<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 September 30, 1998

| |   Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act
      of 1934

        For the transition period from              to               
                                       -------------  ---------------

                         Commission File Number 0-22891.
                                                --------

                        GEORGIA-CAROLINA BANCSHARES, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

         GEORGIA                                       58-2326075
         -------                                       ----------
(State or other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

                  110 East Hill Street, Thomson, Georgia 30824
                  --------------------------------------------
                    (Address of Principal Executive Offices)

                     Issuers Telephone Number (706) 595-1600
                                             ---------------


              ----------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)


Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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        
                                      ---      ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

           Class                               Outstanding at September 30, 1998
-----------------------------                  ---------------------------------
Common Stock, $.001 Par Value                           635,380 shares

Transitional Small Business Disclosure Format:  Yes      No  X  
                                                    ---     --- 


<PAGE>   2



                        GEORGIA-CAROLINA BANCSHARES, INC.
                                   Form 10-QSB

                                      Index

<TABLE>
<CAPTION>
PART I       FINANCIAL INFORMATION
<S>          <C>                                                                            <C>

Item 1.      Financial Statements (Unaudited)

             Condensed Consolidated Balance Sheet as of September 30, 1998                   1

             Condensed Consolidated Statements of Income and Comprehensive
              Income for the Three Months Ended September 30, 1998 and 1997,
              and the Nine Months Ended September 30, 1998 and 1997                          2

             Condensed Consolidated Statements of Cash Flows for the Nine
              Months Ended September 30, 1998 and 1997                                       4

             Notes to Condensed Consolidated Financial Statements                            5

Item 2.      Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                          7

PART II      OTHER INFORMATION

Item 2.      Use of Proceeds from Sales of Registered Securities                            12

Item 6.      Exhibits and Reports on Form 8-K                                               13

             SIGNATURES

             Index to Exhibits
</TABLE>


<PAGE>   3



                                     PART I
                              FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                        GEORGIA-CAROLINA BANCSHARES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)
                             (dollars in thousands)

<TABLE>
<CAPTION>
ASSETS

<S>                                                                                  <C>         
Cash and due from banks                                                              $ 1,371     
Federal funds sold                                                                     3,000     
Interest-bearing deposits in banks                                                        99     
Securities available-for-sale                                                         14,755     
Loans, net of allowance for loan losses of $860                                       20,982     
Bank premises and fixed assets                                                         2,448     
Accrued interest receivable                                                              435     
Foreclosed real estate, net of allowance                                                 253     
Deferred tax benefit                                                                     138     
Other assets                                                                             317     
                                                                                     -------     
                                                                                                 
              TOTAL ASSETS                                                           $43,798     
                                                                                     =======     
                                                                                                 
LIABILITIES AND SHAREHOLDERS' EQUITY                                                             
                                                                                                 
DEPOSITS:                                                                                        
     Non-interest bearing                                                            $ 3,561     
     Interest-bearing:                                                                           
         NOW accounts                                                                  7,561     
         Savings                                                                       2,109     
         Money market accounts                                                         2,870     
         Time deposits of $100,000, and over                                           3,953     
         Other time deposits                                                          15,769     
                                                                                     -------     
              TOTAL DEPOSITS                                                          35,823     
                                                                                                 
Accrued expenses and other liabilities                                                   497     
                                                                                     -------
                                                                                                 
              TOTAL LIABILITIES                                                      $36,320     
                                                                                     -------
                                                                                     
SHAREHOLDERS' EQUITY:
     Preferred stock, par value $.001; 1,000,000 shares authorized; none issued      $    --
     Common stock, par value $.001; 9,000,000 shares authorized;
         635,380 shares issued and outstanding                                             1
     Additional paid-in capital                                                        6,354
     Retained earnings                                                                   987
     Unrealized gain on securities available-for-sale, net of tax                        136
                                                                                     -------
              TOTAL SHAREHOLDERS' EQUITY                                             $ 7,478
                                                                                     -------

              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $43,798
                                                                                     =======     
</TABLE>

See notes to condensed consolidated financial statements.

                                       1


<PAGE>   4



                        GEORGIA-CAROLINA BANCSHARES, INC.

      CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (UNAUDITED)
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                 Three         Nine           Three           Nine
                                                 Months       Months          Months          Months
                                                 Ended         Ended          Ended           Ended
                                             September 30,  September 30,  September 30,  September 30,
                                                 1998           1998           1997            1997       
                                             -------------  -------------  -------------  -------------
     INTEREST INCOME
<S>                                          <C>            <C>            <C>            <C>       
     Interest and fees on loans                 $  557         $1,670         $  494          $1,513    
     Interest on taxable securities                225            628            161             504    
     Interest on nontaxable securities              11             42             21              67    
     Interest on Federal funds sold                 37            125             57              96    
     Interest on deposits in other banks             3              7              4               9    
                                                ------         ------         ------          ------    
              TOTAL INTEREST INCOME                833          2,472            737           2,189    
                                                ------         ------         ------          ------    
                                                                                                        
INTEREST EXPENSE                                                                                        
     Interest on time deposits of $100,000                                                              
     or more                                        61            189             73             206    
     Interest on other deposits                    299            850            234             689    
     Interest on Federal funds purchased            --             --             --               2    
                                                ------         ------         ------          ------    
              TOTAL INTEREST EXPENSE               360          1,039            307             897    
                                                ------         ------         ------          ------    
                                                                                                        
              NET INTEREST INCOME                  473          1,433            430           1,292    
                                                                                                        
PROVISION FOR LOAN LOSSES                           --             --              3              15    
                                                ------         ------         ------          ------    
                                                                                                        
              NET INTEREST INCOME AFTER                                                                 
               PROVISION FOR LOAN LOSSES           473          1,433            427           1,277    
                                                ------         ------         ------          ------    
                                                                                                        
NONINTEREST INCOME                                                                                      
     Service charges on deposits                    74            188             51             162    
     Other income                                   10             28             13              33    
     Net realized gain on sales of assets            5              1              2               2    
                                                ------         ------         ------          ------    
                                                    89            217             66             197    
                                                ------         ------         ------          ------    
NONINTEREST EXPENSE                                                                                     
     Salaries and employee benefits                251            765            213             602    
     Occupancy expenses                             54            148             42             121    
     Other expenses                                186            540            191             453    
                                                ------         ------         ------          ------    
                                                   491          1,453            446           1,176    
                                                ------         ------         ------          ------    
                                                                                                        
INCOME BEFORE INCOME TAXES                          71            197             47             298    
                                                                                                        
INCOME TAX EXPENSE                                  27             55             13              93    
                                                ------         ------         ------          ------    
                                                                                                        
              NET INCOME                        $   44         $  142         $   34          $  205    
                                                ======         ======         ======          ======    
</TABLE>



                                        2


<PAGE>   5



                        GEORGIA-CAROLINA BANCSHARES, INC.

                       CONDENSED CONSOLIDATED STATEMENTS
                                       OF
                  INCOME AND COMPREHENSIVE INCOME - CONTINUED
                                   (UNAUDITED)
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                 Three            Nine            Three           Nine
                                                 Months           Months          Months          Months
                                                 Ended            Ended           Ended           Ended
                                              September 30,    September 30,   September 30,   September 30,
                                                  1998             1998            1997            1997       
                                              -------------   ----------------  -----------   -------------

<S>                                           <C>             <C>               <C>           <C>          
OTHER COMPREHENSIVE INCOME, NET
 OF TAX
     Unrealized gain on securities
     arising during current period, net
     of reclassification adjustment for 
     net gains and losses included in
     net income                                 $   90              $ 121           $    1        $    15      
                                                ------              -----           ------        -------      
                                                                                                               
COMPREHENSIVE INCOME                            $  134              $ 263           $   35        $   220      
                                                ======              =====           ======        =======      
                                                                                                               
                                                                                                               
NET INCOME PER SHARE OF COMMON STOCK:                                                                          
     Basic                                      $  .07              $ .22           $  .05        $   .33   
                                                ======              =====           ======        =======      
     Diluted                                    $  .07              $ .21           $  .05        $   .31   
                                                ======              =====           ======        =======      
                                                                                                               
DIVIDENDS PER SHARE OF COMMON STOCK             $   --              $ .10           $   --        $   .20   
                                                ======              =====           ======        =======      
</TABLE>
                                                                             
                                                                             
                                            
See notes to condensed consolidated financial statements.

                                        3


<PAGE>   6



                        GEORGIA-CAROLINA BANCSHARES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                              September 30,    
                                                                            -----------------
                                                                            1998         1997   
                                                                            ----         ----
                                                                                 
<S>                                                                       <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                           $   142       $   205
     Adjustments to reconcile net income to net cash provided by
      operating activities:
         Depreciation and amortization                                         78            62
         Provision for loan loss                                               --            15
         Deferred income tax                                                   44            32
         Adjustment to foreclosed real estate                                  --             5
         Net (increase) decrease in accrued interest receivable               (54)          101
         Net increase in other assets                                        (207)          (52)
         Net increase in other liabilities                                    143            95
                                                                          -------       -------
              NET CASH PROVIDED BY OPERATING ACTIVITIES                       146           463
                                                                          -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES
     Net (increase) decrease in federal funds sold                            750        (3,660)
     Net (increase) decrease in interest-bearing deposits with banks            1           (99)
     Net (increase) decrease in loans, net                                 (2,010)        2,085
     Net purchase and proceeds, available-for-sale securities                (857)        1,359
     Net purchases of premises and equipment                               (1,080)          (61)
     Proceeds from sale of foreclosed real estate                              53           188
                                                                          -------       -------
              NET CASH USED IN INVESTING ACTIVITIES                        (3,143)         (188)
                                                                          -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase (decrease) in deposits                                    2,886          (104)
     Dividends paid                                                           (64)         (127)
                                                                          -------       -------
              NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES           2,822          (231)
                                                                          -------       -------

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                           (175)           44

CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                              1,546         1,088
                                                                          -------       -------

CASH AND DUE FROM BANKS AT END OF PERIOD                                  $ 1,371       $ 1,132
                                                                          =======       =======
</TABLE>

See notes to condensed consolidated financial statements.

                                        4


<PAGE>   7



                        GEORGIA-CAROLINA BANCSHARES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying financial statements include the accounts of Georgia-Carolina
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, First Bank of
Georgia, (formerly First Bank of East Georgia), (the "Bank"). Significant
intercompany transactions and accounts are eliminated in consolidation.

The financial statements as of September 30, 1998 and for the three and nine
months ended September 30, 1998 and 1997 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Bank's annual report for
the year ended December 31, 1997.

The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the financial position and results for
interim periods.

The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
income and expense amounts. Actual results could differ from those estimates.

NOTE 2 - EARNINGS PER SHARE

Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. During 1997 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share". This Statement
establishes standards for computing and presenting basic and diluted earnings
per share. As the Company has granted stock options to certain officers of the
Company, diluted earnings per share has been presented in the Statements of
Income and Comprehensive Income. See the financial statements and notes thereto
included in the Company's annual report for the year ended December 31, 1997,
for information on the outstanding stock options.

NOTE 3 - COMPREHENSIVE INCOME

During the first quarter of 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This Statement establishes standards for reporting and
display of comprehensive income in a set of financial statements. Matters of
comprehensive income have been presented in the accompanying condensed
consolidated statements of income and comprehensive income for 1998 and 1997.

NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public companies report information about segments of
their business in annual financial statements and reports issued to
shareholders. The SFAS also provides for entity wide disclosures about the
products and services an entity provides and major customers. The Company will
adopt this Statement for the year ended December 31, 1998. The adoption of this
Statement is not expected to have a material effect on the financial statements.

                                        5


<PAGE>   8



                        GEORGIA-CAROLINA BANCSHARES, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other post-retirement benefit plans. The Statement
does not change the measurement or recognition of those plans, but provides for
additional information on changes in benefit obligations and fair value of plan
assets, and eliminates certain disclosures previously required by SFAS Nos. 87,
88 and 106. The Company will adopt this Statement for the year ended December
31, 1998. The adoption of this Statement is not expected to have a material
effect on the financial statements.

In June 1998, the FASB issues SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. This Statement is
effective for the Company's year beginning January 1, 2000. Management of the
Company is presently determining the effects of this Statement on the Company's
financial statements.



                                        6


<PAGE>   9



                        GEORGIA-CAROLINA BANCSHARES, INC.

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

                              RESULTS OF OPERATIONS

OVERVIEW
The Company's net income was $44,000 for the third quarter of 1998, an increase
of $10,000 (29.4%) from net income of $34,000 for the third quarter of 1997.
Basic earnings per share were $0.07 for the third quarter of 1998, an increase
of $0.02 (40.0%) from $0.05 for the third quarter of 1997. Total consolidated
assets at September 30, 1998 were $43,798,000, an increase of $3,227,000 (8.0%)
from December 31, 1997 total consolidated assets of $40,571,000 and an increase
of $5,721,000 (15.0%) from September 30, 1997 total consolidated assets of
$38,077,000.

The increase in net income for the three months ended September 30, 1998,
primarily resulted from an increase in interest income of $96,000, a decrease in
the provision for loan losses of $3,000 and an increase in noninterest income of
$23,000 from the three months ended September 30, 1997. These were partially
offset by an increase in interest expense of $53,000, an increase in noninterest
expense of $45,000 and an increase in income tax expense of $14,000 from the
three months ended September 30, 1997.

The Company's net income was $142,000 for the nine months ending September 30,
1998, a decrease of $63,000 (30.7%) from net income of $205,000 for the nine
months ending September 30, 1997. Basic earnings per share for the nine months
ending September 30, 1998 were $0.22, a decrease of $0.11 (33.3%) from $0.33 for
the nine months ending September 30, 1997. While interest income for the nine
months ending September 30, 1998 increased $283,000 over the nine months ending
September 30, 1997, and net interest income increased $141,000, noninterest
expense increased $277,000, resulting in the decline in net income from 1997.

The return on average assets was 0.86% (annualized) for the nine months ended
September 30, 1998, compared to 0.72% (annualized) for the nine months ended
September 30, 1997. The return on average equity was 2.53% (annualized) for the
nine months ended September 30, 1998, compared to 3.80% (annualized) for the
nine months ended September 30, 1997.

Further discussion of significant items affecting net income are discussed in
detail below.

NET INTEREST INCOME
Net interest income is the difference between the interest and fees earned on
loans, securities, and other interest-earning assets (interest income) and the
interest paid on deposits and borrowed funds (interest expense). Higher net
interest income is a result of the relationship between the interest-earning
assets and interest-bearing liabilities.

Net interest income was $473,000 for the three months ended September 30, 1998,
an increase of $43,000 (10.0%) from $430,000 for the three months ended
September 30, 1997. The increase was primarily the result of investing increased
deposit liability funds in loans and investment securities. Interest-earning
assets were $38,836,000 at September 30, 1998 compared to $34,383,000 at
September 30, 1997, an increase of $4,451,000 (12.9%). Loans, the highest
yielding component of interest-earning assets, were $20,982,000, an increase of
$3,095,000 (17.3%) from the September 30, 1997 balance of $17,887,000. At
September 30, 1998, loans represented 54.0% of interest-earning assets compared
to 52.0% at September 30, 1997. Investments in securities were $14,755,000 at
September 30, 1998, an increase of $3,536,000 from the September 30, 1997
balance of $11,219,000. Interest-bearing deposits were $32,262,000 at September
30, 1998, an increase of $5,497,000 (20.5%) from the September 30, 1997 balance
of $26,765,000.


                                        7


<PAGE>   10



                        GEORGIA-CAROLINA BANCSHARES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (CONTINUED)


INTEREST INCOME
Interest income for the three months ended September 30, 1998 was $833,000, an
increase of $96,000 (13.0%) from the three months ended September 30, 1997. The
increase in interest income primarily resulted from the increase in
interest-earning assets previously described. Interest income on loans was
$557,000 for the three months ended September 30, 1998, an increase of $63,000
(12.8%) from the September 30, 1997 three month earnings of $494,000. Interest
income on securities was $225,000 for the three months ended September 30, 1998,
an increase of $64,000 (39.8%) from the September 30, 1997 amount of $161,000.

INTEREST EXPENSE
Interest expense for the three months ended September 30, 1998 was $360,000, an
increase of $53,000 (17.3%) from $307,000 for the three months ended September
30, 1997. The increase primarily resulted from the increase in interest-bearing
deposit accounts as previously discussed.

NONINTEREST INCOME
Noninterest income was $89,000 for the three months ended September 30, 1998, an
increase of $23,000 (34.8%) from the three months ended September 30, 1997. The
increase was primarily attributable to an increase in service charges received
on deposit accounts.

NONINTEREST EXPENSE
Noninterest expense was $491,000 for the three months ended September 30, 1998,
an increase of $45,000 from the three months ended September 30, 1997. Salary
and employee benefit costs increased $38,000 (17.8%) primarily as a result of
the Company obtaining an additional executive officer to develop and manage the
Company's strategic expansion to the Augusta, Georgia market area. This
executive officer was retained by the Company subsequent to September 30, 1997.
Occupancy expenses increased $12,000 (28.6%) as a result of acquisitions of new
equipment and as a result of leasing office space in Augusta, Georgia for the
new executive officer.

INCOME TAXES
Income tax expense for the third quarter of 1998 totaled $27,000, representing
an increase of $14,000 from the comparable quarter in 1997. The increase is
attributable to an increase in income before income taxes of $24,000 over the
three months ended September 30, 1997.


                          REVIEW OF FINANCIAL CONDITION

OVERVIEW
Management continuously monitors the financial condition of the Bank in order to
protect depositors, increase retained earnings and protect current and future
earnings. Further discussion of significant items affecting the Bank's financial
condition are discussed in detail below.

ASSET QUALITY
A major key to long-term earnings growth is the maintenance of a high-quality
loan portfolio. The Bank's directive in this regard is carried out through its
policies and procedures for extending credit to the Bank's customers. The goal
and result of these policies and procedures is to provide a sound basis for new
credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely disposition.


                                        8


<PAGE>   11



                GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (CONTINUED)

Non-performing assets were $254,000 at September 30, 1998, compared to $349,000
at December 31, 1997 and $502,000 at September 30, 1997. The composition of
non-performing assets for each date is shown below.

<TABLE>
<CAPTION>
                                     September 30,  December 31,   September 30,
                                         1998          1997            1997       
                                     -------------  ------------   ------------- 

<S>                                  <C>            <C>            <C>     
Non-accrual loans                      $  1,000       $ 43,000       $ 50,000
OREO, net of valuation allowance        253,000        306,000        452,000
                                       --------       --------       --------

                                       $254,000       $349,000       $502,000
                                       ========       ========       ========
</TABLE>

The ratio of non-performing assets to total loans and other real estate was 1.2%
at September 30, 1998, 1.8% at December 31, 1997, and 2.7% at September 30,
1997.

Reduction of non-performing assets continues to be a management priority.

Additions to the allowance for loan losses are made periodically to maintain the
allowance at an appropriate level based upon management's analysis of potential
risk in the loan portfolio. The amount of the loan loss provision is determined
by an evaluation of the level of loans outstanding, the level of non-performing
loans, historical loan loss experience, delinquency trends, the amount of actual
losses charged to the allowance in a given period, and assessment of present and
anticipated economic conditions. From the previously described analysis,
management determined that the allowance for loan losses was at an appropriate
level during the current quarter and that a charge to the provision for loan
losses during the quarter was not necessary. At September 30, 1998, the ratio of
allowance for loan losses to total loans was 4.1%. At December 31, 1997 the
ratio was 3.8% and was 4.7% at September 30, 1997. Management considers the
current allowance for loan losses appropriate based upon its analysis of the
potential risk in the portfolio, although there can be no assurance that the
assumptions underlying such analysis will continue to be correct.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of an organization to meet its financial commitments
and obligations on a timely basis. These commitments and obligations include
credit needs of customers, withdrawals by depositors, and payment of operating
expenses and dividends. The Bank does not anticipate any events which would
require liquidity beyond that which is available through deposit growth, federal
funds balances, or investment portfolio maturities. The Bank actively manages
the levels, types and maturities of earning assets in relation to the sources
available to fund current and future needs to ensure that adequate funding will
be available at all times.

The Bank's liquidity remains adequate to meet operating and loan funding
requirements. The Bank's liquidity ratio at September 30, 1998 was 45.6%,
compared to 57.6% at December 31, 1997, and 56.0% at September 30, 1997.

Management is committed to maintaining capital at a level sufficient to protect
depositors, provide for reasonable growth, and fully comply with all regulatory
requirements. Management's strategy to achieve this goal is to retain sufficient
earnings while providing a reasonable return on equity. Federal banking
regulations establish certain capital adequacy standards required to be
maintained by banks. These regulations set minimum requirements for risk-based
capital of 4% for core capital ("Tier I"), 8% for total

                                        9


<PAGE>   12



                GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (CONTINUED)

risk-based capital and 3% for the leverage ratio. At September 30, 1998, the
Bank's Tier I capital was 27.1% and total risk-based capital was 28.4%, compared
to 30.0% and 31.3% at year-ended December 31, 1997, respectively. At September
30, 1998, the Bank's leverage ratio was 16.7% compared to 18.9% at December 31,
1997.

Since February 1998, the Company has been engaged in the offering of securities
and has incurred approximately $300,000 of costs in the preparation of the
offering. Subsequent to September 30, 1998, the Company determined not to
proceed with the offering and expects to charge substantially all of these costs
to earnings in the fourth quarter of 1998. Management of the Company expects to 
fund the charge through a dividend from the Bank as may be permitted by the 
Georgia Department of Banking and Finance or through a line of credit at the 
Company level. In consideration of the Bank's strong capital position 
management of the Bank does not believe that the payment of a dividend to the 
Bank to fund the charge will have a material effect on the Bank's liquidity 
position or capital position. See Part II, Item 2.

YEAR 2000
A critical issue affecting companies that rely extensively on electronic data
processing systems, such as the Company, is the Year 2000 issue. The Year 2000
issue has arisen due to the widespread use of computer programs that rely on
two-digit date codes to perform computations or decision-making functions. Many
of these programs may fail as a result of their inability to properly interpret
date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, being controlled by microprocessor chips, may not deal appropriately
with the year "00". This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.

The Bank primarily uses a third-party vendor for processing its primary banking
applications. During 1997, the Company formed an internal task force, chaired by
the Executive Vice President, to address the Year 2000 issue, conduct a
comprehensive review of the Company's systems and ensure that the Company takes
any necessary measures. The Company believes that its systems, those of the Bank
and its data processing vendor are currently Year 2000 compliant and does not
believe that material expenditures will be necessary to implement any further
modifications. As of September 30, 1998, the Company had spent approximately
$45,000 to upgrade its software and hardware systems to help ensure that its
systems would be Year 2000 compliant. Further, the Company has issued a
certification request to its data processing vendor seeking assurance that its
systems will be Year 2000 compliant. The vendor has responded that its systems
are Year 2000 compliant now or will be well in advance of the Year 2000.
However, there can be no assurance that unforeseen difficulties or costs will
not arise. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely, such as the Bank's data
processing vendor, will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively impact the
Company's systems or operations.

The Bank also recognizes the importance of determining that its borrowers are
facing the Year 2000 problem in a timely manner to avoid deterioration of the
loan portfolio solely due to this issue. All material relationships have been
identified to assess the inherent risks. Deposit customers have received
statement stuffers and informational material in this regard. The Bank plans to
work on a one-on-one basis with any borrower who has been identified as having
high Year 2000 risk exposure.

The Bank's contingency plans relative to Year 2000 issues have not been
finalized. Management will develop and modify a "worst case scenario"
contingency plan which will, among other things, anticipate that the Bank's
deposit customers will have increased demands for cash in the latter part of
1999.



                                       10


<PAGE>   13



                GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (CONTINUED)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The Company may, from time
to time, make written or oral forward-looking statements, including statements
contained in the Company's filings with the Securities and Exchange Commission
(the "Commission") and its reports to stockholders. Such forward-looking
statements are made based on management's belief as well as assumptions made by,
and information currently available to, management. The Company's actual results
may differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including governmental monetary and
fiscal policies, deposit levels, loan demand, loan collateral values, securities
portfolio values and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
government regulations relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for loan losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive. The Company does not undertake to update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company.


                                       11


<PAGE>   14



                                     PART II
                                OTHER INFORMATION


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
On February 19, 1998, the Company commenced a "best efforts" public offering
(the "Best Efforts Offering") of a minimum of 518,519 shares and a maximum of
740,741 shares of its common stock, $.001 par value per share (the "Common
Stock"), at an offering price of $13.50 per share. The 740,741 shares in the
Best Efforts Offering were registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement on Form
SB-2 (File No. 333-41547), which was declared effective by the Securities and
Exchange Commission (the "Commission") on February 19, 1998. The shares in the
Best Efforts Offering were offered by certain directors and executive officers
of the Company who received no commissions for such sales. All subscription
funds tendered in the Best Efforts Offering were deposited in an
interest-bearing escrow account with The Bankers Bank, Atlanta, Georgia (the
"Escrow Agent") pending completion of certain conditions to closing the Best
Efforts Offering.

As of August 18, 1998, the Best Efforts Offering had resulted in the receipt of
subscriptions for 310,000 shares of Common Stock, at $13.50 per share, from
approximately 265 subscribers (the "Initial Subscribers"). Although, by its
terms, the Best Efforts Offering could have been extended without modification
through February 14, 1999, the Company determined to restructure the plan of
distribution prior to that date after Interstate/Johnson Lane Corporation
("IJL"), a firm with extensive experience in raising equity for community banks
and their holding companies, advised the Company that it would underwrite the
sale of up to 740,000 shares of the Common Stock on a firm commitment basis (the
"Firm Commitment Offering"). Accordingly, on August 28, 1998, pursuant to Rule
429 of the Securities Act, the Company filed a second Registration Statement on
Form SB-2 (File No. 333-62493), which included a Prospectus that was amended
from the Prospectus contained in the Company's Registration Statement relating
to the Best Efforts Offering. The amended Prospectus provided (i) updated
financial information; (ii) disclosed the involvement of IJL on a firm
commitment basis for up to 740,000 shares of the Common Stock at the same price
per share ($13.50) as offered in the Best Efforts Offering; and (iii) disclosed
that the Initial Subscribers would be given an opportunity to withdraw their
previously submitted subscriptions. On October 28, 1998, after printing and
distributing the amended Prospectus, IJL informed the Company that it could not
complete the Firm Commitment Offering due to unfavorable market conditions.
Based on such conditions and discussions with the Commission, the Company has
determined not to proceed with either the Firm Commitment Offering or the Best
Efforts Offering. Accordingly, all subscription funds tendered with the Escrow
Agent will be returned to the Initial Subscribers with interest.

The following table sets forth all expenses incurred in connection with the Best
Efforts Offering and the Firm Commitment Offering. All of the amounts shown are
estimated except for the Commission's registration fees.

<TABLE>
              <S>                                                                     <C>    
              Commission Registration Fee                                             $  3,390
              NASD Filing Fee                                                            1,650
              Nasdaq SmallCap Listing Fee                                               10,500
              Blue Sky Fees and Expenses                                                15,000
              Printing and Engraving Expenses                                           65,000
              Legal Fees and Expenses                                                   75,000
              Financial Advisor Fees                                                    70,000
              Accounting Fees and Expenses                                              25,000
              Miscellaneous                                                             34,460
                                                                                      --------

                   Total                                                              $300,000
                                                                                      ========
</TABLE>

                                       12


<PAGE>   15



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibit No.      Description
              -----------      -----------
                  27           Financial Data Schedule (for SEC use only).

         (b) No reports on Form 8-K were filed during the quarter ended
             September 30, 1998.







                                       13


<PAGE>   16


                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                        GEORGIA-CAROLINA BANCSHARES, INC.



                              By: /s/ Patrick G. Blanchard, Sr.
                                  -----------------------------
                                  Patrick G. Blanchard, Sr.
                                  President and Chief Executive Officer
                                  (principal executive officer)



November 13, 1998             By: /s/ J. Harold Ward, Jr.
-----------------                 ----------------------------------------------
Date                              J. Harold Ward, Jr.
                                  Senior Vice President, Chief Financial Officer
                                  (principal financial and accounting officer)