andersen LLP as the Company's principal independent accountant which audited the Company's prior financial statements effective as of June 19, 2002.

        The audit reports of Arthur Andersen LLP on the consolidated financial statements of the Company as of, and for, the fiscal years ended April 30, 2000, and April 30, 2001, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

        During the two most recent fiscal years of the Company ended April 30, 2001, and the subsequent interim period to June 19, 2002, there were no disagreements between the Company and Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP to make reference to the subject matter of the disagreements in connection with its reports.

        None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the two most recent fiscal years of the Company ended April 30, 2001, and the subsequent interim period to June 19, 2002.

        On June 19, 2002, the Company engaged Ernst & Young LLP to be its independent auditors effective as of June 19, 2002. During the two most recent fiscal years of the Company ended April 30, 2001, and the subsequent interim period to June 19, 2002, the Company did not consult with Ernst & Young LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

15

PART III

ITEM 10. Directors and Executive Officers of the Company

        The following table sets forth the principal occupation or employment and principal business of the employer, if any, of each director of the Company, as well as his age, business experience, other directorships held by him and the period during which he has served as director of the Company:

16

THE BOARD OF DIRECTORS

Meetings, Organizations and Remuneration

        During Fiscal 2003, the Board of Directors met eight (8) times and took action by Unanimous Written Consent four (4) times. For their services on the Board during Fiscal 2003, all non-employee directors were paid $18,000 as a retainer which includes compensation for all regular, special and committee meetings. Compensation was payable $9,000 in cash and $9,000 in the form of Company Common Stock based upon a price of $4.00 per share. Each director attended at least 75% of all applicable Board and committee meetings.

Audit Committee

        The Audit Committee has adopted a charter pursuant to which it (i) recommends to the Board of Directors a firm of independent certified public accountants to conduct the annual audit of the Company's books and records; (ii) reviews with such accounting firm the scope and results of the annual audit; (iii) reviews the adequacy of the Company's system of internal accounting controls with such independent accountants; (iv) reviews fees charged by the independent accountants for professional services; and (v) reviews pronouncements as to accounting standards for their applicability to the Company.

        The Company's independent public accountants are invited to attend meetings of the Audit Committee and certain members of management may also be invited to attend. The Audit Committee consists of two non-employee directors, Messrs. Alexander L. Kyman and Robert M. Smiland, who alternate as Chairman. The Committee met four (4) times and took action by Unanimous Written Consent one (1) time during Fiscal 2003.

Compensation Committee

        The Compensation Committee reviews and approves all salary arrangements and other compensation for officers of the Company. The Compensation Committee consists of three non-employee directors, Messrs. Gregory J. Helm, who acts as Chairman, Allan E. Buch and Robert M. Smiland. The Compensation Committee met three (3) times and took action by Unanimous Written Consent one (1) time during Fiscal 2003.

Compensation Committee Interlocks And Insider Participation

        No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during the fiscal year or any prior fiscal year. None of the executive officers of the Company has served on the Board of Directors or on the compensation committee of any other entity, any of whose officers served either on the Board of Directors or on the Compensation Committee of the Company.

Nominating Committee

        The Nominating Committee, composed of Messrs. Smiland and Bement, is responsible for soliciting recommendations for candidates for the Board of Directors; developing and reviewing background information for candidates; and making recommendations to the Board regarding such candidates. The Nominating Committee met informally several times during Fiscal 2003.

Investment Banking Committee

        In Fiscal 2003, the Board of Directors formed an Investment Banking Committee to take all action in connection with the selection and engagement of an independent investment banking firm to represent and advise the Company in its evaluation of strategic alternatives to improve shareholder

17

value. The Investment Banking Committee consists of Messrs. Bement, Helm and Smiland and met two (2) times and took action by Unanimous Written Consent one (1) time during Fiscal 2003.

Executive Officers of the Company

        The executive officers of the Company, their ages and their positions are set forth below.

        Mr. Bement became President and Chief Executive Officer on January 1, 1999 and Interim Chairman on December 13, 2002. Mr. Bement previously served the Company as its Executive Vice President and Chief Operating Officer since February 1995 and became a director in 1997. Prior thereto and for over 25 years, Mr. Bement served in various senior executive positions at Thrifty Corporation, most recently, from 1990-1994, as Executive Vice President.

        Mr. Barrantes became Vice President and Chief Financial Officer of the Company in August 1999. From July 1998 through July 1999, he was Vice President, Chief Financial Officer and Secretary of Medical Device Alliance Inc., a medical devices company. Prior to that, Mr. Barrantes was Vice President and Chief Financial Officer in 1997 for Whittaker Corporation, a NYSE-listed diversified company involved in the aerospace, defense electronics and global networking industries; and Executive Vice President, Chief Financial Officer and Secretary of Thompson PBE, Inc., a NASDAQ-traded company that distributed paint and related supplies to the collision repair industry, from March 1996 through April 1997.

        Mr. Sunkin has served as Vice President and General Counsel and Secretary since November 1995. Mr. Sunkin also supervises and manages the Company's real estate, corporate human resources/employee benefits and risk management departments and handles various strategic matters for the Company. Prior to that, Mr. Sunkin was an Associate in the Business Practices Group of the law firm Buchalter, Nemer, Fields & Younger, P.C.

        Mr. Smith has served as Vice President—Shop Operations since December 1995. Prior to that and for more than five years, Mr. Smith served the Company in various operational capacities.

        Mr. Minnihan has served as Vice President—Finance since April 1996. Prior to that and for more than 10 years, Mr. Minnihan served as the Company's Chief Financial Officer.

Section 16(a) Beneficial Ownership Reporting Compliance

        Under federal securities laws and rules of the Securities and Exchange Commission, directors and executive officers of the Company, as well as persons holding more than 10% of the Company's outstanding shares of Common Stock, are required to file reports showing their initial ownership of the Company's Common Stock and any subsequent changes in that ownership with the Securities and Exchange Commission and the American Stock Exchange by certain specified due dates. Based solely on the Company's review of copies of such reports furnished to the Company and written representations that no other reports were required to be filed, during Fiscal 2003, all such reports that were required were filed on a timely basis.

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ITEM 11. Executive Compensation

        The following tables and narrative text discuss the compensation paid in Fiscal 2003 and the two prior fiscal years to the Company's Chief Executive Officer and the Company's other executive officers whose disclosure of compensation is required pursuant to the rules of the Securities and Exchange Commission (the "Named Executives").

SUMMARY COMPENSATION TABLE

(1)

Messrs. Bement, Barrantes and Sunkin are each entitled to termination benefits under certain circumstances. In addition, Messrs. Bement, Barrantes and Sunkin are entitled to supplemental termination benefits and other compensation in the event of a "change in control" of the Company, as described in the Earl Scheib, Inc. Modified Executive Retention and Incentive Plan described under the heading "Employment Agreements and Change in Control Arrangements".

(2)

The amounts shown in this column are as follows: Mr. Bement $4,087 as matching contribution by the Company under the Earl Scheib Inc. Employee Savings Plan ("401-K"); Mr. Barrantes $540 as Company matching contribution to his 401-K Plan; Mr. Sunkin $2,686 as Company matching contribution to his 401-K Plan and $1,426 for the payment of Life Insurance premium; Mr. Smith $2,183as Company matching contribution to his 401-K Plan, $1,000 for the payment of Life Insurance premium and $1,534 for payment of Supplemental Employee Retirement Plan ("SERP") premium for the benefit of Mr. Smith; and Mr. Minnihan $2,203 as Company matching contribution to his 401-K Plan, $3,000 for the payment of Life Insurance premium and $4,808 for payment of SERP premium for the benefit of Mr. Minnihan.

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Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values

        The following table sets forth below information with respect to previously granted options which were exercised (if any) or which remain outstanding for the Named Executives.

(1)

Value based upon $2.08 closing price per share of Common Stock on April 29, 2003 (the last trading date of the Company's fiscal year ended April 30, 2003).

Employment Agreements and Change in Control Arrangements

        All of the Company's employees, including its Named Executives, are employed on an at-will basis by the Company. Messrs. Bement, Barrantes and Sunkin are entitled to severance benefits if they are terminated for reasons other than "just cause" as defined in their respective agreements with the Company.

        In Fiscal 2003, the Committee recommended and the Board of Directors ratified and approved the adoption of the Earl Scheib, Inc. Modified Executive Retention and Incentive Plan (the "Incentive Plan") to align the interest of certain members of Company management with the interests of the shareholders in light of the Company's review of strategic alternatives to maximize shareholder value. The Committee, which engaged the services of independent legal experts to assist with the design and preparation of the Incentive Plan, concluded that providing certain executives with specific incentives and protections was appropriate in light of the significant additional work to be performed by these executives, these executives importance to the review of strategic alternatives and the uncertainties surrounding the review process. The Incentive Plan covers Messrs. Bement, Barrantes and Sunkin. Under the Incentive Plan, these executives will be entitled to a supplemental severance payment upon the termination of their employment in certain circumstances following a change in control of the Company. In addition, these executives will be entitled to a change in control transaction bonus if they remain employed by the Company until such a change in control or if their employment is terminated in certain circumstances.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The following table indicates the number of shares of the Company's Common Stock beneficially owned as of June 29, 2003, by (i) all persons known to the Company who own more than 5% thereof, (ii) all directors of the Company, (iii) each of the Named Executives and (iv) all directors and executive officers of the Company as a group:

20

*

Indicates ownership of less than 1% of the Company's Common Stock based on 4,379,682 shares issued and outstanding on June 29, 2003.

(a)

Except as noted below, each of such beneficial owners exercises sole voting and investment power over all shares shown. Amounts include shares owned outright plus shares which could be acquired on or before August 28, 2003.

(b)

According to a Securities and Exchange Commission Schedule 13G, dated February 12, 2003. Dimensional Fund Advisors, Inc. ("Dimensional"), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the "Funds". In its role as investment adviser or manager, Dimensional possesses both voting and/or investment power over the securities of the Company that are owned by the Funds. All securities are owned by the Funds. Dimensional disclaims beneficial ownership of such securities.

21

(c)

According to a Securities and Exchange Commission Schedule 13D, dated August 23, 2002, Gabelli Funds, Inc. and its affiliates hold all such shares for the benefit of their clients. Gabelli Funds, Inc. claims beneficial ownership of all 1,562,260 shares except for 9,460 shares owned by Mario J. Gabelli as an individual.

(d)

According to a Securities and Exchange Commission Form 4 dated June 10, 2003.

(e)

According to a Securities and Exchange Commission Schedule 13D, dated August 12, 2002.

(f)

According to a Securities and Exchange Commission Schedule 13G dated December 31, 2000.

(g)

Includes 56,500 shares owned outright and 200,000 shares which may be acquired upon the exercise of employee stock options which are presently exercisable.

(h)

Includes 4,750 shares owned outright and 5,000 shares which may be acquired upon the exercise of directors' stock options which are presently exercisable.

(i)

Includes 5,500 shares owned by a trust of which Mr. Kyman is one of two trustees, 2,500 shares in an Individual Retirement Account and 20,000 shares which may be acquired upon the exercise of directors' stock options which are presently exercisable.

(j)

Includes 7,250 shares owned outright and 5,000 shares which may be acquired upon the exercise of directors' stock options which are presently exercisable.

(k)

Includes 7,000 shares owned outright and 17,500 shares which may be acquired upon the exercise of directors' stock options which are presently exercisable.

(l)

All 53,333 shares may be acquired upon the exercise of employee stock options which are presently exercisable.

(m)

Includes 1,500 shares owned outright, 150 shares held as a custodian for Mr. Sunkin's minor child, and 53,333 shares which may be acquired upon the exercise of employee stock options which are presently exercisable.

(n)

Includes 9,000 shares owned outright and 27,666 shares which may be acquired upon the exercise of employee stock options which are presently exercisable.

(o)

Includes 747 shares owned outright and 31,916 shares which may be acquired upon the exercise of employee stock options which are presently exercisable.

ITEM 13. Certain Relationships and Related Transactions.

        None.

ITEM 14. Controls and Procedures

        Within the 90 days prior to the filing date of this report, the Chief Executive Officer and the Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the date of the evaluation, the Company's disclosure controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report.

        Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control

22

can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

        There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls, known to the Chief Executive Officer or the Chief Financial Officer, subsequent to the date of the evaluation.

ITEM 15. Principal Accountant Fees and Services

        The following table sets forth the aggregate fees billed to the Company by its principal accounting firm, Ernst & Young LLP and Arthur Andersen LLP, during Fiscal 2003 and Fiscal 2002, respectively.

        Audit Fees include services related to the annual audit of the Company's consolidated financial statements to be included in Form 10-K and the quarterly reviews of the Company's consolidated financial statements to be included in Form 10-Q.

        Audit Related Fees primarily include services for accounting consultations.

        Tax fees include services for federal and state income tax compliance, consultation and planning.

23

PART IV

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

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995"

        Certain written and oral statements made by the Company may be "forward looking statements" as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this report and other filings with the Securities and Exchange Commission. Generally, the words "believe," "expect," "hope," "intend," "estimate," "anticipate," "plan," "will," "project," and similar expressions identify forward-looking statements which generally are not historical in nature. All statements which address operating performance, events, developments or strategies that the Company expects or anticipates in the future are forward-looking statements.

        Forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the Company's past experience or current expectations. The following are some of the risks and uncertainties that may impact the forward-looking statements: the impact of the Company's retail paint and body shop closures and operational restructuring, the effect of weather, the effect of economic conditions, the impact of competitive products, services, pricing, capacity and supply constraints or difficulties, changes in laws and regulations applicable to the Company, the impact of advertising and promotional activities, the impact of the Company's expansion of its fleet services division, new product rollout and Quality Fleet & Truck Centers, commercial coatings business, the potential adverse effects of certain litigation, financing, insurance or lending constraints, the impact of various tax positions taken by the Company and the risk that the identification or consummation of any particular transaction or strategic outcome as a result of the Company's review of its strategic alternatives is not assured.

24

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.

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:

25

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christian K. Bement, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Earl Scheib, Inc. (the "Report");

2.

Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.

Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this Report (the "Evaluation Date"); and

c.

presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

26

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles E. Barrantes, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Earl Scheib, Inc. (the "Report");

2.

Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.

Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this Report ("the Evaluation Date"); and

c.

presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

27

EXHIBIT INDEX

28

*

Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

29

Earl Scheib, Inc. and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-1

Earl Scheib, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-2

Earl Scheib, Inc. and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Dollars in thousands, except share data)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-3

Earl Scheib, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-4

Earl Scheib, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

1.

Summary of Significant Accounting Policies

        Nature of Business:    Earl Scheib, Inc. and subsidiaries (the "Company") operate auto painting and auto body repair locations for both retail consumers and businesses. At April 30, 2003, 2002, and 2001, the Company operated 124, 132, and 159 retail paint and body repair shops, respectively, and operated one, two and one large fleet centers at April 30, 2003, 2002, and 2001, respectively.

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

        Use of Estimates:    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant of these is the uninsured or deductible portion of the workers compensation liability, which is based on estimates of the development of incurred claims.

        Cash and Cash Equivalents:    All highly liquid investment instruments with terms of three months or less at the time of acquisition are considered to be cash equivalents while those having original maturities in excess of three months are considered marketable securities.

        Fair Value of Financial Instruments:    The carrying value of financial assets and liabilities approximates fair value due to their short maturity.

        Accounts Receivable:    Write-offs of accounts receivable totaled $83, $89, and $61; while provisions for doubtful accounts totaled $81, $116, and $174 for the years ended April 30, 2003, 2002 and 2001, respectively. Recoveries in the years ended April 30, 2003, 2002 and 2001 were $1, $22 and $0, respectively.

        Inventories:    Inventories, which are composed of auto paint, shop supplies and materials, are stated at the lower of last-in, first-out (LIFO) cost or market. A summary of inventories is as follows:

        Property, Plant and Equipment:    Property, plant and equipment are recorded at cost and depreciated and amortized over their estimated useful lives or lease terms, whichever is less. Significant additions or improvements extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. The Company uses the straight-line method in computing depreciation and amortization for financial reporting purposes and accelerated methods, with respect to certain assets, for income tax purposes.

F-5

        Revenue Recognition:    The Company recognizes revenue when the work is completed and the customer accepts delivery of the vehicle.

        Advertising:    Advertising costs are expensed as incurred, except that costs related to the placement of Company information in the yellow pages are capitalized as prepaid expenses and amortized over the applicable directory period, generally one year. Advertising costs expensed during the years ended April 30, 2003, 2002 and 2001 totaled $3,376, $3,628 and $4, 010, respectively; and costs capitalized at April 30, 2003 and 2002 totaled $444 and $612, respectively.

        Pre-opening Costs:    Expenses associated with the opening of new auto paint shops and fleet centers are expensed as incurred.

        Income Taxes:    Deferred income taxes are provided at the statutory rates on the difference between the financial statement and tax basis of assets and liabilities and are classified in the consolidated balance sheet as current or long-term consistent with the classification of the related asset or liability giving rise to the deferred income taxes. The carrying value of deferred income tax assets is determined based upon an evaluation of whether the realization of such assets is more likely than not.