SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549

                                 FORM 10-Q

                     _________________________________


              QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934


For quarter ended September 30, 1998Commission File Number: 333-19257


                            MOTORS AND 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 place and there 
is currently no public market for such shares.

     The number of shares outstanding of Registrant's Common Stock as of 
November 13, 1998:  100,000.


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                                    PAGE 2

                             MOTORS AND GEARS, INC.


                                    INDEX


PART I.   FINANCIAL INFORMATION                                  PAGE NO.

Item 1.   Financial Statements (Unaudited)                           3

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                        10

Item 3.   Quantitative and Qualitative Disclosures About
          Market Risk                                                13


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                          14

Item 2.   Changes in Securities                                      14

Item 3.   Defaults upon Senior Securities                            14

Item 4.   Submission of Matters to a Vote of Securities
          Holders                                                    14

Item 5.   Other Information                                          14

Item 6.   Exhibits and Reports on Form 8-k                           14

          Signatures                                                 15


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                                  PAGE 3

                       PART I.  FINANCIAL INFORMATION

                ITEM 1.  FINANCIAL STATEMENTS (Unaudited)



                                                                 PAGE NO.


Condensed Consolidated Balance Sheets at September 30, 1998,
and December 31, 1997                                               4

Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1998 and 1997             5

Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997                            6

Notes to Condensed Consolidated Financial Statements               7-9



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                                PAGE 4

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



                                                September 30,   December 31,
                                                    1998           1997      
                                                 (Unaudited)

ASSETS
Current Assets:
 Cash and cash equivalents                         $  6,489      $ 28,880
 Accounts receivable, net                            54,789        40,679
 Inventories                                         42,589        31,665
 Prepaid expenses and other current assets            1,517         1,300
     Total Current Assets                           105,384       102,524

 Property, plant, and equipment, net                 19,491        15,201
 Goodwill, net                                      230,386       195,424
 Deferred financing costs, net                       14,534        15,877
 Deferred income taxes                                3,825         3,825
 Other assets, net                                    2,720         2,293
     Total Assets                                  $376,340      $335,144

LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
 Notes payable                                     $     54      $  2,009
 Accounts payable                                    24,618        17,424
 Accrued interest payable                            11,722         4,232
 Accrued expenses and other                          10,018        12,297  
 Due to affiliated company                            2,373         1,488
     Total Current Liabilities                       48,785        37,450

Long-Term debt                                      308,806       283,613
Deferred income taxes                                 4,759         3,880
Other non-current liabilities                         2,798         2,649

Shareholder's Equity:
 Common Stock                                             1             1
 Additional paid-in-capital                          50,005        50,005
 Accumulated other comprehensive income (loss)       (1,888)          (16)
 Accumulated deficit                                (36,926)      (42,438)
     Total Shareholder's Equity                      11,192         7,552
     Total Liabilities and Shareholder's Equity    $376,340      $335,144









See accompanying notes to condensed consolidated financial statements.


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                                   PAGE 5

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


                                    Three Months Ended     Nine Months Ended
                                       September 30,          September 30,    
                                    1998         1997      1998         1997

Net Sales                          $ 78,038   $ 39,861    $208,304   $106,379
Cost of Sales, excluding
   depreciation                      50,658     25,573     135,310     68,349
Selling, general and
   administrative expenses            9,943      3,294      26,711      8,226
Depreciation                          1,513      1,063       4,074      3,003
Amortization of goodwill
   and other intangibles              2,220      1,281       6,043      3,256
Management fees and other               890        888       2,323      1,567

     Operating Income                 12,814     7,762      33,843     21,978

Other (income) and expense:
   Interest expense                    8,461     5,809      24,521     15,950
   Interest income                       (66)      (35)       (688)      (354)
     Total other expense               8,395     5,774      23,833     15,596

Income before income taxes             4,419     1,988      10,010      6,382

Provision for income taxes             1,970       866       4,498      2,805

     Net income                     $  2,449  $  1,122    $  5,512   $  3,577

















See accompanying notes to condensed consolidated financial statements.     
                                       

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                                PAGE 6

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


                                                         Nine Months Ended
                                                           September 30  ,  
                                                          1998       1997
Cash flows from operating activities:
 Net income                                             $ 5,512    $ 3,577
Adjustments to reconcile net income to net  
 cash provided by operating activities:
   Depreciation and amortization                         11,089      7,046
   Provision for deferred income taxes                      879        803

Changes in operating assets and liabilities net
 of effects from acquisitions:
   Increase in current assets                           (13,127)    (2,527)
   Increase in current liabilities                        9,381      3,401
   Increase in non-current assets & liabilities              24       (274)
   Increase in payables to affiliated company               885      1,064
   Net cash provided by operating activities             14,643     13,090

Cash flows from investing activities:
   Capital expenditures, net                             (3,777)      (739)
   Acquisitions of subsidiaries                         (55,906)   (50,950) 
   Cash acquired in acquisition of subsidiaries             360        890
   Net cash used in investing activities                (59,323)   (50,799)
   

Cash flows from financing activities:
   Proceeds from revolving credit facilities             40,000     50,000
   Repayment of long-term debt                           (2,230)       (17)
   Repayment of revolving credit facilities             (15,000)   (16,000)
   Other                                                     60         70
   Net cash provided by financing activities             22,830     34,053

Effect of exchange rate changes on cash                    (541)    (1,251)

Net decrease in cash and cash equivalents               (22,391)    (4,907)

Cash and cash equivalents at beginning of period         28,880     10,011
Cash and cash equivalents at end of period              $ 6,489    $ 5,104







See accompanying notes to condensed consolidated financial statements.



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                                     PAGE 7

                           MOTORS AND 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 and are of a normal recurring nature, should be read in 
conjunction with the Company's consolidated financial statements for the year 
ended December 31, 1997, included in the Company's annual report on Form 
10-K.  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.     Significant Accounting Policies - Consolidation Principles

The condensed consolidated financial statements include the accounts of Motors 
and Gears, Inc. and its subsidiaries.  Material intercompany transactions and 
balances are eliminated in consolidation.  Operating results of a subsidiary 
in Italy are included for periods ending two months prior to the Company's 
year end and interim periods to ensure timely preparation of the condensed 
consolidated financial statements.

C.     Inventories

Inventories are summarized as follows:

                                           September 30,     December 31,
                                                1998             1997    

     Raw materials                            $29,689          $21,639
     Work in process                            8,534            7,375
     Finished goods                             4,366            2,651
                                              $42,589          $31,665

D.     Acquisition of Subsidiaries

On June 12, 1997, the Company 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. 
(collectively "FIR") for $51,026.  The purchase price, including costs 
incurred directly related to the transaction, was allocated to working capital 
of $16,562; property and equipment of $4,918; other long-term assets and 
liabilities of ($3,442); and resulted in an excess purchase price over net 
identifiable assets of $32,988.  FIR is a manufacturer 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. 

On October 27, 1997, the Company acquired all of the outstanding stock of E.D. 
and C. Company, Inc. ("ED&C") for $16,000 in cash and a $3,850 Subordinated 
Junior Seller Note.  The purchase price, including costs incurred directly 
related to the transaction, was allocated to working capital of $3,514; 
property 


<PAGE>

                                   PAGE 8

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


and equipment of $81; covenants not to compete of $120; and resulted in an 
excess purchase price over net identifiable assets of $16,135.  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.  

On December 18, 1997, the Company purchased all of the stock of Motion Control 
Engineering, Inc. ("Motion Control") for $53,925.  The purchase price, 
including costs incurred directly related to the transaction, was allocated to 
working capital of $10,071; property and equipment of $1,428; covenants not to 
compete of $1,005; other long-term assets and liabilities of ($12); and 
resulted in an excess purchase price over net identifiable assets of $41,433.  
The Company also has a contingent purchase price agreement relating to the 
acquisition of Motion Control.  The contingent purchase price is dependent 
upon the acquired entity's results of operations exceeding certain targeted 
levels substantially above the historical experience of Motion Control at the 
time of acquisition.  Motion Control manufactures electronic motion control 
products for elevator markets, primarily the elevator modernization market. 

On May 15, 1998, the Company acquired all of the outstanding stock of Advanced 
D.C. Motors, Inc. and its affiliated corporations (collectively "ADC") for 
$55,500.  The purchase price, including costs incurred directly related to the 
transaction, was allocated to working capital of $9,345; property and 
equipment of $4,088; covenants not to compete of $662; other long-term assets 
and liabilities of $54; and resulted in an excess purchase price over net 
identifiable assets of $41,351.  The Company also has a contingent purchase 
price agreement of up to $5,600 relating to the acquisition of ADC.  The 
contingent purchase price is dependent upon the acquired entity's results of 
operations exceeding certain targeted levels substantially above the 
historical experience of ADC at the time of acquisition.  ADC designs and 
manufactures special purpose, custom designed motors for use in electric lift 
trucks, power sweepers, electric utility vehicles, golf carts, electric boats, 
and other niche products.  ADC also designs and manufactures its own 
production equipment as well as electric motor components known as 
commutators.

Unaudited proforma information with respect to the Company as if the 1997 and 
1998 acquisitions had occurred on January 1, 1997 is as follows:

                                   Nine Months Ended
                                      September 30,  
                                     1998     1997
                                      (Unaudited)

     Net sales                     $226,073   $196,503
     Income before income taxes      13,000      9,009
     Net income                    $  7,156   $  4,955


<PAGE>

                                   PAGE 9

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


E.     Comprehensive Income

As of January 1, 1998, the Company adopted the Financial Accounting Standards 
Board's Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income".  Statement 130 establishes new rules for the reporting 
and display of comprehensive income and its components; however, the adoption 
of this Statement had no impact on the Company's net income or shareholders' 
equity.  The Company's only comprehensive income relates to foreign currency 
translation.  Statement 130 requires foreign currency translation adjustments, 
which prior to adoption were reported separately in shareholders' equity, to 
be included in other comprehensive income.  Certain amounts in prior year 
financial statements have been reclassified to conform to the requirements of 
Statement 130.

Total comprehensive income/(loss) was $2,968 and ($129) for the three months 
ended September 30, 1998 and 1997, respectively, and $3,640 and $2,326 for the 
nine months ended September 30, 1998 and 1997, respectively.

F.     Business Segment Information

See Part 1 "Financial Information" - Item 2 "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" for the Company's 
business 
segment disclosures.  There have been no changes from the Company's December 
31, 1997 consolidated financial statements with respect to segmentation or 
the  measurement of segment profit with the exception of the acquisition of 
ADC which is included in the motors segment.

G.     Foreign Exchange Instruments and Risk Management

The Company entered into foreign currency forward exchange contracts to hedge tr
ansactions and firm commitments that are denominated in foreign currencies 
(principally the Italian Lira) and not to engage in currency speculation.  The 
Company primarily utilizes forward exchange contracts with a duration of one 
year or less.  Gains or losses on hedges of transaction exposures are included 
in income in the period in which exchange rates change.  Gains and losses on 
contracts which hedge specific foreign currency denominated commitments are 
deferred and recognized on the same basis as the transactions underlying the 
commitments.

Forward exchange contracts generally require the Company to exchange U.S. 
dollars for foreign currencies at maturity, at rates that are agreed upon at 
inception of the contracts.  If the counterparties to the exchange contracts 
(primarily highly-rated financial institutions) do not fulfill their 
obligations to deliver the contracted currencies, the Company could be at risk 
for any currency related fluctuation.

The Company has $1,357 notional amount of foreign currency forward exchange 
contracts outstanding at September 30, 1998 ($0 at December 31, 1997). 


<PAGE>


                                   PAGE 10
           ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS
                                 (UNAUDITED)
                       (ALL DOLLAR AMOUNTS IN THOUSANDS)


Summary financial information included in the financial statements of the 
Company is as follows:

                                   Three Months Ended    Nine Months Ended
                                      September 30,        September 30,  
                                    1998       1997       1998      1997 

Net sales (1)                     $78,038    $39,861    $208,304  $106,379
Gross profit (1) 
  (excluding depreciation)         27,380     14,288      72,994    38,030
EBITDA (1)(2)                      16,547     10,106      43,960    28,237
Operating income (1)               12,814      7,762      33,843    21,978
Interest expense                  $ 8,461    $ 5,809    $ 24,521  $ 15,950

Gross margin (excluding 
  depreciation) (3)                35.1%      35.8%       35.0%      35.7%
EBITDA margin (3)                  21.2       25.4        21.1       26.5
Operating margin (3)               16.4       19.5        16.2       20.7

(1)  With the acquisition of ED&C and Motion Control during 1997, the results
of operations for the three and nine months ended September 30, 1998 include 
operations for both the motors and controls segments.  The controls segment 
accounted for $16,152 and $47,679 of net sales, $6,377 and $18,333 of gross 
profit (excluding depreciation), $2,680 and $7,940, of EBITDA (earnings before 
interest, income taxes, depreciation and amortization) and $2,050 and $6,086 
of operating income for the three and nine months ended September 30, 1998, 
respectively.  Note that the segment analysis does not include unallocated 
corporate overhead and management fees in the EBITDA and operating income 
calculations.

(2)  EBITDA is included herein because management believes that certain 
investors find it to be a useful tool for measuring the ability of the Company 
to service its debt.

(3)  All margins are calculated as a percentage of net sales.
 
Consolidated Results of Operations

Net sales for the third quarter and first nine months of 1998 increased 96% 
($38.2 million) and 96% ($101.9 million), respectively, as compared with the 
same periods in the prior year.  The strong sales growth was primarily driven 
by the three acquisitions in the latter part of 1997 and the acquisition in 
the second quarter of 1998.  The Company acquired FIR in June of 1997, ED&C in 
October of 1997, Motion Control in December of 1997 and ADC in May of 1998.  
These acquisitions accounted for $32.7 million (86%) and $90.7 million (89%) 
of the sales growth in the third quarter and first nine months of 1998, 
respectively, while the remaining growth was the result of organic sales 
growth.  Net sales of sub-fractional motors for the third quarter and first 
nine months increased 23% and 13% over the same periods in the prior year, 
primarily attributed to continued strength in the vending machine and 
appliance markets.  Excluding the 1997 and 1998 acquisitions, net sales of 
fractional/integral motors increased 3% and 7% for the three and nine months 
ended September 30, 1998 over the same periods of 1997, driven by stronger 
sales in the floor care and elevator markets.


<PAGE>

                                 PAGE 11
         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS


Operating income for the third quarter and first nine months of 1998 increased 
65% ($5.1 million) and 54% ($11.9 million), respectively.  The increase in 
operating income was primarily the result of the increased sales described 
above.  Gross margins decreased slightly over both periods as compared to 1997 
attributed mainly to a decrease in the gross margins earned on 
fractional/integral motor sales.  Increased operating income resulting from 
the increased sales described above was partially offset by increased 
corporate expenses.  The decrease in operating income margins was primarily 
the result of the 1997 acquisitions, which operate at slightly lower operating 
margins than the rest of the Company, and the increase in corporate expenses.

Interest expense increased in the third quarter and first nine months of 1998 
over the same periods of 1997, reflecting higher debt levels relating to the 
financing of new acquisitions through the Company's December 1997 $100.0 
million debt offering and the draw down of $40.0 million on the Company's 
revolving credit facility in May of 1998.


Liquidity and Capital Resources

In general, the Company requires liquidity for working capital, capital 
expenditures, interest, taxes, debt repayment and its acquisition strategy.  
Of primary importance are the Company's working capital requirements, which 
increase whenever the Company experiences strong incremental demand or 
geographical expansion.  The Company expects to satisfy its liquidity 
requirements through a combination of funds generated from operating 
activities and the funds available under its revolving line-of-credit 
agreement.

Operating activities.  Net cash provided by operating activities for the nine 
months ended September 30, 1998 was $14.6 million, compared to $13.1 million 
during the same period in 1997. The increase in cash provided by operating 
activities was the result of improved operating results, partially offset by 
an increase in working capital requirements.

Investing activities.  Capital expenditures of $3.8 million for the first nine 
months of 1998 were $3.0 million greater than the comparable period in 1997.  
In addition, the cost of the ADC acquisition in May of 1998 was approximately 
$5.0 million greater than the cost of the FIR acquisition in June of 1997.  
The Company expects its capital investment in 1998 to be greater than the 1997
spending level as a result of late 1997 acquisitions and the acquisition of 
ADC in the second quarter of 1998.  The Company plans to fund future 
acquisitions through its revolving line-of-credit agreement and excess 
operating cash flow.

Financing activities.  The Company's annual cash interest expense on the 
Senior Notes, which are due 2006, will be approximately $29.0 million.  
Interest on the Senior Notes is payable semi-annually on May 15 and November 
15 of each year.  Interest paid on the Junior Seller Notes was $0.5 million in 
the first nine months of 1998.

The Company is party to a Credit Agreement under which the Company is able to 
borrow up to approximately $75.0 million to fund acquisitions and provide 
working capital and for other general corporate purposes.  The Credit 
Agreement provides 

<PAGE>


                                    PAGE 12
          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


for a revolving line of credit of $75.0 million over a term of five years.  
Obligations under the Credit Agreement are guaranteed by M&G Industries' 
subsidiaries, and secured by pledges of the stock of M&G Industries' 
subsidiaries and liens in respect of certain assets of M&G Industries and its 
subsidiaries.

As of November 13, 1998, the Company has approximately $53.0 million of 
available funds under the Credit Agreement.  In addition, under the terms of 
the Series D Notes, the Company is able to increase the credit facility to 
approximately $115.0 million.

The Company expects its principal sources of liquidity to be from its 
operating activities and funding from the revolving line-of-credit agreement.  
The Company further expects that these sources will enable it to meet its 
long-term cash requirements for working capital, capital expenditures, 
interest, taxes, and debt repayment for at least the next 12 months.


Year 2000 Disclosure

Introduction.  The Year 2000 issue is the result of computer programs being 
written using two digits rather than four to define the applicable year.  Any 
of the Company's computer programs or hardware that have date-sensitive 
software or embedded chips may recognize a date using "00" as the year 1900 
rather than the year 2000.  This could result in a system failure or 
miscalculations causing disruptions of operations, including, among other 
things, a temporary inability to process transactions, send invoices, or 
engage in similar normal business activities.

State of Readiness.  Based on recent assessments, the Company determined that 
it will be required to modify or replace significant portions of its software 
and certain hardware so that those systems will properly utilize dates beyond 
December 31, 1999.  The Company presently believes that with modifications or 
replacements of existing software and certain hardware, the Year 2000 issue 
can be mitigated.  However, if such modifications and replacements are not 
made, or are not completed timely, the Year 2000 issue could have a material 
impact on the operations of the Company.

The Company's plan to resolve the Year 2000 issue involves the following four 
phases: assessment, remediation, testing and implementation.  The Company is 
in the process of assessing all systems that could be significantly affected 
by the Year 2000 issue.  Preliminary results of this assessment indicated that 
some of the Company's significant information technology systems could be 
affected, particularly the general ledger, billing, and inventory systems.  
The preliminary assessment also indicated that software and hardware (embedded 
chips) used in production and manufacturing systems (hereafter also referred 
to as operating equipment) may also be at risk.  In addition, based on a 
review of its product lines, the Company has determined that most of the 
products it has sold and will continue to sell do not require remediation to 
be Year 2000 issue compliant.  Accordingly, the Company does not believe that 
the Year 2000 issue presents a material exposure as it relates to the 
Company's products.  In addition, the Company is in the process of gathering 
information about the Year 2000 compliance status of its significant suppliers 
and continues to monitor their compliance.


<PAGE>


                                     PAGE 13
           ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS



For its information technology exposures, to date the Company has completed a 
majority of the remediation phase and expects to complete software 
reprogramming and replacement no later than June 30, 1999.  Once software is 
reprogrammed or replaced for a system, the Company begins testing and 
implementation.  The testing and implementation phases for all significant 
systems are expected to be completed by September 30, 1999.  The four phases 
of the Company's Year 2000 program in relation to operating equipment is 
on-going and expected to be completed by December 31, 1999.

Cost.  The Company will utilize both internal and external resources to 
reprogram or replace, test, and implement the software and operating equipment 
for Year 2000 modifications.  The total cost of the Year 2000 project is 
estimated at $2.5 million and is being funded through operating cash flows and 
capital leases.  To date, the Company has incurred approximately $1.0 million 
related to all phases of the Year 2000 project.  The majority of these costs 
have been capitalized.

Risks.  Management of the Company believes it has an effective program in 
place to resolve the Year 2000 issue in a timely manner.  As noted above, the 
Company has not yet completed all necessary phases of the Year 2000 program.  
In the event that the Company does not complete any additional phases, the 
Company could be materially adversely affected.  In addition, disruptions in 
the economy generally resulting from the Year 2000 issue could also materially 
adversely affect the Company.  The amount of potential liability and lost 
revenue cannot be reasonably estimated at this time.

Contingency Plans.  The Company's contingency plans, in the event it does not 
complete all phases of the Year 2000 program, are incomplete at this time.


                  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                   ABOUT MARKET RISK


Not applicable.






<PAGE>


                                      PAGE 14


                             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
               
               1)   27.  EDGAR Financial Data Schedule










<PAGE>


                                   PAGE 15

                                 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 AND GEARS, INC.



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


November 13, 1998