SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                 Form 10-QSB

[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 
    OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________

                        Commission File No. 0-28102
                                            -------

                            BONDED MOTORS, INC.
                            -------------------
              (Name of small business issuer in its charter)


         California                                     95-2698520     
-------------------------------                        ----------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)


7522 South Maie Avenue, Los Angeles, CA                        90001
---------------------------------------                        -----
(Address of principal executive offices)                      Zip Code

Issuer's telephone number:      (213) 583-8631
                                --------------

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [_]

  There were 3,055,040 shares of common stock outstanding at April 27, 1998.

<PAGE>

                             BONDED MOTORS, INC.

                                    INDEX

Part I  - Financial Information                                           Page

          Item 1. Financial Statements

          Balance Sheets as of March 31, 1998                               3

          Statements of Earnings for the three month periods
                  ended March 31, 1998, and 1997                            4

          Statements of Cash Flows for the three month periods 
                  ended March 31, 1998, and 1997                            5

          Notes to Financial Statements                                    6-9

          Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operation           10-12

Part II  - Other Information

          Item 6. Exhibits and Reports                                      13

          Signature                                                         14

                                     -2-
<PAGE>


                              BONDED MOTORS, INC.
                                 Balance Sheets
                                 March 31, 1998
                                  (Unaudited)
<TABLE>
<CAPTION>

                                   Assets
<S>                                                                    <C>

Current assets:
  Cash                                                              $  200,431
  Trade accounts receivable (less allowance for
   doubtful accounts of $128,019)                                    6,558,080

  Inventories:
    Parts                                                            1,570,074
    Work in process                                                    698,200
    Finished goods                                                   5,548,822
                                                                    ----------
                                                                     7,817,096
                                                                    ----------

  Deferred tax assets                                                  393,144
  Prepaid expenses and other current assets                            264,719
  Prepaid income taxes                                                   2,689
                                                                    ----------
    Total current assets                                            15,236,159
                                                                    ----------

Property and equipment, at cost:
  Machinery and equipment                                            2,672,129
  Furniture and fixtures                                               445,985
                                                                    ----------
                                                                     3,118,114
  Less accumulated depreciation                                      1,367,361
                                                                    ----------
    Net property and equipment                                       1,750,753
                                                                    ----------

Goodwill, less accumulated amortization of $13,242                     198,636
Deferred tax assets                                                  1,352,683
                                                                    ----------
                                                                   $18,538,231
                                                                    ==========

                    Liabilities and Shareholders' Equity             

Current liabilities:
  Current installments of notes payable to bank (note B)            $  385,128
  Accounts payable                                                   2,574,737
  Accrued expenses                                                     575,335
  Accrued warranty obligations                                         471,000
                                                                    ----------
    Total current liabilities                                        4,006,200
                                                                    ----------

Notes payable to bank, excluding current installments (note B)         375,113
Long-term debt (note B)                                              5,450,808

Shareholders' equity (note D):
  Preferred stock, no par value.  Authorized
    1,000,000 shares; none issued and outstanding                        -
  Common stock, no par value.  Authorized
    10,000,000 shares; issued and outstanding
    3,040,040 shares                                                 4,889,569
  Retained earnings                                                  3,916,541
  Notes receivable from exercise of stock options                     (100,000)
                                                                    ----------
    Total shareholders' equity                                       8,706,110
                                                                    ----------
                                                                  $ 18,538,231
                                                                    ==========
</TABLE>
               See accompanying notes to financial statements

                                     -3-

<PAGE>

                             BONDED MOTORS, INC.
                           Statements of Earnings
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                     For the Three Months Ended
                                                               March 31
                                                     --------------------------
                                                         1998          1997
                                                         ----          ----
<S>                                                       <C>            <C>
Net sales                                            $ 8,508,042     5,075,773
Cost of sales                                          6,984,237     3,689,416
                                                      ----------    ----------
      Gross profit                                     1,523,805     1,386,357

Selling, general and administrative expenses           1,082,596       864,587
                                                      ----------    ----------
      Earnings from operations                           441,209       521,770

Other (expense) income:
  Interest expense                                      (110,424)      (12,293)
  Interest income                                          2,085         4,077
  Other                                                   (1,896)         -   
                                                      ----------    ----------
      Earnings before income taxes                       330,974       513,554

Income tax (expense)                                    (125,280)      (85,034)
                                                      ----------    ----------
      Net earnings                                     $ 205,694       428,520
                                                      ==========    ==========

Basic earnings per share                             $      .07           .14
Diluted earnings per share                                  .06           .14
                                                      ==========    ==========
Weighted average common shares outstanding             3,039,000     3,003,000
                                                      ==========    ==========
Weighted average common and common equivalent 
   shares outstanding                                  3,188,000     3,111,000
                                                      ==========    ==========

</TABLE>
               See accompanying notes to financial statements

                                     -4-

<PAGE>

                                  BONDED MOTORS, INC.
             Statements of Cash Flow For the Three Months Ended March 31
                                      (Unaudited)
<TABLE>
<CAPTION>
                                                                   1998        1997
                                                                   ----        ----
<S>                                                                <C>          <C>
Cash flows from operating activities: 
  Net earnings                                                  $  205,694     428,520
                                                                 ---------   ---------
  Adjustments to reconcile net earnings to net cash used in
   operating activities: 
    Depreciation and amortization                                   64,597      32,828
    Loss on sale of property and equipment                           1,896        -
    (Increase) decrease in assets:
      Accounts receivable                                       (2,829,550)   (817,302)
      Inventories                                                 (540,135)   (744,136)
      Prepaid expenses and other assets                            (75,278)   (119,467)
      Deferred tax assets                                          (56,931)    (90,702)
    Increase (decrease) in liabilities:
      Accounts payable                                             902,507    (125,868)
      Accrued expenses                                             147,727      43,720
      Accrued warranty obligations                                  61,000      15,000
      Income taxes payable                                         175,011     175,736
                                                                 ---------   ---------
        Total adjustments                                       (2,149,156) (1,630,191)
                                                                 ---------   ---------
        Net cash used in operating activities                   (1,943,462) (1,201,671)
                                                                 ---------   ---------
Cash flows from investing activities:
      Purchases of equipment                                      (224,426)    (49,215)
      Proceeds from sale of equipment                                  500        -
                                                                 ---------   ---------
        Net cash used in investing activities                     (223,926)    (49,215)
                                                                 ---------   ---------

Cash flows from financing activities:
  Net proceeds from exercise of stock options                       16,250        -
  Borrowings from bank                                           3,654,652   1,200,000
  Repayments of notes payable to related parties                  (100,000)       -
  Repayments of bank borrowings                                 (1,500,126)       -
                                                                 ---------   ---------
      Net cash provided by financing activities                  2,070,776   1,200,000
                                                                 ---------   ---------
      Net increase (decrease) in cash                              (96,612)    (50,886)

Cash at beginning of period                                        297,043      73,498
                                                                 ---------   ---------
Cash at end of period                                           $  200,431      22,612
                                                                 =========   =========


</TABLE>

               See accompanying notes to financial statements

                                         -5-
<PAGE>

                             BONDED MOTORS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                 (UNAUDITED)


(NOTE A)  The Company and its Significant Accounting Policies:

Bonded Motors (the Company), remanufactures automobile engines primarily for
domestic and Japanese imported cars and light trucks in the United States for
resale to automotive retailers, end users and installers.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to form 10-QSB.  Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.  In the opinion of
Management, all adjustments (consisting of normal recurring journals)
considered necessary for a fair presentation have been included.  Operating
results for the three month periods ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.  For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1997.

Acquisition and Goodwill

The financial statements include the net assets of an automotive engine
remanufacturing firm (Wheeler Manufacturing of Macon, Georgia) purchased at
their fair market value on the acquisition date in August, 1997.  This purchase
included manufacturing machinery and equipment, plant equipment, office
furniture, fixtures and equipment, automotive parts inventory and supplies,
and other items customarily used in the operation of a business.  The excess
of acquisition costs over the fair value of net assets acquired is included in
and has been allocated to goodwill.  Goodwill is amortized on a straight-line
basis over a ten year period.  The fair value of the assets acquired were as
follows:


                   Inventories                    $137,676
                   Plant Machinery & Equipment    $317,762
                   Goodwill                       $211,880
                                                  --------
                   Total Purchase Cost            $667,318
                                                  ========

                                     -6-

<PAGE>

Revenue Recognition and Core Accounting

Revenue is recognized upon shipment of product, net of a provision for core
returns.  The Company's customers are encouraged to return their old,
rebuildable core as a credit against the identical engine purchased.  The
Company identifies the returned core to the original customer invoice and
issues a credit memo equal to the core charge reflected on the original
invoice.  These core returns, recorded as a reduction in net sales, were
$1,912,022 and $1,469,390 during the three months ended March 31, 1998 and
1997 respectively.

Cores returned from customers are recorded into inventory on the same basis
as the Company records purchases of cores from independent core suppliers, at
the lower of average cost or market (net realizable value).  Customer core
returns provide approximately 50% of the Company's core requirements, and
independent core suppliers provide the remaining 50% of the Company's core
requirements.

Earnings per Share

The Financial Accounting Standards Board issued statement No.128, "Earnings
per Share" (SFAS No.128), in March 1997 and effective for fiscal years ending
after December 15, 1997.  The Company adopted SFAS No.128 in 1997.  This
statement requires the presentation of "Basic" earnings per share which
represents net earnings divided by the weighted average shares outstanding,
excluding all common stock equivalents.  A dual presentation of "Diluted"
earnings per share reflecting the dilutive effects of all common stock
equivalents is also required.  Figures for 1997 have been restated for the
effects of the adoption of SFAS No. 128.

The weighted average common shares outstanding for three month periods ended
March 31, 1998 and 1997 were 3,039,000 and 3,003,000, respectively.  For
purposes of diluted earnings per share, the incremental common equivalent
shares due to outstanding stock options and warrants during the years ended
March 31, 1998 and 1997 were 149,000 and 108,000, respectively.  No
adjustments to net income were made for the purpose of computing diluted
earnings per share.  

(NOTE B) Long-Term Debt:

In January 1998, the Company entered into an amended credit agreement
(Agreement) providing for a revolving line of credit for borrowings up to
$7,500,000 through May 1, 2000.  Borrowings under the Agreement bear interest
at LIBOR (5.84% at December 31, 1997) plus 2.0% or at prime (8.50% at

                                     -7-

<PAGE>

December 31, 1997).  The choice of the interest rate is at the discretion
of the Company.  Borrowings under the line of credit are secured by the
Company's assets.  Total amounts outstanding under the revolving line of
credit at March 31, 1998 were $5,450,808.  The Company had available
borrowings under the line of credit of $2,049,192 at March 31, 1998.

The Agreement also provides for an acquisition facility for borrowings up
to $8,000,000 for a period of two years from the date of funding.  This
facility is to be used for general corporate purposes and in the event
the Company enters into an acquisition in the automotive industry.  Borrowings
under the credit agreement bear interest at prime plus 0.25% or LIBOR plus
2.25% or cost of funds plus 2.25% and are secured by the assets of the Company
and of the acquired company. The choice of the interest rate is at the
discretion of the Company.  At March 31, 1998, $760,241 had been drawn
down and were outstanding under this facility.  The Company had available
borrowings under this facility of $7,239,759 at March 31, 1998.

The Agreement includes various financial covenants, the more significant of
which are tangible net worth, debt coverage ratio, senior debt to tangible
net worth and quick ratio.  The Company was in compliance with all such
covenants as of March 31, 1998.

(NOTE C)  Income Taxes:

Income taxes for the interim periods were computed using the effective tax
rate estimated to be applicable for the full fiscal year, which is subject
to ongoing review and evaluation by management.

(NOTE D)  Stockholders' Equity and Stock Options:

In April 1996, the Company completed an underwritten initial public offering
of 1,000,000 shares of its common stock, at a public offering price of
$5.875 per share (the Offering).  The net proceeds from the Offering of
approximately $4,436,151 were used in part to repay a portion of the Company's
debt, and the balance was used to fund working capital requirements.

In December 1995, the Company amended its Articles of Incorporation to
authorize 1,000,000 shares of preferred stock and increase the authorized
shares of common stock to 10,000,000 shares.  In connection with this
amendment, the Company effected a 3,600-for-1 common stock split.

During March 1994, the Company granted, at estimated fair market value, stock
options to two of its officers for the purchase of an ownership interest in
the Company aggregating 10%.  These stock options were exercised during
December 1995 for an aggregate amount of $200,000.  The payments for shares
issued pursuant to these stock options were made through the issuance of

                                     -8-

<PAGE>

promissory notes from these officers.  The notes are secured by the
underlying shares and certain real property, bear interest at 8% and are
due on or before December 7, 2002.  During 1997, one of the officers repaid
their note of $100,000.

The Company adopted a stock option plan in January 1996 which provides for the
issuance of options to employees, officers and directors of the Company to
purchase up to an aggregate of 400,000 shares of common stock. In 1997, the
plan was amended to increase the number of shares of common stock that could
be purchased to an aggregate of 600,000 shares.  In 1996, the Company issued
255,000 options with exercise prices ranging between $5.50 and $6.50, the
estimated fair market value at date of grant, with vesting periods of between
one and three years and exercise dates of between one and five years from the
date of issuance of the option.  In 1997, the Company issued 185,000 with
exercise prices ranging between $8.625 and $10.00, the estimated fair market
value at date of grant, with vesting periods of between one and three years
and exercise dates of between one and five years from the date of issuance of
the option.  During 1997, 34,600 options were exercised for total proceeds of
$194,900 and 7,500 options were canceled upon termination of employment by one
of the employees.  In February 1998, the Company granted stock options for
70,000 shares at a price of $9.50, the estimated fair market value as of the
date of the grant, to the officers.  During 1998, 2,500 options were exercised
for total proceeds of $16,250 and 10,000 options were canceled upon termination
of employment by one of the employees.

The Company also adopted a directors' plan in January 1996 which provides for
the issuance of options to outside directors of the Company to purchase up to
an aggregate of 50,000 shares of common stock.  In 1996, 20,000 options were
issued with exercise prices of $6.50, the estimated fair market value at date
of grant. In 1997, 6,000 options were issued with exercise prices ranging
between $7.25 and $7.375, the estimated fair market value at date of grant.
During 1997, 10,000 options were canceled. 

During 1996, the Company issued 100,000 warrants to purchase common stock to
the Company's underwriters on completion of the Company's initial public
offering.  These warrants have exercise prices of $7.05 per share, the then
estimated fair market value, vesting over one year, with a five-year term.

                                     -9-

<PAGE>

                       PART I - FINANCIAL INFORMATION

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

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.

RESULTS OF OPERATIONS:

Net sales for the three months ended March 31, 1998 increased $3,432,269 or
67.6% over the comparable periods a year earlier.  For such three month periods
the increase was from $5,075,773 to $8,508,042.  These increases are
attributable to internal growth with the Company's traditional customer base,
and the addition of Genuine Parts/NAPA, for whom the Company is now the primary
remanufactured engine suppliers.  In March, 1998, the Company closed its
Harrisburg distribution center and transfer those goods to its new Albany, New
York distribution center. (its Macon, Georgia manufacturing plant was purchased
in August, 1997, its Auburn, Washington distribution center was opened in
December, 1994 , its Cincinnati, Ohio distribution center was opened in August,
1996, and its Denver, Colorado distribution center was opened in January,
1997.)

Cost of goods sold for the three months ended March 31, 1998 increased
$3,294,821 or 89.3% over the comparable periods a year earlier.  For such
three month periods the increase was from $3,689,416 to $6,984,237.  These
increases are attributable to additional costs during the recent periods in
connection with increased production.  Cost of goods sold as a percentage of
net sales increased over the three month periods from 72.7% to 82.1%.  The
Company believes that this increase in cost of goods sold is primarily
attributable to the labor and overhead costs associated with the expansion of
the Company's production capacity, as well as expensed start-up costs
associated with the new Macon, Georgia manufacturing facility.

Selling, general and administrative expenses for the three months ended
March 31, 1998 increased $218,009 or 25.2% over the comparable periods a year
earlier.  Selling, general and administrative expenses as a percentage of sales
decreased from 17.0% to 12.7% for the comparable three month periods.  These
changes are primarily attributable to higher revenues in the current three
month periods.

Earnings from operations for the three months ended March 31, 1998 decreased
$80,561 or 15.4% over the comparable periods a year earlier.

Interest expense for the three months ended March 31, 1998 increased $98,131
or 798.3%  over the comparable periods a year earlier.  The increase was
primarily attributable to borrowings for the three months ended March 31,

                                     -10-

<PAGE>

1998 due to a build up of inventory and accounts receivable, which are
attributable to sales increases and due to the acquisition of Wheeler
Manufacturing.

Pre-tax income for the three months ended March 31, 1998 decreased $182,580
or 35.6% for the three month periods from the year earlier. After tax earnings
decreased $222,826 or 52.0% for the three month periods from a year earlier,
due to the items mentioned above.

LIQUIDITY AND CAPITAL RESOURCES:

The Company's operations have been financed principally by borrowings under a
bank credit facility and cash flows from operations.  At March 31, 1998, the
Company's working capital was $11,229,959.

Net cash used by operating activities during the three months ended March 31,
1998 of $1,943,462 was primarily to finance an increase in accounts receivable
and inventory, due to increased sales during the period.

Net cash used by investing activities for the three month periods ended March
31, 1998 of $223,926 was primarily for the purchase of new equipment.

Net cash provided by financing activities for the three month periods ended
March 31, 1998 of $2,070,776 was primarily for the issuance of common stocks
and recent borrowings from the bank.

In January 1998, the Company entered into an amended credit agreement
(Agreement) providing for a revolving line of credit for borrowings up to
$7,500,000 through May 1, 2000.  Borrowings under the Agreement bear interest
at LIBOR (5.84% at December 31, 1997) plus 2.0% or at prime (8.50% at December
31, 1997).  The choice of the interest rate is at the discretion of the
Company.  Borrowings under the line of credit are secured by the Company's
assets.  Total amounts outstanding under the revolving line of credit at March
31, 1998 were $5,450,808.  The Company had available borrowings under the line
of credit of $2,049,192 at March 31, 1998.

The Agreement also provides for an acquisition facility for borrowings up to
$8,000,000 for a period of two years from the date of funding.  This facility
is to be used for general corporate purposes and in the event the Company
enters into an acquisition in the automotive industry.  Borrowings under the
credit agreement bear interest at prime plus 0.25% or LIBOR plus 2.25% or cost
of funds plus 2.25% and are secured by the assets of the Company and of the
acquired company. The choice of the interest rate is at the discretion of the
Company.  At March 31, 1998, $760,241 had been drawn down and were outstanding
under this facility.  The Company had available borrowings under this facility
of $7,239,759 at March 31, 1998.

                                     -11-

<PAGE>

The Company's accounts receivable as of March 31, 1998 was $6,558,080.  This
represents an increase of $2,829,550 or 75.9% over accounts receivable on
December 31, 1997, and is due to increased sales.

The Company's inventory as of March 31, 1998 was $7,817,096 which represents
an increase of $540,135 or 7.4% over inventory as of December 31, 1997.  The
increase is primary attributable to the Company's increasing finished goods
inventory at all distribution centers.  In addition, the Company maintains a
large inventory at its Los Angeles facility in anticipation of increased
demand for the Company's products in 1998.

In 1996 and prior years, quarterly inventory values were estimated based upon
historical values.  At fiscal year ended December 31, 1996, a physical
inventory was taken and an adjustment of $447,977 to inventory valuations was
made.  Because quarterly physical inventories were not taken throughout 1996,
no quarterly adjustments could be calculated.

Beginning the first quarter of 1997, physical inventories have been taken on
a quarterly basis, resulting in no significant inventory valuation adjustment
at year ended 1997.  This procedure continues throughout 1998.

The Company believes that internally generated funds, the available borrowings
under its existing credit facilities and the proceeds from its initial public
offering will provide sufficient liquidity and enable it to meet its current
and foreseeable working capital requirements. 

                                     -12-

<PAGE>

                         PART II - OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

    (a) Exhibits:
        None


    (b) Reports on Form 8-K
        None

                                     -13-

<PAGE>

                                 SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934,
the registrants caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.


                                       Bonded Motors, Inc.




Dated: April 27, 1998                  By:/S/PAUL SULLIVAN
                                          -------------------------
                                          Paul Sullivan
                                          Chief Financial Officer

                                     -14-