United States
                       Securities and Exchange Commission
                             Washington, D. C. 20547

                                    FORM 10-K

|X|      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 for the fiscal year ended September 28, 1997. 

                                       or

|_|      Transition  report  pursuant  to Section 13 or 15(d) of the  
         Securities Exchange Act of 1934 for the transition 
         period from _____________ to _______________.


                         Commission File number: 0-22048

                              STARCRAFT CORPORATION
             (Exact name of Registrant as specified in its charter)

                 Indiana                                  34-1817634
      (State or other Jurisdiction                     (I.R.S. Employer
    of Incorporation or Organization)                 Identification No.)

        Post Office Box 1903, 2703 College Avenue, Goshen, Indiana 46526
                    (Address of Principal Executive Offices)

        Registrant's telephone number including area code: (219) 533-1105

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

                                      None

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

                         Common Stock, without par value
                          Common Share Purchase Rights
                                (Title of Class)

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

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 issuer's voting stock held by  non-affiliates,
as of January 9, 1998, was 7,224,766.

The  number of shares of the  Registrant's  Common  stock,  without  par  value,
outstanding as of January 8, 1998, was 4,133,600 shares.


<PAGE>




                              STARCRAFT CORPORATION
                                    Form 10-K
                                      Index

                                     PART 1

Item 1.    Business
Item 2.    Properties
Item 3.    Legal Proceedings
Item 4.    Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters
Item 6.    Selected Financial Data
Item 7.    Management's Discussion and Analysis of Financial Condition and 
           Results of Operation
Item 7A.   Quantitative and Qualitative Disclosures about Market Risks
Item 8.    Financial Statements and Supplementary Data
Item 9.    Changes in and Disagreements with Accountants on Accounting and 
           Financial Disclosure

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant
Item 11.   Executive Compensation
Item 12.   Security Ownership of Certain Beneficial Owners and Management
Item 13.   Certain Relationships and Related Transactions

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on form 8-K.

SIGNATURES



<PAGE>



                                     PART I


ITEM 1.           BUSINESS

Overview

The Company is a leading second-stage  manufacturer of custom van, sport utility
vehicle  ("SUV") and  pick-up  truck  conversions.  Starcraft  has  historically
specialized in upscale custom vehicles.  With the addition of the Imperial Group
("Imperial") in 1994, the Company offers a full range of conversion  vehicles at
every consumer price point. In addition,  the Company sells vehicle  conversions
for the physically  challenged  through its recently  acquired National Mobility
Corporation.  The Company  believes it is one of the four largest van conversion
manufacturers in the U.S. The Company sells its products to an extensive network
of approximately 600 authorized  automotive  dealers  throughout the continental
U.S. and overseas.  The Company  believes the Starcraft name has a long-standing
reputation in the vehicle conversion industry for high quality.

Starcraft  traces its  history  to 1903 when Star Tank  Company  was  founded in
Goshen,  Indiana  as a maker of metal  farm  equipment.  Over the  course of the
century the  Company's  predecessor  became a leading  manufacturer  of aluminum
boats and  recreational  vehicles  and, in the late 1970's,  led the  automotive
conversion  industry by producing  luxury van  conversions  for middle and upper
income consumers.  In 1987, the predecessor's  management  completed a leveraged
buyout and, in 1988, sold the boat manufacturing  business. The resulting entity
was highly  leveraged  and  eventually  sought  protection  from  creditors in a
bankruptcy  reorganization  proceeding  in late 1990.  On January 18, 1991,  the
Company  purchased  the  assets  of  the  automotive  and  recreational  vehicle
divisions  (except for  Canadian  operations)  from  Starcraft  Van  Conversions
Corporation and its affiliates,  as  debtors-in-possession  (the "Predecessor"),
with bankruptcy court approval. The Company simultaneously sold the recreational
vehicle  division to a third party.  In July 1994,  the  Company's  wholly owned
subsidiary,  Imperial Automotive Group, Inc., acquired  substantially all of the
assets of Imperial  Industries,  Inc. In December 1995, the Company expanded its
manufacturing  capabilities  with a new plant in  McGregor,  Texas,  operated by
Starcraft  Southwest,  Inc., a wholly owned  subsidiary.  In February  1997, the
Company  purchased  the assets of  National  Mobility  Corporation  in  Elkhart,
Indiana.  During fiscal year 1997 the Company  closed its Imperial and McGregor,
Texas  manufacturing   facilities  and  consolidated  the  operations  into  its
Starcraft Group manufacturing complex in Goshen, Indiana.

The Company  was  incorporated  in Indiana in 1990.  Its  executive  offices are
located  at  2703  College  Avenue,  Goshen,  Indiana,  46526;  telephone  (219)
533-1105.  The Company has four wholly-owned operating  subsidiaries:  Starcraft
Automotive Group, Inc.;  Imperial Automotive Group, Inc.,  Starcraft  Southwest,
Inc., and National Mobility Corporation.

Starcraft's principal  manufacturing  facilities are in Goshen, Indiana, and, as
of February 1997, Elkhart, Indiana with its National Mobility operation.

Industry Information

The custom  vehicle  conversion  industry  developed  during  the early  1970's.
Starcraft's  Predecessor  was a leader in  transforming  the  industry  from one
oriented  toward younger  recreational  users to one oriented toward more mature
automotive  customers.  The Company believes retail prices of custom vans in the
United States for the 1997 model year generally  ranged from $20,000 to $40,000.
Retail  mark-ups  vary widely  among  dealers  and are not within the  Company's
control.

According to the Recreational Vehicle Industry Association ("RVIA"), the average
domestic  wholesale  price  to  dealers  of  a  van  conversion,  pick-up  truck
conversion and SUV conversion (including chassis) during the first nine calendar
months of 1997 were  $24,500,  $18,700  and  $28,200  respectively.  Because the
Company  emphasizes  high-end,  luxury  vehicles,  Starcraft's  average domestic
wholesale price to dealers during fiscal 1997, was $27,800,  assuming an average
cost of chassis to dealers of $20,000.  Imperial's  average  wholesale  price to
dealers  during  fiscal 1997 was $23,800  assuming an average cost of chassis to
dealers of $20,000.





<PAGE>



According to RVIA  statistics,  approximately  144,000  custom vans were sold by
United States conversion manufacturers during calendar 1996 compared to 151,000,
182,000, and 192,000 units in 1995, 1994 and 1993,  respectively.  RVIA reported
sales of 98,000 units through  September 1997 and estimates sales of custom vans
for calendar 1997 will total  115,000,  a 20.1%  decrease  from 1996 levels.  In
1995, RVIA began tracking pick-up truck and SUV conversions. For the nine months
ended  September  1997,  51,400 of such  vehicles  were  sold by the  conversion
industry compared to 58,400 in 1996, a 12% decline.

The domestic  vehicle  conversion  industry has declined  steadily over the last
several years with a significant  decline in 1997. The Company believes that the
increased  popularity  of sport  utility  vehicles and factory  minivans,  price
pressure from higher chassis costs,  lower levels of conversion  inventory being
held on dealer lots and fewer  automotive  dealers selling  conversion  products
have adversely impacted the market. The Company believes that the changing level
of dealer  support is due to the  growing  availability  of  additional  vehicle
models  to stock on their  lots  such as sport  utility  vehicles  and a general
concern by dealers of the future of the conversion industry.

RVIA  statistics  are  based on  reports  of its  member  manufacturers  and its
estimates with respect to non-member  manufacturers.  The Company  believes RVIA
members produce 80% - 85% of conversions produced in the United States.

The Company is the leading  exporter of  conversion  vehicles.  Primary  markets
include Japan and Northern Europe.  The recent  strengthening of the U.S. dollar
and financial  turmoil in Asian markets have  negatively  impacted the Company's
export sales and profit margins.

The conversion industry is cyclical and is affected by the general trends of the
economy and  consumer  preferences  and  consumer  confidence  and trends of the
automotive and recreational  vehicle industries.  Consumer preferences for sport
utility  vehicles in recent years has adversely  affected  demand for conversion
products.  The level of disposable  consumer  income affects the Company's sales
because its products are  generally  considered  discretionary  expenditures  by
consumers.  In difficult  economic times,  consumers tend to spend less of their
income on discretionary  items.  Other economic factors affecting the demand for
the Company's products include the availability and price of gasoline, the level
of interest rates and the availability of consumer  financing.  Reduced gasoline
availability  could adversely  affect the demand for the Company's  products.  A
significant  increase  in the price of  gasoline  could  reduce  demand  for the
Company's  products  because  it  would  increase  the cost of  operating  these
products.  Because many consumers finance their purchase of vehicle conversions,
the  availability  of  financing  and  level  of  interest  rates  can  affect a
consumer's  purchasing  decision.  A decline in general  economic  condition  or
consumer  confidence can be expected to affect Starcraft's sales adversely.  The
Company  is  dependent  upon the OEMs to supply  its  requirements  for  vehicle
chassis.  Labor stoppages,  supply shortages and a variety of other factors that
influence  OEM  production  can affect the  availability  or timely  delivery of
vehicle  chassis to the  Company.  In 1996 the  Company's  sales were  adversely
impacted by the availability of certain OEM chassis.

Company Products

The Company  converts  fullsize vans  manufactured by each of the major original
equipment  manufacturers  ("OEMs"):  GMC Truck,  Chevrolet,  Dodge and Ford. The
Company manufactures minivan conversions on the GMC Safari, the Chevrolet Astro,
Chevrolet Venture and the Dodge Caravan. Starcraft also customizes Chevrolet and
GMC SUVs, along with several pick-up truck models for GMC,  Chevrolet,  Ford and
Dodge. The product contains a principal set of conversion features and a variety
of  optional  accessories  designed  by the  Company  in each model year to meet
prevailing  customer  preferences.  Starcraft van models fall  principally  into
three price ranges (conversion cost to dealer):  from $4,000 - $6,000,  $6,000 -
$9,000,  and $9,000 and above.  Imperial  models fall into the  following  price
ranges:  $2,000 - $3,000,  $3,000 - $4,000,  over  $4,000.  These  price  ranges
provide marketing  flexibility  allowing for different  demographics and varying
dealer marketing  objectives.  Certain SUV and pick-up truck conversion packages
may be priced below these ranges.



<PAGE>



Operating Data

The following sets forth  information  respecting  the Company's  gross sales by
product type for the fiscal periods indicated.

Gross Sales by Product (1)

<TABLE>
<CAPTION>
                                                                 Year Ended
                      September 28, 1997                      September 29, 1996                          October 1, 1995
----------- -------------------------------------- -----------------------------------------  --------------------------------------
                       Avg.                                  Avg.                                       Avg.
                       Price/   Gross      % of              Price/    Gross        % of                Price/    Gross       % of
            Units      Unit     Sales      Sales   Units     Unit      Sales        Sales     Unit      Unit      Sales       Sales
----------- ---------- -------- ---------  ------- --------- --------- -----------  --------  --------  --------  ----------- ------
<S>           <C>      <C>      <C>        <C>       <C>      <C>        <C>         <C>       <C>      <C>         <C>        <C>  
Fullsize      6,734     $6,600   $44,600   57.1%     8,085    $6,600     $53,300     50.1%     9,041    $7,500      $67,600    54.8%
Vans
Minivans      2,346      7,800    18,300   23.5%     4,676     8,200      38,300     36.0%     4,894     8,300       40,700    33.0%
Trucks &      2,909      3,700    10,800   13.9%     3,345     3,200      10,700     10.0%     3,009     3,400       10,300     8.4%
SUVs
Parts           N/A        N/A     4,300    5.5%       N/A       N/A       4,200      3.9%       N/A       N/A        4,700     3.8%
            -------      ----    ------    ----      ------   ------    --------     ----    -------    ------     --------    -----
Total        11,989     $6,200   $78,000    100%    16,106    $6,400    $106,500      100%    16,944    $7,000     $123,300     100%
            ==+====     ======   =======    ====     ======   =======   ========      ===    ======     ======     ========     ====

</TABLE>

(1)      Gross dollar  sales  represent  the price to dealers of the  conversion
         before discounts and exclude the cost of the chassis.

Company Strategy

The Company  believes  it can grow by  expanding  its  domestic  van  conversion
business market share, further developing  international sales opportunities and
offering  additional  products  in new  markets,  such  as  conversions  for the
physically challenged and shuttle buses for airport and hotel use.

Domestic Van Sales.  The Company will  continue to focus on core van  conversion
products and, through  aggressive  marketing and promotion,  will seek to expand
U.S.  sales of custom  vans.  While  Starcraft  product  lines will  continue to
emphasize upscale custom van conversions, Imperial will continue a complementary
emphasis on mid- and  low-price  point  conversion  packages.  The Company  will
continue  to  seek  to  further  differentiate  its  Starcraft  lines  from  its
competition  by  emphasizing  total  value and quality  versus  unit  price.  By
offering both the Starcraft and Imperial  product lines,  the Company is able to
offer  dealers  a  full  price  range  of  conversion  vehicles  from  a  single
manufacturer.  Imperial will maintain its position in the entry level segment of
the market.

The Company will continue to focus on innovative product  development to enhance
customer  appeal and vehicle  quality and safety.  The Company will  continue to
seek to differentiate  itself from its competition by virtue of the resources it
devotes to training dealer personnel in selling, product knowledge,  service and
compliance.  Starcraft  utilizes  a  specially  equipped  service  van,  videos,
manuals,  other visual aids, and the classroom  instruction at its main facility
and at dealer locations  throughout the country.  The Company maintains a strong
customer  service  area  which  includes  warranty  claims and  approval,  parts
ordering and processing and customer information.  The Company maintains records
of Starcraft units sold as far back as 1978 and Imperial  maintains records back
to  1991,  which  was  the  inception  of  the  predecessor  company,   Imperial
Industries, Inc.

The acquisition of National Mobility Corporation offers a new product line aimed
at a  specific  consumer  niche,  physically  challenged  persons.  By  offering
additional products the Company can maintain its strategy to the dealer of being
a complete  product line and full service  organization.  The Company  estimates
that 1998 domestic  industry  sales will decline an  additional  5%. The Company
will target key automotive dealers



<PAGE>



in each region to maintain market share and develop cooperative marketing plans.
The Company  established  a  telemarketing  division  in 1997 to target  smaller
markets.

Domestic  Truck and SUV  Conversions.  Although  the  Company's  conversions  of
General  Motors'  Suburban,  other SUV and  pick-up  trucks  have proven to be a
popular line of products,  the significant  increase in the number of models and
the  chassis  availability  of  these  products  have  reduced  the  demand  for
conversions.  Many of the OEM sport  utility  models now have  options that were
historically  supplied  by the  conversion  industry.  As a result,  the Company
believes its overall sales of SUV and pick-up truck conversions may decline. The
Company  will focus on select  models and OEMs where it feels it can continue to
offer a unique product at a competitive price point.

International  Vehicle Sales.  The Company intends to further promote  Starcraft
vehicles overseas,  especially in Central/Northern Europe and Japan. The Company
maintains  a  distribution  agreement  with  General  Motors  and Mitsui and Co.
(U.S.A.),  Inc. which the Company  believes makes Mitsui the sole distributor of
General Motors vans in Japan. Under this agreement Mitsui agreed to use its best
efforts  to promote  Starcraft  vans in Japan and  Starcraft  agreed to sell van
conversions in Japan solely through Mitsui.

The increase in the U.S. dollar  currency rate has put  significant  pressure on
the  Company's  export  sales.  In  addition,  the  recent  turmoil in the Asian
financial  markets and  economies  have  negatively  impacted the demand for the
Company's  products.  In particular,  1998 sales to Japan, the Company's largest
export market, will decline.

The Company  continues to redesign  products to maintain  unique products in the
marketplace   and  increase  value  for  price  to  keep  products   competitive
internationally.  In addition,  the Company is targeting  several new markets to
develop.

Diversification.  With the decline in the conversion  industry and the Company's
sales , the Company  will attempt to diversify  itself  further with  additional
products  targeted  at new  markets.  An  example  of  such  diversification  is
commercial vehicles.  The Company has developed plans to begin producing shuttle
buses for airports,  hotels and other commercial markets at its Goshen,  Indiana
facility.

Chassis and Other Suppliers

Historically,  most of the Company's van  conversions  have been General  Motors
products.  In 1991,  approximately  92% of its unit  sales were  represented  by
General Motors.  For 1997, 65% of the Company's  products were on General Motors
chassis.  The increase in the proportion of the Company's  sales  represented by
Ford  and  Chrysler  products  was  due  primarily  to  aggressive   promotional
activities carried on by Chrysler.

The OEMs  supply  incomplete  chassis to  Starcraft  or other  manufacturers  or
dealers for restricted use. The Company obtains substantially all of its chassis
acquired for domestic sale from the OEMs pursuant to  consignment  or restricted
sale contracts. Under these contracts each OEM maintains strict control over the
disposition of chassis delivered to the Company for modification and the Company
is prohibited  from  delivering a converted  chassis  provided by the OEM to any
person  except  an  authorized  dealer  for  that  OEM.  All  of  the  Company's
consignment and restricted sale contracts with chassis  suppliers are terminable
by either party on short notice without cause.

Under  restricted  sale contracts with the OEMs, the OEM retains the certificate
of origin and the  Company  has no right to obtain it or any other  evidence  of
title.  These  contracts  state that  vehicle  title  technically  passes to the
Company upon  acceptance of a chassis and the Company pays state  property taxes
on chassis, but the Company can only sell the chassis back to the OEM for resale
to an  authorized  dealer.  Except for  demonstration  vehicles,  the Company is
prohibited from making  modifications  to chassis under these contracts until it
matches them with a dealer order. In the past, the Company has obtained  waivers
of this  limitation  to permit  accumulation  of GMC or  Chevrolet  inventory in
connection  with model year changes or other periods of  anticipated  increasing
demand.  Prior to matching a chassis to a dealer order, the Company finances the
chassis  through  the OEM's  financing  affiliates  at nominal  rates.  Once the
Company  notifies the OEM that it has matched a chassis  with a dealer,  the OEM
"repurchases" the chassis, crediting


<PAGE>



the  Company's  account with the OEM's  financing  affiliate  and  invoicing its
dealer (the Company's customer) for the price of the chassis. Upon receiving the
converted  vehicle,  the  dealer  is  obligated  to  pay  the  Company  for  the
improvements  the Company has made. If the Company fails to match a chassis with
a  dealer  order  within  90 days,  the  finance  charge  the  Company  must pay
increases. The past 90-day finance charge is currently the prime rate plus 1%.

Historically,  the Company's international  conversion sales have been primarily
manufactured on General Motors chassis.  Generally,  the foreign purchaser is an
authorized dealer for General Motors and Starcraft.  The dealer submits an order
to General Motors' overseas sales affiliate (the "GM Export  Affiliate") for the
chassis together with specifications for a Starcraft  conversion.  The GM Export
Affiliate purchases the chassis from General Motors and forwards it to Starcraft
for second stage  manufacturing.  Starcraft invoices the GM Export Affiliate for
the completed  conversion,  and the GM Export Affiliate arranges for shipment of
the unit, at the GM Export  Affiliate's  expense,  from Starcraft to the foreign
dealer.

Starting  in 1997,  General  Motors  has  changed  its  chassis  system  for the
Company's sales to Europe. The Company is the "Manufacturer of Record" for units
imported into Europe and is required to arrange and be responsible  for all U.S.
export  and  shipping  requirements.  The  Company  continues  to  sell  only to
authorized General Motors dealers.  The Company does not believe this new system
will have a significant impact on its European sales.

A variety of factors  govern  chassis  ordering  and  availability.  Chassis are
ordered  from the OEM based on the  Company's  annual  sales  plan.  The plan is
broken down by OEM and vehicle model.  Vehicle  specifications are determined on
the basis of  historical  trend  analysis and analysis of the backlog of orders.
The  Company's  chassis  order  forecast  is shared  with each OEM to  determine
chassis  availability.  The OEMs confirm chassis  availability  and timing on an
annual basis.  After confirmation by the OEM, the Company orders a 90-day supply
prioritized  through a  central  computerized  system.  On a weekly  basis,  the
Company  releases the actual orders it requires and the OEMs  schedule  delivery
dates for the orders.  Chassis  allocation to the Company from the OEMs is based
on credit lines, prior usage and wholesale and retail sales rates.

The following  table sets forth for the periods  indicated the number of chassis
received by the Company and the dollar value thereof, and, as of the end of such
periods, the number of chassis held over 90 days and the dollar value thereof.

<TABLE>
<CAPTION>
                                                                Year Ended
                                                            (Dollars in thousands)

                                         Sept. 28, 1997       Sept. 29, 1996          Oct. 1, 1995
------------------------------------ -------------------- ----------------------- ---------------------
<S>                                    <C>                  <C>                   <C>   
Chassis Received                              10,687               17,179                17,419
Value of Chassis Received                $   213,740            $ 305,300             $ 309,800
Chassis Over 90 Days at period end               433                  262                   491
Value of Chassis Held Over 90 Days       $     8,660         $      4,615           $     8,712
</TABLE>



The conversion  process begins after a chassis is inspected and accepted and the
Company  has  received a  confirmed  order  from an  authorized  dealer  that is
compatible  with the chassis.  Generally,  the order is scheduled for production
typically  four to five days before work on the vehicle  commences  to allow for
completion of components to be installed in the chassis.  The Company  completes
the  conversion  process in an average of seven to eight days from the date that
the vehicle is first scheduled for production.



<PAGE>



The Company is dependent  upon the OEMs to supply its  requirements  for vehicle
chassis.  Labor stoppages,  supply shortages and a variety of other factors that
influence  OEM  production  can affect the  availability  or timely  delivery of
vehicle  chassis to the Company.  The impact of these factors was significant in
1996. In 1997,  chassis  availability was generally good. If vehicle chassis are
unavailable,  or if the Company  must accept  delivery  earlier or later than it
otherwise would prefer, sales could be adversely affected and financing expenses
could increase. The Company must also comply with its consignment and restricted
sale  contracts  with  the  OEMs  pursuant  to which  the  OEMs  impose  certain
specifications  for the Company's vehicle  conversions,  including gross vehicle
weight standards.  Such contracts also restrict the Company's ability to dispose
of completed  chassis and prohibit the transfer of chassis to unauthorized  U.S.
and foreign  dealers.  All of the  Company's  consignment  and  restricted  sale
contracts with chassis  suppliers are terminable by either party on short notice
without cause. The availability of the OEM financing rates is dependent upon the
Company's  compliance  with  its OEM  contracts  and  its  ability  to  maintain
satisfactory credit relationships with the OEM's finance  subsidiaries.  Adverse
changes in the  Company's  financial  condition or results of  operations  could
cause such  financing  subsidiaries  to seek to adversely  change the  Company's
financing  terms or to terminate such financing  arrangements.  Such a change or
termination  could have a material  adverse  effect on the  Company's  financial
condition and results of operations.

General  Motors  introduced a newly  redesigned  fullsize van in early  calendar
1996. The Company  believes  dealers reduced their  inventory  levels in 1995 in
anticipation of the new chassis thereby negatively impacting the Company's sales
to dealers.  In addition,  the Company  believes the  availability  of the newly
redesigned  General Motors  fullsize van restricted and negatively  impacted the
Company's 1996 sales.  At the end of 1996, the  availability  of this chassis to
the Company was adequate.

In July 1997, Dodge discontinued  production of its fullsize van in anticipation
of introducing a newly  redesigned  van in December 1997. The transition  period
adversely impacted the Company's Dodge sales in fiscal 1997 by approximately 600
units.

Vehicle  converters  can be  penalized by the OEM for  manufacturing  overweight
vehicles and the National Highway Traffic Safety Administration  ("NHTSA") could
require  overweight  vehicles to be recalled.  See "Safety and Regulation." Such
standards  are imposed by the OEMs in part to help assure  that  vehicle  weight
does not exceed the capacity of the OEM's braking system.

The export of  completed  vehicles to  unauthorized  foreign  dealers has been a
significant  issue in the  conversion  industry in recent years,  especially for
General  Motors.  In the past,  some  automotive  dealers have sold  vehicles to
brokers who, in turn, have sold them to unauthorized  dealers overseas.  General
Motors' financing subsidiary has indicated an intention to penalize or terminate
financing  arrangements  with  any  firm  deemed  responsible  for  unauthorized
exports.  The Company makes an effort to assure itself that none of its vehicles
are exported in an unauthorized  manner including  obtaining written  assurances
from certain dealers.  General Motors has significantly increased its efforts to
curtail such activity.  The Company has no control over the eventual disposition
of its vehicles by dealers,  however,  so it cannot eliminate the possibility of
unauthorized  export.  These  efforts  nevertheless  should help assure that the
Company will not be deemed responsible for any unauthorized export.

Supplies for the  components  and materials the Company  utilizes in its vehicle
conversions are generally available from several sources.  From time to time the
Company  experiences  delays in delivery of certain components or materials from
suppliers,  but such delays have not historically had any material effect on the
Company's production.

Manufacturing

The incomplete van chassis the Company  receives  directly from the OEMs have no
seats or floor covering or other interior  components.  The Company modifies the
exterior  and  interior of the  chassis  body to provide  passenger  comfort and
enhance  safety.  SUVs and  pick-up  trucks  received  have  full  interior  OEM
components.  The Company modifies these components and performs certain exterior
enhancements.



<PAGE>



Vehicle  Modification  and Assembly.  After a chassis is inspected and accepted,
the Company  begins the  conversion  process by modifying the chassis  exterior,
installing tinted vista bay windows,  raised roof,  decorative decals and ground
effects. Star-structure steel bracing is installed for added structural support,
followed by rust proofing, wiring, insulation and vibration dampening materials.

After exterior seals are tested for leaks,  the vehicle is lined with fabric and
wood-accented  sidewalls and headliners.  The Company's  associates assemble the
complete vehicle  interior in multiple  production lines using the Company's own
manufactured  components and parts supplied by others. The Company's distinctive
hardwood features, contoured seats, carpeting,  curtains and other amenities are
installed in each vehicle,  along with the  customer's  selection  from over 100
optional accessories,  including a wide variety of electronic components such as
rear heating and air-conditioning,  television,  video cassette player and other
audio equipment.

Vehicle Components.  The Company  manufactures its own woodwork,  upholstery and
wiring  harnesses,  among other  components.  Starcraft's  distinctive  hardwood
interior  appointments  are  manufactured  at the Goshen  facility in its 45,000
square foot wood shop. The Company  planes,  joins,  shapes,  sands and finishes
rough-cut teak and walnut lumber in a process that combines  automation and hand
craftsmanship.  A  wood-burning  laser is utilized  which can transfer any image
directly onto wood components for added customization.

Vehicle seating and upholstery are primarily manufactured at the Company's Emma,
Indiana,  facility,  located 15 miles from its Goshen,  Indiana  plant.  Company
associates cut and sew interior wall  coverings,  headliners,  curtains and seat
upholstery  from  leather,  cloth  and vinyl  materials.  The seat  padding  and
upholstery are then assembled on pre-fabricated frames. Some of Starcraft's wire
harnesses  are  manufactured  at the Goshen  plant.  The Company also paints and
finishes all of its custom fiberglass and polymer vehicle body components,  such
as raised roofs,  running boards and other ground effects which are manufactured
to the  Company's  design  specifications  by others.  The Company  maintains an
enclosed painting system to provide  fiberglass and polymer components with high
quality  base coat and clear  coat  finishes.  This  water-filtered,  down draft
system is similar to those of the major automotive manufacturers and is designed
to control environmentally harmful emissions.

By  manufacturing  many of its own  components,  the Company is able to exercise
significant  control  over the quality and supply of  components  built into its
custom vehicles and to accommodate a wide range of  customization  demands.  The
Company  is also able to  provide  consumers  with  ongoing  service  and repair
capabilities  by  maintaining  a record of, and access to  supplies  of,  paint,
upholstery and other materials used to modify each vehicle.

In  December  1996  the  Company  consolidated  its  Imperial  Automotive  Group
manufacturing  operation into Starcraft Automotive Group's manufacturing complex
in Goshen,  Indiana.  The consolidation is designed to enhance profitable growth
by reducing  excess  production  capacity,  personnel  count and fixed  overhead
expenses.  The  Company  recorded  a  $750,000  restructure  charge in the first
quarter of fiscal  year 1997.  The  Company  estimates  it will  realize  annual
overhead expense  reductions of approximately $1.1 million from reduced facility
and personnel costs during 1998 relative to 1997.

In June 1997 the Company closed its McGregor,  Texas manufacturing  facility and
sold  certain  assets of the  business.  The  Company  recorded a  $260,000  net
restructure  charge in the third quarter of fiscal year 1997. The Company should
realize  savings from the closure of the Texas  facility which lost $1.3 million
pretax in 1997. The consolidation  efforts were a result of the Company's belief
that the  conversion  industry  will  remain at  current  lower  levels  and the
elimination of excess production capacity was critical to obtain profitability.

Production Associates.  The Company periodically employs associate training that
may include classroom instruction,  job certification and technical and personal
skills  training.  The  principal  objective  of  the  training  is  to  develop
associates  into  more  effective  members  of a team  dedicated  to  continuous
improvement  in all facets to the  Company's  business.  In 1997,  the Company's
production line associates' compensation was changed from an hourly system to an
incentive system.

The Goshen facility produced 45 custom vehicles per eight-hour shift during peak
production periods in 1997


<PAGE>



and has  capacity  to  produce  up to 95 units in one  shift.  During the fourth
quarter of 1997 the Goshen  facility was  producing 30 units per day,  including
Starcraft and Imperial models.

Sales and Marketing

Domestic.  The Company sells its custom vehicles to approximately 600 automobile
dealers  throughout the continental U.S. and overseas.  Custom vehicles are sold
through a network of regional  exclusive  sales  representatives  and  associate
representatives.  Each of its U.S.  dealers is an authorized  dealer for General
Motors,  Ford or Chrysler and most sell and service a full  complement  of cars,
SUVs and vans.  Starcraft's top 50 dealers accounted for approximately  60%, 59%
and 51% of unit sales in fiscal 1997,  1996 and 1995,  respectively.  During the
past two years,  the geographic areas of the U.S. where the Company's sales have
been  strongest  include (i) the Great Lakes region  (i.e.,  Illinois,  Indiana,
Michigan, New York, Ohio, Pennsylvania,  and Wisconsin), (ii) Oklahoma and Texas
and (iii) Northern California.

The Company's  direct sales efforts to dealers are  supplemented by a variety of
advertising and promotional  programs and  participation  in various  automobile
shows.  The  Company is also  refining a targeting  approach  to better  utilize
advertising  expenditures  by expanding its team selling  efforts and developing
new marketing  materials,  including videos.  In 1997 the Company  established a
telemarketing sales team in Ocala,  Florida to cost effectively focus on smaller
dealer activities.

International.  Starcraft exports converted  vehicles to 18 countries around the
world and employs an indernational  department which is exclusively  responsible
for the development of international  sales.  International sales fluctuate from
country to country  and over time  depending  on import  taxes and  tariffs  and
fluctuations  in currency  exchange rates as well as local economic  conditions.
Starcraft's  primary overseas markets are Japan and northern Europe. The Company
exported   1,584,   2,543  and  2,195   conversions  in  1997,  1996  and  1995,
respectively.

The recent increase in U.S. currency and turmoil in Asian financial markets have
negatively impacted the Company's internationlal sales.

The Company intends to further promote Starcraft and Imperial vehicles overseas.
The Company maintains a distribution agreement with General Motors and Mitsui by
which the Company  believes makes Mitsui the sole  distributor of General Motors
vans in Japan. This agreement will continue from year-to-year  unless terminated
on three months notice prior to the end of any such year.

Research and Development

The Company  continues to devote  efforts and  resources in the area of research
and  development  to improve  the appeal and safety of its  products.  Starcraft
believes it has a strong record of  innovative  product  development  to enhance
customer appeal and vehicle quality.

The  Company  has a patent on a system  called  the  Integrated  Belting  System
("IBS").  Upon a rear-end  collision in excess of 20 m.p.h.,  passenger seats in
many vehicles can collapse  backward,  increasing  the risk of injury to vehicle
occupants.  IBS is  designed  to  reduce  significantly  the  risk of seat  back
collapse  by  restraining  the seat back.  A new seat belt  integrated  with the
conventional  seat  belt  system is  anchored  to the  vehicle  roof or wall and
traverses the seat back. In the event of collision,  the seat back is secured in
place.

IBS has been  successfully  tested by an  independent  testing firm. The Company
believes that only one other automotive manufacturer currently offers seats with
a safety feature  designed to prevent collapse on rear impact.  Eventually,  the
Company  intends to license the use of IBS by other  manufacturers.  There is no
assurance,   however,   as  to  the  extent  IBS  will  be   employed  by  other
manufacturers.

The Company has product  research and  development  teams  devoted to design and
safety  improvements.  During  fiscal  1997,  1996 and 1995,  the Company  spent
approximately $824,000, $893,000 and $726,000, respectively, on product research
and development.




<PAGE>



Competition

The  United  States  vehicle  conversion  market is very  competitive  with four
principal national manufacturers and numerous local and regional  manufacturers,
many of which are relatively small companies serving local dealers.  The Company
believes it is one of the four  largest van  conversion  companies in the United
States.  The others are Glaval Inc., Mark III Industries,  Inc. and Explorer Van
Company. The Company's Starcraft lines generally feature high-end, luxury custom
vehicles  competing  most directly  with  Explorer.  The Imperial  product lines
compete  more  directly  in the  price-sensitive  segment of the van  conversion
market.  The Company believes the number of competitors will continue to decline
as increased  quality,  financial and  engineering  standards are imposed by the
OEMs.

In   international   markets,   the  Company   competes  with  numerous  foreign
manufacturers  that produce  vehicles  comparable  to converted  vans,  although
custom  vans such as the  Company's  tend not to be widely  produced  within its
foreign markets.

The  Company's  Starcraft  lines will  continue to be focused on luxury  vehicle
modifications  and will  seek to  increase  its  market  share of  high-end  van
conversions  for  which  Starcraft  vehicles  have  an  established  reputation.
Starcraft will also continue to be sensitive to changes in consumer preferences.
The Imperial  product lines enable the Company to participate  more fully in the
price-sensitive  segment of the  conversion  market and offer its dealers a full
price range of conversion  vehicles from one manufacturer.  The Company believes
competitive  factors in its  industry  include  price,  quality  and  variety of
product  line,  service and  warranty,  dealer  network and safety.  The Company
maintains a leading  position in the  conversion  industry  through high quality
workmanship,  innovation,  versatility in meeting customization requirements and
the diversity of its product line.

The Company will also target the mobility  market through its National  Mobility
subsidiary by offering fullsize vans and minivans for the physically challenged.
The  Company  estimates  that it  competes  in this  market  with four  national
manufacturers  and  several  regional  manufacturers.  These  products  will  be
distributed  through  both  automotive  dealerships  and  mobility  centers.  In
addition,  the Company will participate in state government  quotes for mobility
vehicles.

Backlog and Seasonality

At  September  28, 1997,  the Company had a backlog of 842 unit orders  compared
with a backlog of 1,067 unit orders at September 29, 1996. The Company considers
such orders to be reasonably firm. All of the Company's  products are subject to
certain  seasonal sales  influences  and sales tend to be stronger  during March
through  July.  The  Company  uses  off-season  sales  promotions  to market its
products with a view to reducing seasonal swings in sales.

Warranties

The Company historically provided a three-year,  36,000 mile limited warranty on
its conversions. In 1997, the Starcraft products began offering a 5-year, 60,000
mile warranty. The OEMs provide their own standard warranties of the chassis and
engine.  At the time of sale of its product,  the Company estimates the costs to
be incurred for product warranties and establishes reserves for warranty claims.
The Company  believes that such reserves will adequately cover any such warranty
claims.  The  Company  provides  complete  owners'  manuals to retail  customers
covering the conversion  package as well as parts,  warranty and service manuals
for  dealers.  The Company  keeps a record of the paint,  upholstery  and styles
included in each vehicle  conversion so that, when  necessary,  it can re-create
matching replacement parts.

Patents and Trademarks

IBS. In 1996,  the Company  received a U.S.  patent on IBS, which is designed to
reduce  significantly  the risk of seat back collapse in the event of a rear-end
collision  by  restraining  the seat back. A new seat belt  integrated  with the
conventional  seat  belt  system is  anchored  to the  vehicle  roof or wall and
traverses the seat back. In the event of collision,  the seat back is secured in
place. See "Research and Development."

Trademarks.  The Company's Predecessor manufactured boats, motor homes and other
recreational  vehicles under the name  "Starcraft."  (R) The boat  manufacturing
business was sold by the Predecessor to Brunswick


<PAGE>



Corporation in 1988. The Company  initially  acquired the  recreational  vehicle
business in the Predecessor's 1991  reorganization  proceeding,  but immediately
sold it to  Jayco  Inc.  The  Predecessor's  Canadian  conversion  business  was
acquired by a Canadian firm. Brunswick Corporation has independently  registered
and owns the  "Starcraft"  and related  trademarks for use with boats and marine
products and thus  Starcraft  has no control over the quality of boats  produced
and  sold  under  the  "Starcraft"   mark.  The  Company  retains  ownership  of
"Starcraft"   and  related   registered   marks  for  use  with  automotive  and
recreational  vehicle  products.  It licenses the owners of the Predecessor's RV
business and Canadian van conversion business to use these trademarks.  While it
has some  control  over the  quality  of its  licensees'  products,  it does not
control all aspects of their businesses.  The Canadian entity is required to pay
a royalty to the  Company and to purchase  its  components  from the Company (or
from others with the company's approval).  The Company does not export to Canada
and its Canadian licensee does not export to the United States.

Because of these considerations, there is a risk that the distinctiveness of the
"Starcraft"  mark could become  diluted or that its reputation for quality could
be adversely  affected if the quality of another  manufacturer's  products  sold
under the mark  declines.  The Company  believes,  however,  that  customers are
sufficiently  discerning  when  making a purchase  as  significant  as a vehicle
conversion  that confusion  between the Company and makers of other  "Starcraft"
products is unlikely. It also believes its licensees are currently in compliance
with their obligations under their license agreements.

Safety and Regulation

The manufacture,  distribution and sale of the Company's products are subject to
governmental  regulations  in the United States at the federal,  state and local
levels.  The most  extensive  regulations  are  promulgated  under the  National
Traffic and Motor Vehicle Safety Act which,  among other things,  empowers NHTSA
to require a manufacturer  to remedy  vehicles  containing  "defects  related to
motor  vehicle  safety" or  vehicles  which  fail to  conform to all  applicable
federal motor vehicle safety standards.

Federal Motor Vehicle Safety  Standards  were  promulgated by the NHTSA in 1992.
Many of the Company's  conversion  components were affected by these  standards.
Starcraft  engaged a testing Company,  which also performs testing for NHTSA, to
test the  company's  components.  The  Company's  components  subject to the new
standards  were  determined to meet or exceed them.  Promulgation  of additional
safety  standards  in the future could  require the Company to incur  additional
testing and  engineering  expenses  which could  adversely  affect the Company's
results of operations.

NHTSA can require automotive  manufacturers to recall products.  The Company has
not experienced any material recalls.

The  Company's  international  sales are  subject to foreign  tariffs and taxes,
changes  in which are  difficult  to  predict  and which  can  adversely  affect
Starcraft sales.  Starcraft's  products must also comply with government  safety
standards imposed in its foreign markets. For example, in Japan and Germany each
vehicle  conversion is individually  inspected by local  authorities  before the
vehicle is registered in the country.

Both federal and state authorities have various  environmental control standards
relating  to air,  water  and noise  pollution  that  affect  the  business  and
operations of the Company. In particular,  the Company generates paint,  varnish
and other finishing  wastes that it is required to dispose of in compliance with
environmental  regulations.  The Company  believes  that it has  complied in all
material  respects with applicable  environmental  regulations and standards and
does not currently  expect that any failure of compliance will have any material
adverse effect on the Company.

Like other automotive  manufacturers,  the Company may be subject to claims that
its  products  caused or  contributed  to damage or injury  sustained in vehicle
accidents or may be required to recall products  deemed unsafe.  Any such claims
in excess  of the  Company's  insurance  coverage  or  material  product  recall
expenses could adversely affect the Company's financial condition and results of
operations.


<PAGE>



Employees

As  of  September  28,  1997,  the  Company  employed  568  people.   Of  these,
approximately  434 were  production line associates and 134 were salaried sales,
engineering  and  administrative  staff.  During peak  production  periods,  the
Company may increase its work force. Historically, the available labor force has
been  adequate to meet such  periodic  requirements.  The Company  considers its
relationships with its personnel to be satisfactory.

The Company  maintains a training and education  process.  The principal goal of
this program is to build a team-based  learning  organization  that develops the
combined  skills of  associates.  Management  believes this approach  promotes a
culture  conducive to  participation  and teamwork  that breeds  innovation  and
effective  performance.  The process  includes  personal  and  practical  skills
training,  and technical and development  training.  The Company has applied for
and received matching grants from the State of Indiana for part of this training
effort.

ITEM 2.           PROPERTIES

The Company  owns its  properties  in Goshen,  and Emma,  Indiana and leases the
Elkhart property, as further described below.


                             Size of
Location                     Facility            Type of Operation
----------------------  ------------------ ----- ----------------------------
Goshen, Indiana               454,400 s.f.        Executive Offices (20,420
                                                 s.f.);   Manufacturing and
                                                 Assembly
Emma, Indiana                  42,700 s.f.        Sewing and Upholstery
                                                  Manufacturing
Elkhart, Indiana               56,000 s.f.        Offices (2,600 s.f.);
(National Mobility)                               Manufacturing and Assembly


The Goshen and Emma production  facilities were constructed in the 1960's.  They
have been  maintained  and improved  upon from time to time and are presently in
satisfactory  condition and sufficient for the Company's  current  requirements.
The  Company  also  stores  chassis  on a 37-acre  lot it owns  near its  Goshen
production  facility.  The Goshen facility produced 45 units per day during peak
production periods in 1997. See "Manufacturing."

The Elkhart  facility,  on  approximately  3 acres of land,  is leased for three
years  through  February  29, 2000 with five,  one-year  renewal  options at the
Company's  discretion.  The lease  contains an option to purchase for  $800,000.
Monthly rent is $14,000 and the Company is  responsible  for property  taxes and
building insurance.

ITEM 3.           LEGAL PROCEEDINGS

The Company does not anticipate that any pending legal proceeding to which it is
party will have any  material  adverse  effect on its  financial  conditions  or
results of operations.  The Company maintains product liability  insurance which
it currently considers adequate.




<PAGE>



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

Common Stock is quoted on the NASDAQ Stock Market,  National  Market,  under the
symbol "STCR." As of December 19, 1997,  there were 98 shareholders of record of
Starcraft's  Common Stock.  The Company  estimates that, as of such date,  there
were approximately 1,200 beneficial owners of its Common Stock.

The  following  table sets forth the high and low bid prices per share of Common
Stock for the periods indicated.


Quarter Ended                                   High                    Low
December 31, 1995                              6.750                   3.875
March 31, 1996                                 5.375                   4.250
June 30, 1996                                  5.437                   3.750
September 29, 1996                             5.000                   3.750
December 29, 1996                              4.875                   2.875
March 30, 1997                                 5.250                   3.469
June 29, 1997                                  3.750                   2.500
September 28, 1997                             3.750                   1.750

                  Source:       Media General Financial Services

The foregoing quotations reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and may not represent actual transactions.

Dividend Policy. The Company has paid no cash dividends since its initial public
offering.  The  Company  currently  intends  to retain  earnings  for use in the
operation and expansion of its business and therefore does not anticipate paying
cash  dividends  on Common  Stock in the  foreseeable  future.  The  payment  of
dividends  is  within  the  discretion  of the  Board of  Directors  and will be
dependent,  among  other  things,  upon  earnings,  capital  requirements,   any
financing agreement covenants and the financial condition of the Company.

Stock Repurchase.  In March 1995, the Company's Board of Directors  approved the
repurchase of up to 500,000 shares of the Company's outstanding shares of common
stock,  of which  153,000  shares  have been  acquired  to date.  No shares were
repurchased in 1997.

Anti-Takeover   Provisions.   Indiana   law  and  the   Company's   Articles  of
Incorporation  and  Code  of  By-laws  contain   provisions  that  restrict  the
acquisition of control of the Company.  Such provisions can affect the rights of
shareholders  acquiring  substantial  interests  in the  Company's  shares.  For
example,  a  shareholder  who  acquires  more than 10% of the  Company's  shares
without  prior  board  approval  will be  limited in the timing and terms of any
transaction  it may enter into with the  Company  and will be subject to related
provisions.  Any  shareholder  who  effects  an  acquisition  after  which  such
shareholder holds more than 20% of the Company's outstanding shares will have no
voting rights in the shares acquired in such acquisition, unless such rights are
conferred  by the  disinterested  shareholders  at the next  annual  meeting (or
earlier special meeting).

<PAGE>



SHAREHOLDER RIGHTS PLAN

In August 1997 the Company adopted a shareholders  Rights Plan issuing one right
for each  outstanding  share.  Each  right  entitles  the  registered  holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment.  The rights  become  exercisable  if a person or group  (other  than
certain  related  persons)  acquires or announces a tender offer for  prescribed
percentages  of the Company's  shares or is declared an "adverse  person" by the
Company's  Board of Directors.  In these events,  each right holder may purchase
shares  with a value  equal to twice the  exercise  price.  Furthermore,  if the
Company  engages in certain  mergers or similar  business  combinations  a right
holder may purchase  shares of the  acquiring  company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.

ITEM 6.           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

(dollars in thousand, 
except per share data)                                                Year Ended
--------------------------------------------------------------------------------------------------------------------
Income Statement Data                 Sept. 28,      Sept. 29, 1996   Oct. 1, 1995    Oct. 2, 1994     Oct. 3, 1993
                                         1997
---------------------------------- ---------------- ---------------- --------------- ---------------  --------------
Net Sales:
<S>                                    <C>              <C>           <C>                <C>              <C>    
     Domestic                          $  57,235        $73,317       $ 91,652           $81,640          $75,278
     Export                               15,047         25,648         21,408            10,734           10,001
         Total Net Sales                  72,282         98,965        113,060            92,374           85,279
Cost of Goods Sold                        66,342         83,669         92,692            73,775           68,262
Gross Profit                               5,940         15,296         20,368            18,599           17,017
Operating Expenses                        13,924         15,049         15,864            12,505           11,099
Restructuring and Goodwill                                                                            
   Impairment Charges                      5,926           ----           ----              ----             ----
Operating Income (loss)                 (13,910)            247          4,504             6,094            5,918
Interest (expense)                        ( 400)         ( 293)          (208)                99            (373)
Other, Net                                   194            176            214               104               31
Income (loss) Before Taxes              (14,116)            130          4,510             6,297            5,576
Income Taxes (Credit)/Pro Forma          (2,814)             20          1,753             2,517            2,241
     Income Taxes (1)                                                                                 
Net Income (loss) /Pro Forma         $  (11,302)       $    110      $   2,757           $ 3,780        $   3,335
     Net Income (loss)                                                                                
Weighted Common Shares                     4,127          4,142          4,261             4,193            3,512
     Outstanding                                                                                      
Earnings (loss) Per Share            $     (2.74)      $   0.03      $    0.65           $  0.90        $    0.95
Balance Sheet Data                                                                                    
----------------------------------   -----------       --------      ---------         ---------        ---------
Working Capital                      $     7,011       $  8,476      $   8,693           $ 8,140        $   9,072
Total Assets                              27,779         36,524         34,213            32,772           24,590
Long-term Debt                             5,696              0            323               196              209
Shareholders' Equity                      10,295         21,552         21,688            19,556           14,866
Book Value per Share                        2.49           5.23           5.20              4.58             3.05
</TABLE>

(1)      For  the  period  up  through  July  21,  1993,  the  Company  was an S
         Corporation for federal and state income tax purposes and, accordingly,
         was not subject to such taxes.  The pro forma  information for the year
         ended  October 3, 1993 has been computed as if the Company were subject
         to  federal  and  state  income  taxes  based on the tax laws in effect
         during that year.




<PAGE>



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

The consolidated  statements of income summarize  operating results for the last
three years. This section of Management's Discussion highlights the main factors
affecting the changes in operating results during the three-year period.

1997 VERSUS 1996

Net Sales

Net  sales  for 1997 were  $72.3  million  compared  to $99.0  million  in 1996.
Domestic  sales  declined 21.9% to $57.2 million and export sales declined 41.3%
to $15.0  million.  The  Company's  average  sale per unit was $6,000 in 1997 on
12,000 sale units versus $6,100 in 1996 on 16,100 sale units.

The  domestic  conversion  market  continues  to  decline  due to the  increased
popularity  and  availability  of sport utility  vehicles and factory  minivans,
price  pressure  from  higher  chassis  costs  and lower  levels  of  conversion
inventory  being held on dealer retail lots.  The Company's  domestic sale units
declined  23.3%  versus  an  industry  average  of  14.6%  as  reported  by  the
Recreational Vehicle Industry Association. International sales in 1996 benefited
from the early build of 1997 model year minivans for Japan totaling $6 million.

Gross Profit

Gross  profit  decreased  from  $15.3  million  (15.5% of sales) in 1996 to $5.9
million  (8.2% of sales) in 1997.  The  decrease in gross margin as a percent of
sales is  attributable  to the impact of fixed plant overhead costs on the lower
sales  volume  and  $1.0  million  of  incremental  carrying  costs  on  chassis
consignment inventory.

Selling and promotion expense

Selling and promotion  expense decreased $1 million to $7.2 million in 1997 from
1996 due to the lower domestic sales volume. This expense increased from 8.4% of
sales to 10.0% of sales due to the  impact  of fixed  salesmen  salaries  on the
lower sales volume.

General and Administrative Expense

General  and  administrative  expense  decreased  7.0% in 1997  relative to 1996
before the impact of the  National  Mobility  acquisition  (1.7% after  National
Mobility). The decrease is primarily attributable to a reduction in personnel.

Restructuring Charges

In  December  1996 the  Company  completed  the  consolidation  of its  Imperial
Automotive  Group  manufacturing  operation  into Starcraft  Automotive  Group's
manufacturing  complex in Goshen,  Indiana.  The  consolidation  is  designed to
enhance  profitable  growth by reducing excess  production  capacity,  personnel
count and fixed overhead expenses.  The Company recorded a $750,000  restructure
charge in the first  quarter of fiscal year 1997,  which  remains  reasonable at
year  end.  The  Company  estimates  it will  realize  annual  overhead  expense
reductions  of  approximately  $1.1 million from reduced  facility and personnel
costs during 1998 relative to 1997.


<PAGE>



In June 1997 the Company closed its McGregor,  Texas manufacturing  facility and
sold  certain  assets of the  business.  The  Company  recorded a  $260,000  net
restructure  charge in the third  quarter of fiscal year 1997  primarily for the
write-down of leasehold  improvements.  The Company should realize  savings from
the closure of the Texas facility which lost $1.3 million pretax in 1997.

The  restructuring  charges  consisted of employee  termination  and other costs
($179,000),  leasehold  asset  write-offs  ($326,000)  and  the  recognition  of
remaining contractual lease obligations ($505,000).

Goodwill Impairment Loss

Operating losses at Imperial, together with a strategic review of the conversion
industry,  resulted in an evaluation of the goodwill  related to the acquisition
of Imperial  Industries,  Inc. The July 1994 acquisition of Imperial Industries,
Inc.  was  viewed  at  that  time  as a  strategic  expansion  of the  Company's
production  capacity,  conversion  products lines, and sales and dealer network.
The  operating   strategy  was  to  allow  Imperial  to  remain  an  independent
manufacturing  and  operating   subsidiary  focused  exclusively  on  the  price
sensitive, entry level domestic market. However,  subsequent to the acquisition,
the  domestic  market has  contracted,  gross  margins  have  deteriorated,  and
Imperial has experienced operating losses. In 1997, the manufacturing operations
of Imperial  were  consolidated  into the  Starcraft  manufacturing  facility to
reduce excess capacity.  Further integration of the manufacturing operations, as
well  as  integration  and  reduction  of the  sales,  dealer  and  general  and
administration functions, have occurred since this consolidation.

As a result of the change in the domestic  market,  abandonment  of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle  conversion  market, an impairment loss of $4.9
million,  increased from the estimate of $4.5 million previously announced,  was
recorded  in the fourth  quarter of 1997 to  write-off  the  remaining  goodwill
associated with this acquisition.

Income Taxes

The 1997 income tax credit was recorded at a 19.9%  effective rate primarily due
to the impact of a $2.5 million  valuation  allowance for deferred income taxes.
The effective rate in 1996 was 15.4% which benefitted from the implementation of
a foreign sales corporation subsidiary.

1996 VERSUS 1995

Net Sales

     Net sales for 1996 were $99.0 million, down 12.5% from 1995. Domestic sales
decreased  20.0% to $73.3  million while export sales  increased  19.8% to $25.6
million. Unit sales decreased 4.9% to 16,106 in 1996.

     Domestic  sales  were  hampered  early in the year by the  availability  of
General Motors products,  primarily  attributable to the OEM strike,  production
issues on the  minivan  and the  delayed  introduction  of the newly  redesigned
fullsize  van.  As the Company  historically  relies  heavily on General  Motors
products,  the Company's  unit van shipments  declined 12.7% in 1996 compared to
the industry's decline of 6.5% as reported by the Recreational  Vehicle Industry
Association.  Van  conversion  sales for 1996 were  negatively  impacted  by the
growing  popularity  of OEM  sport  utility  vehicles  ("SUVs").  The  Company's
shipments  of  converted  pickup  trucks  and  SUVs  increased  11.3%  in  1996.
International  sales in 1996  benefited  from  the  early  build  of 1997  model
minivans for Japan totaling $6 million.  

     The  average  conversion  price  declined  9.3% in 1996 due to a change  in
product sales mix toward pickup trucks and SUVs and the  percentage  increase of
Imperial and  Lonestar  units which  compete  primarily in the entry level price
range.


<PAGE>

Gross Profit

     Gross profit margin for 1996 was 15.5% compared to 18.0% in the prior year.
The 1996  decline is due to the impact of fixed  overhead on the lower sales and
approximately $200,000 of project expenses incurred on the start-up of the Texas
facility.

Selling and Promotion Expense

     Selling and  promotion  expense for 1996  decreased  11.2% to $8.3 million,
primarily  attributable to the reduced sales. Selling and promotion expense as a
percent of sales was 8.4% in 1996 compared to 8.2% in the prior year.

General and
Administrative Expense

     General  and  administrative  expense  was $6.8  million  in  1996,  a 3.4%
increase from 1995. The increase is due to approximately $360,000 of expenses to
start-up the Texas facility,  offset by the successful implementation of several
expense-containment strategies including personnel reductions.

Income Tax Expense

     The  effective  tax rate on income for 1996 was 15.4%  compared to 38.9% in
the prior year. The effective rate in 1996 benefited from the  implementation of
a foreign sales corporation subsidiary.

Seasonality and Trends

The Company's  sales and profits are dependent on the automotive  markets in the
United States and overseas,  primarily Japan and northern Europe,  and the OEM's
ability to supply  vehicle  chassis.  The  business  tends to be  seasonal  with
stronger  sales in March  through July and is  influenced by a number of factors
including  atypical weather for any sales region and OEM programs  affecting the
price,  supply  and  delivery  of  vehicle  chassis.   General  Motors'  chassis
represented 65% of the Company's total unit shipments in 1997 compared to 72% in
1996.

The Company's retail dealers had approximately 3,600 units on hand at the end of
1997 compared to 5,300 at the end of 1996, 5,600 at the end of 1995 and 7,200 at
the end of 1994.  Conversion  inventory  on dealer  retail  lots is down for the
entire  industry  relative  to prior  years.  The Company  believes  dealers are
stocking  fewer  conversion  products  because of the  growing  availability  of
additional  vehicle models such as sport utility  vehicles and a general concern
by dealers  of the future of the  conversion  industry.  The OEMs have  recently
increased  their  advertising  and dealer  training  efforts to support  vehicle
conversion product.

The  strengthened  U.S.  dollar and recent turmoil in financial  markets in Asia
will pressure the Company's 1998 export sales and margins.  However,  new market
penetration and continued  development of existing markets,  especially  Europe,
should partially offset the Asia market decline.  The domestic conversion market
is expected to continue to decline in 1998.

The Company  eliminated much excess production  capacity and reduced overhead in
1997 to address  the decline in  revenue.  In 1997 the  Company  began a plan to
diversify  both its  product  base and target  markets as it  acquired  National
Mobility Corporation.  National Mobility markets its products in both the retail
and government  markets.  In 1998 the Company  expects to continue to pursue its
cost reduction and diversification  strategy.  The Company plans to increase its
product offerings in the vehicle conversion commercial market, initially shuttle
buses for the airport, nursing home and hotel markets.

The Company has reviewed its  information  systems for  compatability  with year
2000. It has plans in place to replace  software deemed  incompatable  with year
2000 in a timely manner and does not anticipate any material adverse effect from
year 2000 compatability issues.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities used cash of $3.0 million during 1997 compared to providing
cash of $1.9 million in the prior year. The use of cash resulted  primarily from
the pretax  operating  loss.  The  Company  expects to receive  $3.3  million in
federal  and state tax  refunds in December  1997 or January  1998.  Receivables
decreased  $2.5 million and accounts  payable  decreased $3.4 million due to the
decrease in sales and production levels.  Inventories  declined $4.5 million due
to the reduced production levels and the Company's inventory reduction efforts.


<PAGE>

The Company  invested  $1.4  million in property and  equipment  during the year
primarily  for  product  tooling  ($210,000),  information  systems  ($670,000),
building upgrades ($290,000) and plant equipment ($100,000). The Company expects
1998 capital expenditures to be significantly less than 1997 levels.

The Company  acquired  National  Mobility  Corporation  of  Elkhart,  Indiana in
February  1997 for $1.2 million in cash,  assumption  of certain bank debt,  and
15,000 shares of the Company's  Common  Stock.  National  Mobility is one of the
largest  manufacturers of conversion vehicles for the physically challenged with
annual sales for fiscal 1997 of $4 million.

The Company's use of cash for operations  and investing  activities was financed
by bank debt. At the end of September 1997, bank debt was $5.7 million.

On January 12, 1998, the Company  entered into an amended credit  agreement with
its bank which was  effective  as of December  31,  1997.  The  agreement  has a
maturity  date  of  January  31,  1999.  Borrowings  are  limited  to  specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum limits of $15 million through March 30, 1998, $12 million
from March 31, 1998 through June 29, 1998, and $10 million thereafter.

Borrowings  pursuant  to the  agreement  bear  interest at the prime rate of the
lending  bank plus 1% and are  secured  by  substantially  all of the  Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused  portion of the available  credit based on the  Company's  level of
total interest  bearing  liabilities  compared to  consolidated  earnings before
interest, taxes, depreciation, and amortization.  Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6.7 million at December 31, 1997,  $6.1 million from January 1, 1998 through
June 27, 1998,  $7.25 million from June 28, 1998 through  September 27, 1998 and
$7.6  million  thereafter.  If these  minimum  levels  are not  maintained,  any
outstanding  balances  become  payable  upon demand of the bank.  The  Company's
tangible net worth was $8.842 million at September 28, 1997.

In order to maintain the minimum  levels of tangible net worth through 1998, the
Company needs to achieve  operating  results  substantially  consistent with its
1998 operating plan. This plan calls for 1998 net sales to be approximately  six
percent less than 1997 net sales.  This reduction results primarily from reduced
sales in the core  conversion  business  partially  offset by the inclusion of a
full year of National Mobility Corporation's sales in 1998. The Company plans to
reduce cost of goods sold through improved plant operating  efficiencies,  a new
pay system for production line  associates,  and the reduction of carrying costs
of its chassis by decreasing inventory levels. In addition, the Company plans to
reduce  selling,  general and  administrative  expenses.  In  December  1997 the
Company  reorganized its sales department and adopted a more focused advertising
plan to reduce selling and promotion  costs.  General and  administrative  costs
will be reduced  primarily  through  reductions in personnel and the decrease in
certain employee benefits in 1998.

In addition to the  availability of bank  financing,  the Company has restricted
sales agreements with General Motors Acceptance Corporation,  Chrysler Financial
Corporation and Ford Motor Credit  Company.  Pursuant to these  agreements,  the
Company  obtains vehicle chassis from the OEM's for 90 days at nominal rates. If
the Company  fails to match a chassis  with a dealer  order within 90 days after
delivery of the chassis to the Company,  carrying charges increase to prime rate
plus 1%.

In 1995 the Board of Director's  approved the repurchase of up to 500,000 shares
of the Company's  outstanding  shares of Common Stock,  of which 153,000  shares
have been  acquired to date.  No shares  were  repurchased  in 1997.  Additional
shares are not expected to be acquired until the Company's debt is reduced.

The Company  believes that future cash flows from  operations,  funds  available
under  its  bank  revolving  credit  agreement,  and  the  continued  use of OEM
financing  arrangements  to manage its chassis  inventory  will be sufficient to
satisfy its anticipated operating needs and capital improvements for 1998.

DISCUSSION OF FORWARD-LOOKING INFORMATION

The   discussion   above   includes   forward-looking    statements   respecting
restructuring cost estimates,  future personnel and facility expense reductions,
anticipated tax refunds,  domestic and international market and economic trends,
the  Company's  product and target  market  diversification  plans,  anticipated
capital expenditures,  the adequacy of capital resources and other matters. From
time to time,  Starcraft  may make oral or  written  forward-looking  statements
regarding its anticipated sales, costs, expenses, earnings and matters affecting
its condition and operations.  All such forward- looking  statements are subject
to a number of material  factors which could cause the statements or projections
contained  therein to be materially  inaccurate.  Such factors include,  without
limitation, the following:

General  Operating  Contingencies.  The  Company  may not be able to attract and
retain  employees with sufficient  skills to conduct its operations  efficiently
and may from  time to time be  subject  to work  slow-downs  or  stoppages.  The
Company  may be  adversely  affected  by delay or  unavailability  of  supply of
numerous  component  parts.  The Company  will not always be able to satisfy its
capital requirements with internally generated funds and may, from time to time,
need to rely on bank financing and other third party capital resources. There is
no assurance  that such  resources will always be available to the Company or as
to the terms that will apply to any financing.

Acquisitions.  The  Company  may be  engaged in  negotiations  from time to time
regarding prospective acquisitions of van conversion or related businesses. Such
acquisitions  could be material to the Company  and, if  effected,  could have a
material effect on the Company's  financial  condition or results of operations.
There is no  assurance  as to when or whether the Company will be able to effect
acquisitions,  whether it will be able to generate  requisite  funding to effect
such  acquisitions,  or as to  the  terms  on  which  such  acquisitions  may be
effected.

Economic Conditions.  The van conversion industry is cyclical and is affected by
the  general  trends  of the  economy  and  consumer  preferences  and  consumer
confidence and trends of the automotive and recreational vehicle industries both
domestically  and in  international  markets.  The level of disposable  consumer
income affects the Company's sales because its products are generally considered
discretionary  expenditures by consumers. In difficult economic times, consumers
tend to spend  less of their  income  on  discretionary  items.  Other  economic
factors affecting the demand for the Company's products include the availability
and price of  gasoline,  the level of  interest  rates and the  availability  of
consumer  financing.  A decline  in  general  economic  conditions  or  consumer
confidence can be expected to affect Starcraft's sales adversely.



<PAGE>



Supply and Financing of Vehicle Chassis.  The Company is dependent upon the OEMs
to  supply  its  requirements  for  vehicle  chassis.  Labor  stoppages,  supply
shortages  and a variety of other  factors that  influence  OEM  production  can
affect the availability or timely delivery of vehicle chassis to the Company. If
vehicle chassis are unavailable,  or if the Company must accept delivery earlier
or later than it otherwise would prefer,  sales could be adversely  affected and
financing  expenses  could  increase.  The  Company  must also  comply  with its
consignment  and  restricted  sale contracts with the OEMs pursuant to which the
OEMs  impose  certain  specifications  for the  Company's  vehicle  conversions,
including  gross vehicle  weight  standards.  Such  contracts  also restrict the
Company's  ability to dispose of completed  chassis and prohibit the transfer of
chassis  to  unauthorized  U.S.  and  foreign  dealers.  All  of  the  Company's
consignment and restricted sale contracts with chassis  suppliers are terminable
by either party on short  notice  without  cause.  The  availability  of the OEM
financing  rates  is  dependent  upon  the  Company's  compliance  with  its OEM
contracts and its ability to maintain satisfactory credit relationships with the
OEM's finance subsidiaries. Adverse changes in the Company's financial condition
or results of  operations  could cause such  financing  subsidiaries  to seek to
change  adversely the Company's  financing  terms or to terminate such financing
arrangements.  Such a change or termination could have a material adverse effect
on the Company's financial condition and results of operations.

Regulation.  The Company is subject to various foreign, federal, state and local
regulations.  In particular,  van conversion  components produced by the Company
are required to comply with Federal Motor Vehicle  Safety  Standards and similar
safety  standards  imposed in its foreign  markets.  Promulgation  of additional
safety  standards  in the future could  require the Company to incur  additional
testing and  engineering  expenses  which could  adversely  affect the Company's
results  of  operations.  The  Company's  international  sales can be  adversely
affected  by changes in foreign  import  tariffs and taxes and  fluctuations  in
exchange  rates.  The  Company  must  comply  with  certain  Federal  and  state
regulations  relating to the  disposition of hazardous  wastes  generated in its
production   processes.   The  Company's   failure  to  comply  with  applicable
regulations  or changes in current  regulations,  including  the adoption of new
safety or  environmental  standards,  could have material  adverse effect on the
Company's results of operations.

Competition.  The United States van conversion industry is very competitive with
several  principal  nationwide  manufacturers  and  numerous  local and regional
competitors.  There is no  assurance  the Company  will be able to maintain  its
current competitive position in the van conversion market.

Potential Product Liability.  Like other automotive  manufacturers,  the Company
may be subject to claims that its products  caused or  contributed  to damage or
injury  sustained  in vehicle  accidents  or may be required to recall  products
deemed unsafe. Any such claims in excess of the Company's  insurance coverage or
material product recall expenses could adversely affect the Company's  financial
condition and results of operations.



<PAGE>
Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.



ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         Report of Independent Auditors



To the Board of Directors
Starcraft Corporation

We have  audited  the  accompanying  consolidated  balance  sheets of  Starcraft
Corporation and Subsidiaries as of September 28, 1997 and September 29, 1996 and
the related  consolidated  statements of operations,  shareholders'  equity, and
cash flows for each of the two years in the period  ended  September  28,  1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits. The consolidated  financial statements
of Starcraft  Corporation  and  Subsidiaries  for the year ended October 1, 1995
were audited by other  auditors whose report dated November 3, 1995 expressed an
unqualified opinion on those statements.

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
Starcraft  Corporation  and  Subsidiaries as of September 28, 1997 and September
29, 1996 and the  consolidated  results of their operations and their cash flows
for each of the two years in the period ended  September  28, 1997 in conformity
with generally accepted accounting principles.

                                             /s/ Ernst & Young

January 12, 1998
Fort Wayne, Indiana

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
Starcraft Corporation
Goshen, Indiana

We  have   audited  the   accompanying   consolidated   statements   of  income,
shareholders'  equity and cash flows of Starcraft  Corporation and  Subsidiaries
for the period ended October 1, 1995. These  consolidated  financial  statements
are the  responsibility of the Companies'  management.  Our responsibility is to
express an  opinion  on these  consolidated  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 results of the operations and cash flows
of Starcraft  Corporation and  Subsidiaries for the period ended October 1, 1995
in conformity with generally accepted accounting principles.



                                                    /s/  McGLADREY & PULLEN, LLP
                                                         McGLADREY & PULLEN, LLP

Elkhart, Indiana
November 3, 1995


<PAGE>


                     Starcraft Corporation and Subsidiaries

                           Consolidated Balance Sheets
                        (In thousands, except share data)

<TABLE>
<CAPTION>


                                                       September 28,      September 29,
                                                          1997               1996
                                                        -------------------------------
<S>                                                     <C>               <C>      
Assets
Current assets:
   Cash and cash equivalents                            $   608           $   1,366
   Trade receivables, less allowance for
      doubtful accounts:  (1997--$81; 1996--$51)          3,977               9,165
   Manufacturers' rebates receivable                        692               1,079
   Recoverable income taxes                               3,300                   -
   Inventories                                            9,270              11,508
   Other                                                    444                 330
                                                        ---------------------------
Total current assets                                     18,291              23,448

Property and equipment:
   Land, buildings, and improvements                      5,857               6,033
   Machinery and equipment                                5,608               4,430
                                                        ---------------------------
                                                         11,465              10,463
   Less accumulated depreciation                          3,491               2,697
                                                        ---------------------------
                                                          7,974               7,766

Goodwill, at amortized cost                               1,453               5,140
Other assets                                                 61                 170
                                                        ===========================
                                                        $27,779            $ 36,524
                                                        ===========================
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                            September 28,      September 29,
                                                                                1997                1996
                                                                           ---------------------------------------
Liabilities and shareholders' equity 
Current liabilities:
<S>                                                                          <C>                <C>      
   Accounts payable, trade                                                   $  6,354           $   9,330
   Accrued expenses:
      Warranty                                                                  1,337               1,600
      Compensation and related expenses                                           484                 882
      Taxes                                                                     1,060               1,280
      Other                                                                     2,045               1,557
   Current portion of long-term debt                                                -                 323
                                                                           ----------------------------------
Total current liabilities                                                      11,280              14,972

Long-term debt                                                                  5,696                   -

Deferred income taxes                                                             508                   -

Commitments and contingencies

Shareholders' equity:
   Preferred stock, no par value--2,000,000
      shares authorized but unissued                                                -                   -
   Common stock, no par value:
      Authorized shares--10,000,000 shares
       Issued and outstanding shares
        1997--4,133,600; 1996--4,118,600                                       14,016              13,971
   Additional paid-in capital                                                   1,008               1,008
   Retained earnings (deficit)                                                 (4,729)              6,573
                                                                           ----------------------------------
                                                                               10,295              21,552
                                                                           ----------------------------------
                                                                              $27,779            $ 36,524
                                                                           ==================================
</TABLE>


See accompanying notes.

<PAGE>


                     Starcraft Corporation and Subsidiaries

                      Consolidated Statements of Operations
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                Years ended
                                                          --------------------------------------------------------
                                                                September 28,      September 29,       October 1,
                                                                    1997               1996              1995
                                                          --------------------------------------------------------
<S>                                                            <C>                  <C>              <C>        
Net sales:
   Domestic                                                    $    57,235          $   73,317       $    91,652
   Export                                                           15,047              25,648            21,408
                                                            ------------------------------------------------------
                                                                    72,282              98,965           113,060
Cost of goods sold                                                  66,342              83,669            92,692
                                                            ------------------------------------------------------
Gross profit                                                         5,940              15,296            20,368

Operating expenses:
   Selling and promotion                                             7,243               8,252             9,292
   General and administrative                                        6,681               6,797             6,572
   Restructuring charges                                             1,010                   -                 -
   Goodwill impairment loss                                          4,916                   -                 -
                                                            -----------------------------------------------------
Operating income (loss)                                            (13,910)                247             4,504

Nonoperating (expense) income:
   Interest, net                                                      (400)               (293)             (208)
   Other income, net                                                   194                 176               214
                                                            ------------------------------------------------------
                                                                              
                                                                      (206)               (117)                6
                                                            ------------------------------------------------------
Income (loss) before income taxes                                  (14,116)                130             4,510

Federal and state income taxes (credit)                             (2,814)                 20             1,753
                                                            ======================================================
Net income (loss)                                               $  (11,302)       $        110      $      2,757
                                                            ======================================================

Earnings (loss) per common and
   common equivalent share                                      $    (2.74)       $       0.03      $       0.65
                                                            ======================================================

Average number of common and
   common equivalent shares outstanding                          4,127,350           4,142,402         4,260,915
                                                            ======================================================
</TABLE>


See accompanying notes.



<PAGE>


                     Starcraft Corporation and Subsidiaries

                 Consolidated Statements of Shareholders' Equity
                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                      Additional      Retained
                                                          Common       Paid-in-       Earnings
                                                          Stock         Capital      (Deficit)          Total
                                                       -----------------------------------------------------------

<S>                                                       <C>           <C>           <C>              <C>     
Balance, October 2, 1994                                    $14,442       $1,008        $  4,106         $ 19,556
   Net income                                                     -            -           2,757            2,757
   Repurchase and retirement
      of 100,000 shares of common stock                        (338)           -            (287)            (625)
                                                       -----------------------------------------------------------
Balance, October 1, 1995                                     14,104        1,008           6,576           21,688
   Net income                                                     -            -             110              110
   Repurchase and retirement
      of 53,000 shares of common stock                         (133)           -            (113)            (246)
                                                       -----------------------------------------------------------
Balance, September 29, 1996                                  13,971        1,008           6,573           21,552
   Net loss                                                       -            -         (11,302)         (11,302)
   Issuance of 15,000 shares
      of common stock                                            45            -               -               45
                                                       ===========================================================
Balance, September 28, 1997                                 $14,016       $1,008        $ (4,729)        $ 10,295
                                                       ===========================================================
</TABLE>

See accompanying notes.

<PAGE>


                     Starcraft Corporation and Subsidiaries

                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                           Years ended
                                                                     --------------------------------------------------------
                                                                           September 28,      September 29,       October 1,
                                                                               1997               1996               1995
                                                                     --------------------------------------------------------
Operating activities
<S>                                                                          <C>               <C>               <C>      
Net income (loss)                                                            $ (11,302)        $     110         $   2,757
Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
      Depreciation and amortization                                              1,199             1,087             1,006
      Non-cash restructuring charges                                               611                 -                 -
      Goodwill impairment loss                                                   4,916                 -                 -
      Deferred income taxes                                                        583                51                93
      Change in operating assets and liabilities:
        Receivables                                                              2,465            (2,810)             (229)
        Inventories                                                              4,494               205            (1,346)
        Other                                                                     (113)              163               176
        Accounts payable                                                        (3,369)            2,947              (696)
        Accrued expenses                                                        (2,512)              110              (703)
                                                                     --------------------------------------------------------
Net cash provided by (used in) operating activities                             (3,028)            1,863             1,058

Investing activities
Purchase of property and equipment                                              (1,407)             (932)           (1,630)
Purchase of assets of National Mobility Corporation                             (1,756)                -                 -
Proceeds from sale of property and equipment                                        60                36                45
                                                                     --------------------------------------------------------
Net cash used in investing activities                                           (3,103)             (896)           (1,585)

Financing activities
Proceeds from revolving credit agreement                                        12,200             7,800             5,100
Payments of revolving credit agreement                                          (6,504)           (7,800)           (5,100)
Payments of long-term debt                                                        (323)             (610)             (512)
Repurchase of common stock                                                           -              (246)             (625)
                                                                     --------------------------------------------------------
Net cash provided by (used in) financing activities                              5,373              (856)           (1,137)
                                                                     --------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                              (758)              111            (1,664)

Cash and cash equivalents at beginning of year                                   1,366             1,255             2,919
                                                                     ========================================================
Cash and cash equivalents at end of year                                   $       608          $  1,366         $   1,255
                                                                     ========================================================

Supplemental information:
   Interest paid                                                           $       376         $     304         $     222

   Income taxes paid                                                       $       140         $      60         $   2,205
</TABLE>


See accompanying notes.


<PAGE>


                     Starcraft Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements
                        (In thousands, except share data)

                               September 28, 1997


1.  Nature of Business and Significant Accounting Policies

Nature of Business and Principles of Consolidation

Starcraft Corporation and Subsidiaries  (Company) are second stage manufacturers
of  custom  van,  pickup  truck,  and sport  utility  vehicle  conversions.  The
consolidated  financial statements include the accounts of Starcraft Corporation
and its wholly owned  subsidiaries:  Starcraft  Automotive Group, Inc., Imperial
Automotive  Group,  Inc.  (Imperial),  Starcraft  Southwest,  Inc., and National
Mobility  Corporation.  All significant  intercompany  accounts and transactions
have been eliminated in consolidation.

The Company's  customers operate in the automotive  industry.  The Company sells
conversion units throughout the United States,  and export sales are principally
to locations in Japan and northern Europe. Credit is extended to customers based
on an  evaluation  of the  customer's  financial  condition,  and when credit is
extended  collateral  generally is not required.  Sales to the Company's largest
customer  were  $9,541,   $18,526,   and  $15,185  in  1997,   1996,  and  1995,
respectively.

Significant Accounting Policies

Cash Equivalents

Cash equivalents  include all highly liquid investments with a maturity of three
months or less.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
last-in,  first-out (LIFO) method for certain  inventories ($8,962 and $8,408 at
September 28, 1997 and September  29, 1996,  respectively)  and by the first-in,
first-out (FIFO) method for all other inventories.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is computed principally
by the straight-line  method over the estimated useful lives of the assets.  The
Company is  depreciating  buildings  over  periods  of 15 to 50 years,  building
improvements  over periods of 5 to 20 years,  and equipment over periods of 3 to
12 years.



<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



 1.   Nature of Business and Significant Accounting Policies (continued)

Goodwill

Goodwill is amortized by the straight-line  method over a period of 15 years and
is stated net of accumulated  amortization of $57 and $482 at September 28, 1997
and September 29, 1996,  respectively.  The Company evaluates the recoverability
based on undiscounted  projected operating cash flows when factors indicate that
an impairment  may exist.  During the fourth  quarter of 1997, the Company wrote
off  the  remaining  goodwill   associated  with  the  acquisition  of  Imperial
Industries, Inc. as more fully described in Note 8.

Warranties

The Company follows the policy of accruing an estimated liability for warranties
at the time the warranted products are sold.

Revenue Recognition

The  Company  generally  manufactures  products  based on  specific  orders from
customers.  Shipments  are  generally  made by common  carrier  after  receiving
authorization  from the  customer,  and  revenue is  generally  recognized  upon
shipment. Net sales do not include the cost of chassis (see Note 10).

Stock Based Compensation

The Company  periodically  grants stock  options for a fixed number of shares to
employees.  The Company  accounts for stock  option  grants in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" ("APB 25").

Use of Estimates

Preparation of the financial  statements  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.




<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



1.  Nature of Business and Significant Accounting Policies (continued)

Earnings Per Share

Earnings  (loss) per share are  computed  by dividing  net income  (loss) by the
weighted  average number of shares of common stock and common stock  equivalents
outstanding.

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  "Earnings  Per Share,"  ("FAS 128") which is required to be adopted by the
Company  in the first  quarter  of 1998.  Upon  adoption,  the  Company  will be
required to change the method  currently used to compute  earnings per share and
to  restate  all prior  periods.  The  impact of FAS 128 on the  calculation  of
earnings per share is not expected to be material.

Seasonality

The Company's business is seasonal. Sales are generally higher during the spring
and summer months of the year.

Fiscal Year

The Company's  fiscal year ends on the Sunday closest to September 30. The years
ended  September 28, 1997,  September 29, 1996, and October 1, 1995 each contain
52 weeks.

Reclassification

Certain 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.





<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



2.  Inventories

The composition of inventories is as follows:

                            September 28,       September 29,
                                1997                 1996
                         -----------------------------------------

     Raw materials           $     4,654         $     7,126
     Work-in-process               1,667               1,786
     Finished goods                2,949               2,596
                         =========================================
                             $     9,270         $    11,508
                         =========================================

The use of the LIFO method of determining the cost of inventories did not have a
material effect on inventories at September 28, 1997 and September 29, 1996.


3.  Debt Arrangements

On January 12, 1998, the Company  entered into an amended credit  agreement with
its bank which was  effective  as of December  31,  1997.  The  agreement  has a
maturity  date  of  January  31,  1999.  Borrowings  are  limited  to  specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum  limits of $15,000  through March 30, 1998,  $12,000 from
March 31, 1998  through  June 29,  1998,  and $10,000  thereafter.  The carrying
amount of the Company's line of credit approximates fair value. Interest expense
was approximatley $403, $305, and $224 in 1997, 1996, and 1995, respectively.

Borrowings  pursuant  to the  agreement  bear  interest at the prime rate of the
lending  bank plus 1% and are  secured  by  substantially  all of the  Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused  portion of the available  credit based on the  Company's  level of
total interest  bearing  liabilities  compared to  consolidated  earnings before
interest, taxes, depreciation, and amortization.  Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6,700 at December  31,  1997,  $6,100 from  January 1, 1998 through June 27,
1998,  $7,250  from  June  28,  1998  through  September  27,  1998  and  $7,600
thereafter. If these minimum levels are not maintained, any outstanding balances
become  payable upon demand of the bank.  The  Company's  tangible net worth was
$8,842 million at September 28, 1997.

In order to maintain the minimum  levels of tangible net worth through 1998, the
Company needs to achieve  operating  results  substantially  consistent with its
1998  operating  plan.  This plan calls for 1998 net sales to be slightly  lower
than 1997 net sales.  The  Company  plans to reduce  cost of goods sold  through
improved plant  operating  efficiencies,  a new pay system for  production  line
associates,  and the  reduction of carrying  costs of its chassis by  decreasing
inventory levels. In addition, the Company plans to reduce selling,  general and
administrative  expenses  primarly through  reductions in personnel and employee
benefits costs.

<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



4.  Income Taxes

Federal and state income taxes (credits), all of which were domestic, consist of
the following:

                    1997                1996               1995
                   ---------------------------------------------------
     Current:
        Federal     $(2,770)             $ (103)           $  1,272
        State          (627)                 55                 378
                   ---------------------------------------------------
                   ---------------------------------------------------
                     (3,397)                (48)              1,650

     Deferred:
        Federal         508                  54                  83
        State            75                  14                  20
                   ---------------------------------------------------
                   ---------------------------------------------------
                        583                  68                 103
                   ===================================================
                    $(2,814)             $   20            $  1,753
                   ===================================================

The provisions for income taxes are different from amounts that would  otherwise
be computed  by  applying a federal  statutory  rate of 34% to income  taxes.  A
reconciliation of the differences is as follows:

<TABLE>
<CAPTION>
                                                            1997                 1996               1995
                                                    -----------------------------------------------------------

<S>                                                   <C>                         <C>             <C>     
     Rate applied to pretax income (loss)             $     (4,799)               $  44           $  1,533
     State taxes--net                                         (701)                  46                182
     Foreign sales corporation                                 (36)                (205)                 -
     Temporary differences for which no benefit
         was recognized                                      2,544                    -                  -
     Other, net                                                178                  135                 38
                                                    ===========================================================
                                                      $     (2,814)               $  20           $  1,753
                                                    ===========================================================
</TABLE>


<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



4.  Income Taxes (continued)

The composition of the deferred tax assets and liabilities is as follows:

<TABLE>
<CAPTION>
                                                                        September 28,        September 29,
                                                                            1997                  1996
                                                                    -------------------------------------------
     Deferred tax liabilities:
<S>                                                                      <C>                   <C>       
        Accelerated depreciation                                         $    (484)            $    (330)
        Inventory basis difference                                            (331)                 (331)
        Other                                                                  (57)                  (84)
                                                                    -------------------------------------------
                                                                    -------------------------------------------
                                                                              (872)                 (745)

     Deferred tax assets:
        Inventory                                                              216                   267
        Nondeductible accruals:
          Warranty                                                             276                   378
          Other                                                                455                   175
        Goodwill                                                             1,741                     -
        Alternative minimum tax credit carryforward                            220                     -
                                                                    -------------------------------------------
     Total deferred tax assets                                               2,908                   820
     Valuation allowance                                                    (2,544)                    -
                                                                    -------------------------------------------
                                                                               364                   820
                                                                    ===========================================
     Net deferred tax asset (liability)                                  $    (508)            $      75
                                                                    ===========================================
</TABLE>

The  alternative  minimum tax  carryforward  of $220 has no expiration  date for
income tax purposes.


5.  Compensation Plans

The Company sponsors a qualified  profit-sharing  plan, more commonly known as a
401(k) plan, for all of its employees with over six months of service.  The plan
provides for a matching  contribution  by the Company of the  employee's  salary
deduction,  up to 6% of  compensation.  In  addition,  the plan  provides  for a
discretionary contribution annually as determined by the Board of Directors. The
amounts charged to expense for this plan were approximately $361, $107, and $470
in 1997, 1996, and 1995, respectively.


<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



 6.   Stock Option Plans

The Company  maintains two stock  incentive  plans under which stock options are
granted to key employees and directors.  The plans  authorize the grant of stock
options for up to 630,000 shares of the Company's  common stock.  The options in
these two plans have 5 year terms and become fully exercisable after six months.
The Company also  sponsors a qualified  stock option plan with 40,000  shares of
common stock reserved for options to certain sales  representatives  who are not
employees of the Company. These options have five year terms.

Under the three  plans,  options  may not be granted at prices  below 85% of the
current  market  value of the stock at the date of grant.  All  options  awarded
through  September 28, 1997 have been at fair market value on the date of grant.
For each of the three years in the period ended  September 28, 1997,  the effect
of the stock options in computing earnings per common share was antidilutive.

A summary  of the  Company's  stock  option  activity  and  related  information
follows:

<TABLE>
<CAPTION>
                                            Weighted                       Weighted                       Weighted
                                             Average                       Average                        Average
                                            Exercise                       Exercise                       Exercise
                            Options          Price          Options          Price         Options          Price
                          ------------- ---------------- --------------- -------------- --------------- --------------
<S>                          <C>             <C>             <C>             <C>            <C>             <C>  
Outstanding at
beginning of year            375,349         $6.24           311,850         $8.02          241,350         $8.55
Granted                      124,500          3.40           176,500          4.38          167,000          7.46
Canceled                     (92,500)         5.02          (113,001)         8.26          (96,500)         8.37
                          ------------- ---------------- --------------- -------------- --------------- --------------
Outstanding at end of
year                         407,349         $5.65           375,349         $6.24          311,850         $8.02
                          ============= ================ =============== ============== =============== ==============
Exercisable at end of        302,149         $6.46           359,849         $6.21          248,076         $8.21
                          ============= ================ =============== ============== =============== ==============
</TABLE>

<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)


6.   Stock Option Plans (continued)

As of September 28, 1997,  there were 225,500 options  outstanding with exercise
prices which ranged from $2.50 to $5.00. The weighted-average  exercise price of
these options is $4.01, and the weighted-average  remaining  contractual life is
4.0 years. As of September 28, 1997, there were 181,849 options outstanding with
exercise  prices  which  ranged  from  $5.125 to  $10.00.  The  weighted-average
exercise  price of these options is $7.67,  and the  weighted-average  remaining
contractual life is 1.5 years.

The  Company  has  elected  to  follow  APB 25 and  related  interpretations  in
accounting for its employee stock options.  Under APB 25 no compensation expense
has been  recognized  because the exercise price of the Company's  stock options
has equaled the market price of the underlying  stock on the date of grant.  Pro
forma  information  regarding  net income and  earnings per share is required by
FASB Statement No. 123,  "Accounting for Stock-Based  Compensation," ("FAS 123")
and has been  determined  as if the Company had  accounted for its stock options
issued in 1997 and 1996 under the fair value  method of FAS 123.  The fair value
was estimated as of the date of grant using a Black-Sholes  option pricing model
with the following assumptions:

                                  1997                         1996
                         ------------------------------------------------
Risk-free interest rate       6.04% - 6.77%              5.41%  -  6.71%

Dividend yield                      0%                           0%

Volatility factor             40.9% - 48.8%                33.3% - 41.3%

Expected option life            4 years                      4 years

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:

                                                 1997             1996
                                         --------------------------------
Pro forma net income (loss)                  $(11,469)       $      13

Pro forma net income (loss) per share        $  (2.78)       $    0.00



<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



7.   Shareholder Rights Plan

In August 1997 the Company adopted a Shareholders  Rights Plan issuing one right
for each  outstanding  share.  Each  right  entitles  the  registered  holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment.  The rights  become  exercisable  if a person or group  (other  than
certain  related  persons)  acquires or announces a tender offer for  prescribed
percentages  of the Company's  shares or is declared an "adverse  person" by the
Company's  Board of Directors.  In these events,  each right holder may purchase
shares  with a value  equal to twice the  exercise  price.  Furthermore,  if the
Company  engages in certain  mergers or similar  business  combinations  a right
holder may purchase  shares of the  acquiring  company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.


8. Restructuring Charges and Goodwill Impairment

In December 1996 the Company consolidated its Imperial  manufacturing  operation
located in Elkhart,  Indiana into the Company's facility in Goshen,  Indiana. In
June 1997 the Company  closed its  McGregor,  Texas plant and sold the assets of
the business.  The Company recorded $1,010 of  restructuring  charges related to
such  activities  primarily  for employee  termination  and other costs  ($179),
leasehold asset write-offs  ($326) and the recognition of remaining  contractual
lease obligations ($505). The contractual lease obligations primarily pertain to
remaining rent and associated contractual costs at the former Imperial location.
The remaining  liability for contractual lease obligations at September 28, 1997
is $155, which will be paid in fiscal 1998.

Operating losses at Imperial, together with a strategic review of the conversion
industry,  resulted in an evaluation of the goodwill  related to the acquisition
of Imperial  Industries,  Inc. The July 1994 aquisition of Imperial  Industries,
Inc.  was  viewed  at  that  time  as a  strategic  expansion  of the  Company's
production  capacity,  conversion  products lines, and sales and dealer network.
The  operating   strategy  was  to  allow  Imperial  to  remain  an  independent
manufacturing  and  operating   subsidiary  focused  exclusively  on  the  price
sensitive,  entry level domestic conversion market.  However,  subsequent to the
acquistion, the domestic market has contracted, gross margins have deteriorated,
and  Imperial has  experienced  operating  losses.  In 1997,  the  manufacturing
operations  of  Imperial  were  consolidated  into the  Starcraft  manufacturing
facility to reduce excess  capacity.  Further  integration of the  manufacturing
operations,  as well as  integration  and  reduction  of the  sales,  dealer and
general and administration functions, have occurred since this consolidation.



<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



8. Restructuring Charges and Goodwill Impairment Loss (continued)

As a result of the change in the domestic  market,  abandonment  of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle  conversion  market, it was determined that the
goodwill was not  recoverable  and,  therefore,  a goodwill  impairment  loss of
$4,916 was  recorded in the fourth  quarter of 1997 to write-off  the  remaining
goodwill associated with this acquisition.


9.  Business Combination

On February  28,  1997,  the  Company  acquired  the assets and assumed  certain
liabilities  of National  Mobility  Corporation,  a  manufacturer  of conversion
vehicles  for the  physically  challenged.  The  purchase  price of the acquired
assets was $1,200 in cash,  assumption  of certain  bank debt,  and  issuance of
15,000 shares of the Company's common stock. The excess of the total acquisition
cost over the fair value of the net assets  acquired is recorded as goodwill and
is being amortized over 15 years using the straight-line method.

The  acquisition  was recorded  using the  purchase  method of  accounting,  and
accordingly,  the results of operations of National Mobility Corporation for the
seven months ended September 28, 1997 are included in the consolidated financial
statements.  The  purchase  price  has been  allocated  to assets  acquired  and
liabilities  assumed  based  on  their  respective  fair  values  at the date of
acquisition. The allocation of the purchase price is summarized as follows:

     Current assets                      $ 2,448
     Property and equipment                  200
     Goodwill                              1,510
     Current liabilities                  (2,357)
                                         -------
                                         $ 1,801
                                         =======

On the basis of a pro forma consolidation of the results of operations as if the
acquisition  had taken place at the  beginning of 1996,  consolidated  net sales
would have been $102,978 for 1996 and $73,771 for 1997.  Consolidated  pro forma
income  (loss)  and  earnings  (loss) per share  would not have been  materially
different from the reported amounts for 1997 and 1996. The pro forma information
is not  necessarily  indicative  of what  the  actual  consolidated  results  of
operations  might  have  been  if the  acquisition  had  been  effective  at the
beginning of 1996.




<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)


10.  Consignment Arrangements

The  Company  obtains  vehicle  chassis  for  modification  from  major  vehicle
manufacturers  (OEMs) under consignment and restricted sales  agreements.  These
agreements generally provide that (i) the Company may not obtain certificates of
origin or other evidence of ownership of chassis, (ii) modification must conform
to standards specified by OEMs, and (iii) modifications  generally are performed
only after a sale has been negotiated with an OEM approved  dealer.  The Company
generally ships converted chassis only after dealer acceptance has been approved
by the OEM. The OEMs bill the dealer and provide warranty for the chassis.

Consistent with the practice in their industry, the Company accounts for chassis
as consignment inventory. Accordingly, the Company records chassis inventory and
related obligations only in the event they are required to purchase chassis from
the OEM.  Provisions  for  decline  in chassis  value are  recognized  when,  in
management's estimation,  such provisions are necessary.  Provisions for decline
in chassis value,  chassis inventory,  and chassis sales are not material to the
accompanying financial statements.

At September  28, 1997,  the Company has  possession of chassis in the aggregate
amount of $28,200 (of which $8,660 related to chassis on consignment for periods
exceeding 90 days) and has total chassis line  availability  between $82,520 and
$92,040  based on the time of year.  Carrying  charges on  consignment  chassis,
which are presented in cost of goods sold, were  approximately  $2,740,  $1,729,
and $2,046 in 1997, 1996, and 1995, respectively.  The OEMs have also instituted
incentive rebates to second-stage  manufacturers  based on the number of chassis
delivered  to  dealers.   Those  incentives   reduced  cost  of  goods  sold  by
approximately $751, $1,135, and $1,415 in 1997, 1996, and 1995, respectively.


11.  Commitments and Contingencies

The Company leases  certain of its  facilities  and equipment.  The total rental
expense  for the years  ended  1997,  1996,  and 1995 is $688,  $490,  and $295,
respectively.   Rental   commitments   at  September   28,  1997  for  long-term
noncancelable operating leases are as follows:

       1998                                  $ 228
       1999                                    189
       2000                                     94
       2001                                      5
                                         =========
                                             $ 516
                                         =========


<PAGE>



                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)


11.  Commitments and Contingencies (continued)

The Company is subject to various legal  proceedings  and claims with respect to
such matters as product  liabilities  and other  actions  which arise out of the
normal course of its  business.  Management  and its legal counsel  periodically
review the  probable  outcome of pending  proceedings  and the costs  reasonably
expected to be incurred. The Company accrues for these costs when it is probable
that a liability  has been incurred and the amount of the loss can be reasonably
estimated.  In the opinion of  management,  any ultimate  cost to the Company in
excess of amounts accrued will not materially affect its consolidated  financial
position, cash flows or results of operations.

The Company's commitments with respect to its chassis arrangements are described
in Note 10.


12.  Research and Development

The  Company  incurs  costs to improve  the  appeal and safety of its  products.
Research and development costs are charged to operations when incurred.  Amounts
charged to operations were approximately $824, $893, and $726 in 1997, 1996, and
1995, respectively.




<PAGE>

                     Starcraft Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                        (In thousands, except share data)



13.  Unaudited Interim Financial Information

Presented below is certain unaudited  quarterly  financial  information for 1997
and 1996.

<TABLE>
<CAPTION>
                                                                   Quarter ended
                                      -------------------------------------------------------------------------
                                         December 29,        March 30,        June 29,        September 28,
                                             1996              1997             1997              1997
                                      -------------------------------------------------------------------------
<S>                                       <C>                <C>               <C>              <C>    
     Net sales                            $17,669            $18,552           $23,465          $12,596
     Gross profit (loss)                    2,028              1,120             2,843              (51)
     Net loss                              (1,342)            (1,552)             (692)          (7,716)
     Loss per common share                  (0.33)             (0.37)            (0.17)           (1.87)
</TABLE>

<TABLE>
<CAPTION>
                                                                   Quarter ended
                                      -------------------------------------------------------------------------
                                         December 31,        March 31,        June 30,        September 29,
                                             1995              1996             1996              1996
                                      -------------------------------------------------------------------------
<S>                                        <C>                 <C>              <C>              <C>       
     Net sales                            $15,658            $23,063           $31,507          $28,737
     Gross profit                           1,538              1,717             6,276            5,765
     Net income (loss)                     (1,142)            (1,229)            1,414            1,067
     Earnings (loss) per
        common share                        (0.27)             (0.30)             0.34             0.26


</TABLE>



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

Not applicable.


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to the  Registrant's  proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.

ITEM 11.          EXECUTIVE COMPENSATION

Incorporated by reference to the  Registrant's  proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

Incorporated by reference to the  Registrant's  proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the  Registrant's  proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.





<PAGE>




                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                  8-K.

(a)      The following documents are filed as part of the report:

         Financial  Statements  (as of September 28, 1997 and September 29, 1996
         and for the fiscal  periods  ended  September  28, 1997,  September 29,
         1996, and October 1, 1995):

         Reports of Independent Auditors
         Balance Sheets
         Statements of Operations
         Statements of Cash Flows
         Statements of Shareholders' Equity
         Notes to Financial Statements

(b)      Reports on Form 8-K

         Registrant  filed no  reports  on Form 8-K  during  the  period  ending
         September 28 1997.

(c)      The exhibits filed herewith or incorporated by reference herein are set
         forth on the Exhibit Index immediately following the signature page.

(d)      The  following  financial  statement  schedule is filed as part of this
         report:

         Schedule II-Valuation and Qualifying Accounts and Reserves.

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


<PAGE>



                     STARCRAFT CORPORATION AND SUBSIDIARIES

                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                               Balance at              Charged to            Deductions from         Balance at Close
                           Beginning of Period         Operations             Additions to              of Period
                                                                              Reserves (a)
Allowance for doubtful accounts - deducted from accounts  receivable,  trade, in
the consolidated balance sheets:
------------------------------------------------------------------------------------------------------------------------
<C>                               <C>                     <C>                     <C>                      <C> 
52 weeks ended                    $ 51                    $ 30                    $ --                     $ 81
September 28, 1997
52 weeks ended                    $ 57                    $ --                    ($ 6)                    $ 51
September 29, 1996
52 weeks ended                    $ 60                    $ --                    ($ 3)                    $ 57
October 1, 1995
</TABLE>

(a)      Write-off of bad debts, less recoveries.



<PAGE>



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities  Exchange Act
of 1934, as amended,  the Registrant has duly caused this report to be signed on
behalf of the undersigned, thereto duly authorized.

                                            STARCRAFT CORPORATION

DATE: January 12, 1998              By:     /s/ Kelly L. Rose
                                            --------------------------------
                                            Kelly L. Rose,
                                            Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on this 12th day of January, 1998.

1)            Principal Executive Officer:

       By:       /s/   Kelly L. Rose                      Chairman, Chief 
              Kelly L. Rose                                 Executive Officer

2)            Principal Financial/Accounting Officer:

       By:       /s/   Michael H. Schoeffler              President, Chief 
              Michael H. Schoeffler                         Financial Officer,
                                                            Treasurer, Secretary

3)            The Board of Directors:

       By:       /s/   Kelly L. Rose                      Director
              Kelly L. Rose

       By:       /s/   Frank K. Martin                    Director
              Frank K. Martin

       By:       /s/   L. Craig Fulmer                    Director
              L. Craig Fulmer

       By:       /s/   David J. Matteson                  Director
              David J. Matteson

       By:       /s/   Allen H. Neuharth                  Director
              Allen H. Neuharth



<PAGE>

                                  EXHIBIT INDEX

Reference to                                                         Sequential
Regulation S-K                                                         Page
Exhibit Number               Document                                  Number

3.1      Registrant's  Articles  of  Incorporation,  as  amended.
         Incorporated   by   reference  to  Exhibit  3.1  to  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             *

3.2      Registrant's Code of By-Laws,  as amended.  Incorporated
         by  reference  to Exhibit 3.2 to the  Registrant's  Form
         10-K for the fiscal year ending September 29, 1996.               *

4.1      Article  6  -  "Terms  of  Shares"   and   Article  9  -
         "Provisions for Certain  Business  Combinations"  of the
         Registrant's  Articles  of  Incorporation,  as  amended.
         Incorporated   by   reference  to  Exhibit  3.1  to  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             *

4.2      Article  III  -  "Shareholder  Meetings",  Article  VI -
         "Certificates  for Shares" and Article VII -  "Corporate
         Books and Records - Section 3" of the Registrant's  Code
         of By-Laws,  as amended.  Incorporated  by  reference to
         Exhibit 3.2 to the Registrant's Form 10-K for the fiscal
         year ending September 29, 1996.                                   *

4.3      Amended  and  Restated  Credit  Agreement   between  the
         Registrant  and  Bank  One  Indianapolis,   N.A.,  dated
         November 30, 1994.  Incorporated by reference to Exhibit
         4.6 of the  Registrant's  Form 10-K for the fiscal  year
         ending October 2, 1994.                                           *

4.4      First Amendment to Amended and Restated Credit Agreement
         between the Registrant and Bank One, Indianapolis,  N.A.
         dated  March  7,  1995.  Incorporated  by  reference  to
         Exhibit  10(2)  to the  Registrant's  Form  10-Q for the
         quarter ending April 2, 1995.                                     *

4.5      Second   Amendment  to  Amended  and   Restated   Credit
         Agreement   dated   April  6,   1996   among   Starcraft
         Corporation,  Starcraft  Automotive Group, Inc. Imperial
         Automobile Group, Inc. and Bank One, Indianapolis,  N.A.
         Incorporated by reference to the Registrant's  Form 10-Q
         for the Quarter Ended March 31, 1997.                             *

4.6      Third   Amendment   to  Amended  and   Restated   Credit
         Agreement,  effective  January 31, 1997, among Starcraft
         Corporation,  Starcraft  Automotive Group, Inc. Imperial
         Automobile Group, Inc. and Bank One, Indianapolis,  N.A.
         Incorporated by reference to the Registrant's  Form 10-Q
         for the Quarter Ended March 31, 1997.                             *

4.7      Fourth   Amendment  to  Amended  and   Restated   Credit
         Agreement,  effective June 29, 1997, among Starcraft
         Corporation,  Starcraft  Automotive Group, Inc. Imperial
         Automobile Group, Inc. and Bank One, Indianapolis,  N.A.         [ ]

4.8      Fifth   Amendment  to  Amended  and   Restated   Credit
         Agreement,  effective December 31, 1997, among Starcraft
         Corporation,  Starcraft  Automotive Group, Inc. Imperial
         Automobile Group, Inc. and Bank One, Indianapolis,  N.A.         [ ]

4.9      Rights Agreement,  dated as of August 12, 1997,  between
         Registrant  and Harris Trust and Savings Bank, as Rights
         Agent. Incorporated by reference to the Registrant's 8-A
         filed September 9, 1997.                                          *

10.1(a)  The Starcraft Automotive Corporation Stock Incentive Plan.        ** 

10.1(b)  The Starcraft  Corporation  1997 Stock  Incentive  Plan.
         Incorporated  by  reference  to  Exhibit  10.1(b) to the
         Registrant's  From  10-K  for  the  fiscal  year  ending
         September 29, 1996.                                               *



<PAGE>

10.2     Form  of  Tax   indemnification   agreement   among  the
         Registrant,  Mr. Kash,  Mr. Rose,  Mr.  Newberry and Mr.
         Hardin,  dated  as of July  21,  1993.  Incorporated  by
         reference   to   Exhibit   10.7   of  the   Registrant's
         registration  statement on Form S-1, Reg. No. 33- 63760.          *

10.3(a)  Employment  Agreement  with  Kelly L. Rose dated June 2,
         1993.  Incorporated by reference to Exhibit  10.10(a) of
         the Registrant's Form S-1.                                        **

10.3(b)  Employment  Agreement  with Kelly L. Rose dated December
         12, 1996.  Incorporated  by reference to Exhibit 10.3(b)
         to the Registrant's From 10-K for the fiscal year ending
         September 29, 1996.

10.3(c)  Form of First  Addendum to Employment Agreement with 
         Kelly L. Rose, December 31, 1997.                                [ ]

10.3(d)  Consulting   Agreement  with  Allen  H.  Neuharth  dated
         September 15, 1993. Incorporated by reference to Exhibit
         10.3(k)  of the  Registrant's  Form 10-K for the  fiscal
         year ending October 2, 1994.                                      *

10.3(e)  Employment  Agreement between the Registrant and Michael
         H.  Schoeffler  dated January 16, 1995.  Incorporated by
         reference to Exhibit  10.3(m) of the  Registrant's  Form
         10-K for the year ending October 1, 1995.                         *

10.3(f)  Employment  Agreement between the Registrant and Michael
         H. Schoeffler  dated December 12, 1996.  Incorporated by
         reference to Exhibit  10.3(e) to the  Registrant's  From
         10-K for the fiscal year ending September 29, 1996.

10.4     Inventory Loan and Security Agreement by and between the
         Registrant and General Motors Acceptance Corporation, as
         amended.  Incorporated  by reference to Exhibit 10.13 of
         the Registrant's Form S-1.                                        **

10.5     Agreement  by and  between  the  Registrant  and General
         Motors  Acceptance  Corporation  dated February 7, 1991.
         Incorporated  by  reference  to  Exhibit  10.14  of  the
         Registrant's Form S-1.                                            **

10.6     Intercreditor    Agreement    between   General   Motors
         Acceptance Corporation and Bank One, Indianapolis,  N.A.
         dated July 21, 1992. Incorporated by reference to
         Exhibit 10.16 of the Registrant's Form S-1.                       **



<PAGE>


10.7     Authorized   Converter   Pool   Agreement   between  the
         Registrant  and Ford Motor Company dated May 7, 1991 and
         amended  May  7,  1991.  Incorporated  by  reference  to
         Exhibit 10.17 of the Registrant's Form S-1.                       **

10.8     Wholesale  Financing and Security  Agreement between the
         Registrant and Ford Motor Credit Company dated April 17,
         1991.  Incorporated by reference to Exhibit 10.18 of the
         Registrant's Form S-1.                                            **

10.9     Intercreditor   Agreement   between  Ford  Motor  Credit
         Company and Bank One, Indianapolis,  N.A. dated July 17,
         1992.  Incorporated by reference to Exhibit 10.20 of the
         Registrant's Form S-1.                                            **

10.10    Truck  Consignment  Agreement between the Registrant and
         Chrysler Corporation dated August 29, 1991. Incorporated
         by reference to Exhibit 10.21 of the  Registrant's  Form
         S-1.                                                              **

10.11    License  Agreement  by and  between the  Registrant  and
         AlliedSignal, Inc. dated February 18, 1993. Incorporated
         by reference to Exhibit 10.22 of the  Registrant's  Form
         S-1.                                                              **

10.12    Agent Agreement by and between the Registrant,  Mitsui &
         Co. (U.S.A.), Inc. and Mitsui & Co., Ltd. dated March 1,
         1993.  Incorporated by reference to Exhibit 10.23 of the
         Registrant's Form S-1.                                            **

10.13    License  Agreement  by and  between the  Registrant  and
         Starcraft   RV,   Inc.   dated   September   12,   1991.
         Incorporated  by  reference  to  Exhibit  10.24  of  the
         Registrant's Form S-1.                                            **

10.14    License  Agreement  by and  between the  Registrant  and
         Starcraft Recreational Products,  Ltd. dated January 18,
         1991.  Incorporated by reference to Exhibit 10.25 of the
         Registrant's Form S-1.                                            **

10.15    Contract  for  Conditional  Sale of Real  Estate  by and
         between  the   Registrant  and  the  Harold  A.  Schrock
         Revocable  Trust  dated  December  20,  1991 and amended
         February 28, 1992.  Incorporated by reference to Exhibit
         10.26 of the Registrant's Form S-1.                               **



<PAGE>


10.16(a) Directors'  Share Plan,  restated  effective  October 1,
         1995.  Incorporated by reference to exhibit  10.16(a) of
         the  Registrant's  Form 10-K for the year ending October
         1, 1995.                                                          *

10.16(b) Directors'  Compensation Deferral Plan effective October
         1, 1995.  Incorporated by reference to Exhibit  10.16(b)
         of the  Registrant's  Form  10-K  for  the  year  ending
         October 1, 1995.                                                  *

10.17    Ford   Authorized   Convertor  Pool  Agreement   between
         Imperial Automotive Group, Inc. and Ford Motor Co. dated
         June 29,  1994.  Incorporated  by  reference  to Exhibit
         10.19 of the Registrant's  Form 10-K for the fiscal year
         ending October 2, 1994.                                           *

10.18    Inventory Loan and Security  Agreement  between Imperial
         Automotive  Group,  Inc. and General  Motors  Acceptance
         Corporation   dated  June  20,  1994.   Incorporated  by
         reference to Exhibit 10.20 of the Registrant's Form 10-K
         for the fiscal year ending October 2, 1994.                       *

10.19    Ford Authorizing  Converter Pool Agreement  between Ford
         Motor Co. and Imperial Automotive Group, Inc. dated June
         29, 1994.  Incorporated by reference to Exhibit 10.21 of
         the  Registrant's  Form 10-K for the fiscal  year ending
         October 2, 1994.                                                  *

10.20    Intercreditor    Agreement    between   General   Motors
         Acceptance  Corporation and Bank One Indianapolis,  N.A.
         dated  July  15,  1994.  Incorporated  by  reference  to
         Exhibit  10.24  of the  Registrant's  Form  10-K for the
         fiscal year ending October 2, 1994.                               *

10.21    GMC Truck Special Vehicle Manufacturers Agreement by and
         between  Starcraft  Automotive Group, Inc. and GMC Truck
         Division,  Truck & Bus Group, General Motors Corporation
         dated  February 1, 1995.  Incorporated  by  reference to
         Exhibit 10.21 of the Registrant's Form 10-K for the year
         ending October 1, 1995.                                           *


<PAGE>


10.22    GMC  Truck  Special  Vehicle  Manufacturer's   Agreement
         between  Imperial  Automotive  Group,  Inc.  and the GMC
         division  of  General   Motors   Corporation   effective
         February 1, 1995.  Incorporated  by reference to Exhibit
         10.22 of the Registrant's  Form 10-K for the year ending
         October 1, 1995.                                                  *

10.23    Lease between Imperial  Automotive  Group, Inc. and Beck
         Real  Estate   Corporation   dated   February  3,  1995.
         Incorporated   by   reference   to  Exhibit  10  to  the
         Registrant's Form 10-Q for the quarter ending January 1,
         1995.                                                             *

10.24    Guaranty  of  Starcraft  Automotive  Group,  Inc. to the
         obligations  of Starcraft  Corporation to General Motors
         Acceptance   Corporation   dated   February   9,   1995.
         Incorporated  by  reference  to  Exhibit  10.23  of  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             *

10.25    Guaranty  of  Starcraft  Automotive  Group,  Inc. to the
         obligations of Imperial Automotive Group, Inc.to General
         Motors  Acceptance  Corporation  dated February 9, 1995.
         Incorporated  by  reference  to  Exhibit  10.25  of  the
         Registrants  Form 10-K for the year  ending  October  1,
         1995.                                                             *

10.26    Promissory   Note  from  the   Registrant   to  Imperial
         Industries,  Inc. dated April 1, 1995.  Incorporated  by
         reference to Exhibit 10(3) to the Registrant's Form 10-Q
         for the quarter ending April 2, 1995.                             *

10.27    Chevrolet Quality Approved  Converters Program Agreement
         by and between  Starcraft  Automotive  Group,  Inc.  and
         Chevrolet  Motor  Division,  General Motors  Corporation
         dated  April 10,  1995.  Incorporated  by  reference  to
         Exhibit 10.27 of the Registrant's Form 10-K for the year
         ending October 1, 1995.                                           *



<PAGE>


10.28    Chevrolet  Quality Approved  Converters  Program between
         Imperial  Automotive Group, Inc. and Chevrolet  division
         of General  Motors  Corporation  dated  April 10,  1995.
         Incorporated  by  reference  to  Exhibit  10.28  of  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             * 

10.29    Agreement  between  Chrysler  Corporation  and Starcraft
         Automotive Group, Inc. dated July 1, 1995.  Incorporated
         by reference to Exhibit 10.29 of the  Registrant's  Form
         10-K for the year ending October 1, 1995.                         *

10.30    Pool  Company   Wholesale   Finance  Plan  and  Security
         Agreement   between  Chrysler  Credit   Corporation  and
         Starcraft  Automotive  Group,  Inc.  dated July 1, 1995.
         Incorporated  by  reference  to  Exhibit  10.30  of  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             *

10.31    Agreement  between  Chrysler  Corporation  and  Imperial
         Industries,  Inc.  dated July 1, 1995.  Incorporated  by
         reference to Exhibit 10.31 of the Registrant's Form 10-K
         for the year ending October 1, 1995.                              *

10.32    Pool  Company   Wholesale   Finance  Plan  and  Security
         Agreement   between  Chrysler  Credit   Corporation  and
         Imperial   Industries,   Inc.   dated   July  1,   1995.
         Incorporated  by  reference  to  Exhibit  10.32  of  the
         Registrant's  Form 10-K for the year  ending  October 1,
         1995.                                                             *

11       Computation of Earnings Per Share                                [ ]

21       Subsidiaries of the Registrant.                                  [ ]

23 (a)   Consent of Ernst & Young LLP.                                    [ ]

23 (b)   Consent of McGladrey & Pullen, LLP                               [ ]

27       Financial Data Schedule                                          [ ]

------------
*        Incorporated   by   reference   as   indicated   in  the
         description.

**       Incorporated  by reference  to the exhibit,  bearing the
         corresponding   exhibit   number  to  the   Registrant's
         registration  statement on Form S-1, Reg. No.  33-63760,
         unless  another  exhibit  number  is listed in the above
         description.