SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549




FORM 10-Q

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


For quarter ended September 30, 1997    Commission File Number  333-19257

MOTORS & GEARS, INC.
(Exact name of registrant as specified in charter)
                Delaware                           36-4109641
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)                 Identification No.)

     ArborLake Centre, Suite 550                     60015
       1751 Lake Cook Road                        (Zip Code)
       Deerfield, Illinois
(Address of Principal Executive Offices)

Registrant's telephone number, including Area Code:
(847) 945-5591

     Former name, former address and former fiscal year, if changed since last
report: Not applicable.

     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 twelve (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 ninety (90) days.

               Yes   x             No      

     The aggregate market value of voting stock held by non-affiliates of
the Registrant is not determinable as such shares were privately placed and
there is currently no public market for such shares.

     The number of shares outstanding of Registrant's Common Stock as of
November 14, 1997:   100,000.                     

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PAGE 2

MOTORS & GEARS, INC.


INDEX


                                 Part I.  

                                                   Page No.

     Financial Information                           

     Condensed Consolidated Balance Sheets             3
     at September 30, 1997, and December 31, 1996

     Condensed Consolidated Statements of              4
     Income for the third quarter and Nine
     Months Ended September 30, 1997 and 1996

     Condensed Consolidated Statements of Cash         5
     Flows for the Nine Months Ended September 30,
     1997 and 1996

     Notes to Condensed Consolidated Financial         6  
     Statements

     Management's Discussion and Analysis of           9
     Financial Condition and Results of 
     Operations


Part II.

     Other Information                                 12

     Signatures                                        13



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MOTORS & GEARS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)


                                               September 30,   December 31,
                                                    1997            1996   
                                                 (Unaudited)

ASSETS
Current Assets:
 Cash and cash equivalents                         $  5,104      $ 10,011
 Accounts receivable, net                            29,988        13,056
 Inventories                                         25,442        16,554
 Prepaid expenses and other current assets            3,142           886
 Deferred income taxes                                1,159         1,159
    Total Current Assets                             64,835        41,666

Property, plant, and equipment, net                  14,081        11,431
Goodwill, net                                       138,556       109,103
Covenants not to compete, net                           981         1,206
Deferred financing costs, net                         9,643        10,181
Other assets                                            199            81
    Total Assets                                   $228,295      $173,668

LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
 Accounts Payable                                  $ 15,195      $  5,408
 Accrued interest payable                             6,965         3,204
 Accrued expenses and other                           2,602         3,744
 Due to affiliated company                            2,770         1,706
 Current portion of capital lease obligations            20            18
    Total Current Liabilities                      $ 27,552        14,080

Long-Term debt                                      204,000       170,000
Subordinated note payable                             5,000         5,000
Capital lease obligations, less current portion          75            49
Deferred income taxes                                 2,503           282
Other non-current liabilities                         2,626            44
Net Capital Deficiency:
 Common Stock                                             1             1
 Additional paid-in capital                          30,005        30,005
 Accumulated deficit                                (43,467)      (45,793)
    Total Net Capital Deficiency                    (13,461)      (15,787)
    Total Liabilities and Net Capital Deficiency   $228,295      $173,668



See accompanying notes to condensed consolidated financial statements.

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MOTORS & GEARS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)

                           THIRD QUARTER        NINE MONTHS ENDED
                                  SEPTEMBER 30,         SEPTEMBER 30,
                                 1997       1996        1997    1996



Net Sales                       $39,861   $30,575     $106,379  $90,153   
Cost of Sales, excluding                     
 depreciation                    25,573    19,689       68,349   58,007 
Selling, general, and
 administrative expenses          3,294     2,265        8,226    6,404
Depreciation                      1,063       760        3,003    2,168
Amortization of goodwill
 and other intangibles            1,281       990        3,256    2,920
Management fees and other           888       813        1,567    2,289

     Operating Income           $ 7,762   $ 6,058     $ 21,978  $18,365

Other (income) and expenses:
    Interest expense              5,809     2,522       15,950    7,413 
    Interest income                 (35)        0         (354)       0 
     Total other expenses       $ 5,774   $ 2,522     $ 15,596  $ 7,413   

Income before income taxes        1,988     3,536        6,382   10,952 

Provision for income taxes          866     1,309        2,805    4,082

Net income                      $ 1,122   $ 2,227     $  3,577  $ 6,870
     

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PAGE 5

MOTORS & GEARS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)

                                                      NINE MONTHS ENDED
                                                         SEPTEMBER 30,    
                                                        1997        1996    
Cash flows from operating activities:
 Net income                                           $  3,577    $ 6,870  
  Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                        7,046      5,978
    Provision for deferred income taxes                    803        516
Changes in operating assets and liabilities
  Net of effects from acquisitions: 
    (Increase)/Decrease in current assets               (2,527)     1,169
     Increase in current liabilities                     3,401      1,295
    Increase in non-current liabilities                     53       -0-      
    Increase in non-current assets                        (327)      -0- 
    Increase/(Decrease) in payables to 
     affiliated company                                  1,064     (6,235)

    Net cash provided by operating activities           13,090      9,593

Cash flows from investing activities:
   Capital expenditures, net                              (739)      (874)
   Acquisitions of subsidiaries                        (50,950)   (21,700)
   Cash acquired in purchase of subsidiaries               890        -0-  
   Net cash used in investing activities               (50,799)   (22,574)

Cash flows from financing activities:
   Proceeds from debt issuance                             --      20,000
   Net borrowings from revolving credit facilities      34,000      1,700
   Repayment of long-term debt                             (17)    (6,945)
   Other                                                    70         81 
   Net cash provided by financing activities            34,053     14,836 

Effect of exchange rate changes on cash                 (1,251)       -0-

Net (decrease) increase in cash and cash equivalents    (4,907)     1,855
Cash and cash equivalents at beginning of period        10,011      2,781  
Cash and cash equivalents at end of period            $  5,104    $ 4,636

Cash paid during the period for:
   Interest                                           $ 11,695    $ 7,183
   Income taxes                                       $    319    $   839     
Non-cash investing activities:
   Capital leases                                     $     46    $    67   

See accompanying notes to condensed consolidated financial statements.

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PAGE 6

MOTORS & GEARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)

A.  Organization

The unaudited condensed consolidated financial statements, which reflect all
adjustments that management believes necessary to present fairly the results
of interim operations, should be read in conjunction with the Notes to the
Consolidated Financial Statements (including the Summary of Significant
Accounting Policies) included in the Company's audited consolidated financial
statements for the year ended December 31, 1996, which are included in the
Company's prospectus issued in connection with the offering of its 10 3/4%
Series B Senior Notes due 2006, and filed on April 3, 1997.  The Company
conducts its operations exclusively through its subsidiaries.  Results of
operations for the interim periods are not necessarily indicative of annual
results of operations.

B.  Inventories

Inventories are summarized as follows:

                                           September 30,       December 31,
                                                 1997             1996    

     Raw materials and work in process         $22,533         $14,019
      Finished goods                             2,909           2,535
                                               $25,442         $16,554

C.  Acquisition of Subsidiaries

On March 8, 1996, Merkle-Korff acquired the net assets of Barber-Colman
Motors ("Colman Motors Products", formerly "Barber-Colman"), a division of
Barber-Colman Company, which was wholly-owned by Siebe, plc.  This division
consisted of Colman OEM and Colman Motor Products, wholly-owned subsidiaries
of Barber- Colman Company, and the motors division of Barber-Colman Company,
collectively, Colman Motor Products ("CMP").  It is a vertically integrated
manufacturer of sub fractional horsepower AC/DC motors and gear motors with
applications in such products as vending machines, copiers, printers, ATM
machines, currency changers, X-ray machines, peristaltic pumps, HVAC
actuators, and other products.

The purchase price of $21,700, which included costs incurred directly
related to the transaction, was allocated to working capital of $5,111,
property, plant and equipment of $6,541, non-compete agreements of $1,000,
and resulted in an excess purchase price over net identifiable assets of
$9,048.  The acquisition was financed with $21,700 of new and existing credit
facilities.

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PAGE 7

MOTORS & GEARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)


On June 12, 1997, Motors & Gears Industries, Inc. ("The Company"), through
its newly-formed wholly-owned subsidiary, FIR Group Holdings, Inc. and its
wholly- owned subsidiaries, Motors and Gears Amsterdam, B.V. and FIR Group
Holdings Italia, SrL, purchased all of the common stock of the FIR Group
Companies, consisting of CIME S.p.A., SELIN S.p.A., and FIR S.p.A.  The FIR
Group Companies are manufacturers of electric motors and pumps for niche
applications such as pumps for commercial dishwashers, motors for industrial
sewing machines, and motors for industrial fans and ventilators.

The purchase price of $50.5 million, including costs directly related to the
transaction, was preliminarily allocated to working capital of $17.5 million,
property, plant, and equipment of $4.9 million, other long term liabilities
of $3.9 million, and resulted in an excess of purchase price over net
identifiable assets of $32.0 million.  The cash was provided from borrowings
under the Company's existing Credit Agreement.

On October 27, 1997, Motor & Gears Industries, Inc. ("The Company") acquired
all of the outstanding stock of ED&C Company ("ED&C").  The Company acquired
ED&C through its newly formed wholly owned subsidiary, Electrical Design and
Control Company.  ED&C is a full-service electrical engineering company which
designs, engineers, and manufactures electrical control systems and panels
for material handling systems and other like applications.  ED&C provides
comprehensive design, build, and support services to produce electronic
control panels which regulate the speed and movement of conveyor systems used
in a variety of automotive plants and other industrial applications.

In connection with the acquisition, the Company paid $15.0 million to the
sellers in cash and the remainder was financed through a $4.0 million
unsecured note which bears an interest rate of 9% with one principal
amortization payment of $4.0 million in 2002.  The cash was provided from 
borrowings under the Company's existing credit agreement.

Unaudited proforma information with respect to the Company as if the 1997 and
1996 acquisitions had occurred on January 1, 1997 and 1996 is as follows:

                         Nine Months Ended      Nine Months Ended
                         September 30, 1997     September 30, 1996

     Net Sales              $137,470              $136,337
     Net Income                4,732                 4,187


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PAGE 8

MOTORS & GEARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)


D.  Significant Accounting Policies - Consolidation Principles

The consolidated financial statements include the accounts of Motors & Gears,
Inc. and its subsidiaries.  Material intercompany transactions and balances
are eliminated in consolidations.  Operations of subsidiaries outside the
United States are included for periods ending two months prior to the
Company's year end and interim periods to ensure timely preparation of the
consolidated financial statements. 



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PAGE 9

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                           THIRD QUARTER          NINE MONTHS ENDED
                         1997        1996           1997      1996  

Net sales              $39,861     $30,575        $106,379   $90,153
Operating income         7,762       6,058          21,978    18,365
Net income               1,122       2,227           3,577     6,870


Operating Margin (1)      19.5%       19.8%           20.7%     20.4%
____________________

(1) Operating margin is operating income divided by net sales.


Results of Operations

Net sales for the third quarter and first nine months of 1997 increased 30%
($9.3 million) and 18% ($16.2 million) respectively as compared with the same
periods of the prior year.  Net sales of sub-fractional motors for the third 
quarter and first nine months of 1997 increased 6% and 20% respectively over 
the same periods in 1996.  The strong growth in sub- fractional motors is 
primarily attributed to the acquisition of Colman Motor Products on March 8, 
1996, as well as continued strength in the vending and appliance markets.
Gears and gear box sales for the third quarter and first nine months of 1997 
increased 27% and 21% respectively as compared with the same periods of the 
prior year. This strong performance is driven by increased sales of planetary 
gears in the floor care market.  Sales of fractional/integral motors for the 
third quarter and first nine months of 1997 increased 99% and 13% 
respectively as compared with the same periods of the prior year.  
This significant increase is attributed to the acquisition of the FIR Group
Companies on June 12, 1997.  Sales in the existing fractional/integral motors
business increased 7% for the third quarter compared with the same period in
1996.  Existing fractional/integral motor business sales for the first nine
months of 1997 decreased 13%, reflecting unusually strong sales in the first
half of 1996, principally due to a substantial reduction in the backlog of 
orders accumulated in the fourth quarter of 1995.

Operating  income increased 28% ($1.7 million) and 20% ($3.6 million) for the
third quarter and first nine months respectively, as compared with the same
periods of the prior year. The increase in operating income is primarily due 
to increased sales dicsussed above.  Increases in selling, general, and 
administrative expenses, depreciation, and amortization were due 
principally to the acquisition of the FIR Group Companies.  These increases
were partially offset by reduced management fees and other expenses at 
Imperial Electric Company.

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PAGE 10

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating margins remained strong, increasing slightly to 20.7% from 20.4% 
for the first nine months of 1997 and decreasing from 19.8% to 19.5% for the 
third quarter of 1997. 

Consolidated net income decreased from $2.2 million to $1.1 million for the 
third quarter and from $6.9 million to $3.6 million for the first nine 
months, principally due to increased interest expense offset partially by 
improved operating income.  Interest expense for the third quarter increased 
from $2.5 million to $5.8 million and from $7.4 million to $16.0 million for 
the first nine months.  The increased interest expense reflects the higher 
debt levels resulting from the issuance of $170 million of Senior Notes
issued in November of 1996, as well as, higher debt levels resulting from 
borrowings under the existing credit agreement for the purchase of the FIR 
Group Companies.

Liquidity and Capital Resources

The Company had $37.2 million of working capital at September 30, 1997, 
compared with $27.6 million at December 31, 1996.  The increase in working 
capital was primarily due to the acquisition of the FIR Group Companies, 
increased accounts receivable, and lower intercompany payables offset 
partially by an increase in accounts payable and accrued expenses and other 
current liabilities, and a decrease in inventory.

The Company's net cash generated from operating activities for the nine 
months ended September 30, 1997 increased $3.5 million to $13.1 million 
compared with the same period in 1996.  The increase was due to higher 
current liabilities, $2.1 million, an increase in payables to affiliated 
company, $7.3 million, an increase in depreciation and amortization, $1.1 
million, and a greater benefit for deferred taxes, $0.3 million.  These 
increases were partially offset by lower net income, $3.3 million, an 
increase in current assets of $3.7 million, and an increase in non-current 
assets of $0.3 million. 

The net cash used in investing activities increased $28.2 million to $50.8 
million in 1997, as compared to the same period in 1996, reflecting the FIR 
Group Companies acquisition, $50.5 million, offset partially by lower capital
expenditures, $0.2 million, cash acquired in the purchase of the FIR Group 
Companies, $0.9 million, and the absence of the Colman Motor Products 
acquisition, $21.7 million, which occurred in 1996.

The net cash provided by financing activities for the nine months ended 
September 30, 1997, increased by $19.3 million compared with the same period 
in 1996, due to net borrowings under the Motors & Gears Industries, Inc. 
Credit Agreement, $34 million and lower repayments of long term debt, $6.9 
million, offset partially by proceeds in the first quarter 1996 from new 
debt issued in connection with the Colman Motor Products acquisition, $21.7 
million.

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PAGE 11

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The Company, at November 14, 1997, had available cash of $24.5 million in 
connection with its existing Credit Agreement.  None of the subsidiaries 
require significant amounts of capital spending to sustain their current 
operations or to achieve projected growth.

Management believes that the Company's cash on hand and anticipated funds 
from operations will be sufficient to cover its working capital, capital 
expenditures, debt service requirements and other fixed charge obligations 
for at least the next 12 months.


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PAGE 12

PART II.  OTHER INFORMATION

Item 1.        Legal Proceedings
               None


Item 2.        Changes in Securities
               None


Item 3.        Defaults upon Senior Securities
               None


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


Item 5.        Other Information
               None


Item 6.        Exhibits and Reports on Form 8-K

               a)   27.  EDGAR Financial Data Schedule

               b)   The Company filed a Form 8-KA on August 20, 1997 
                    describing the acquisition of the FIR Group Companies on 
                    June 12, 1997.  The filing included the required 
                    financial statements and exhibits excluded from the 8K 
                    filed on June 24, 1997.

                    The Company filed a Form 8-K on November 10, 1997 
                    describing the acquisition of ED&C Company on October 27,
                    1997.  Financial Statements and exhibits were not filed 
                    at that time.  The required financial information will be
                    filed no later than 60 days following the filing of the
                    8-K.

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PAGE 13

SIGNATURES

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


                                   MOTORS & GEARS, INC.



                                                                      
                                   By: /s/ Norman R. Bates           
                                       Norman R. Bates
                                       Chief Financial Officer


November 14, 1997