<PAGE>

                        SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                   FORM 10-K



               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997



             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period from ___ to ___



                         Commission file number 0-23808



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


       Georgia                                          58-1393777
(State of incorporation)                 (I.R.S. Employer Identification Number)


                 777 Greenbelt Parkway, Griffin, Georgia 30223
          (Address of principal executive offices, including zip code)



                                 (770) 229-5995
              (Registrant's telephone number, including area code)



       Securities registered pursuant to Section 12(b) of the Act:  None



                Securities registered pursuant to Section 12(g)
                   of the Act: Common Stock, $.01 par value


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]


The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 25, 1998 was $12,953,562.  There were
4,084,294 shares of Common Stock outstanding as of March 25, 1998.



<PAGE>

                             METROTRANS CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997


                               TABLE OF CONTENTS
                               -----------------
ITEM                                                                    PAGE
Number                                                                 NUMBER
------                                                                 ------
                                     PART I
 1.   Business.........................................................   3

 2.   Properties.......................................................  11

 3.   Legal Proceedings................................................  12

 4.   Submission of Matters to a Vote of Security Holders..............  12

 4A.  Executive Officers of the Company................................  12


                                    PART II
<TABLE>
<CAPTION>
<S>    <C>                                                            <C>
 5.    Market for the Registrant's Common Equity and Related
         Stockholder Matters...........................................  14

 6.    Selected Financial Data.........................................  15

 7.    Management's Discussion and Analysis of Financial Condition
        and Results of Operations......................................  16

 8.    Financial Statements and Supplementary Data.....................  22

 9.    Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure.......................................  38

</TABLE>
                                    PART III
<TABLE>
<CAPTION>

<S>     <C>                                                            <C>
 10.    Directors and Executive Officers of the Registrant.............  38

 11.    Executive Compensation.........................................  38

 12.    Security Ownership of Certain Beneficial Owners and Management.  39

 13.    Certain Relationships and Related Transactions.................  39

</TABLE>
                                    PART IV


 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.  40

SIGNATURES.............................................................  43
INDEX OF EXHIBITS......................................................

                                       2
<PAGE>

                                     PART I


ITEM 1. BUSINESS
----------------

OVERVIEW


     Metrotrans Corporation (the "Company") is a manufacturer and distributor of
a range of shuttle, mid-size, and full-size touring buses designed for use
primarily by image conscious commercial enterprises. The Company's principal
products are its Classic(R) line of shuttle and mid-size touring buses, its
Eurotrans(R) line of mid-size coaches that are moderately priced in comparison
to full-size motor coaches, its Legacy LJ line of mid-size coaches which bridges
between the Classic and Eurotrans lines, and a line of full-size Century motor
coaches manufactured by Irizar S. Coop. in Spain but marketed and distributed by
the Company in the United States. See "Products" below.  The Company's products
are targeted at distinct markets, including tour and charter companies, hotels,
automobile rental companies, airport ground transportation companies, parking
lot operators, medical and retirement facilities, intracity and rural transit
operators, and churches. The Company's customers include ATE Management and
Service Company, Inc. (a wholly-owned subsidiary of Ryder Systems, Inc.), Budget
Rent-A-Car Corp., Alamo Rent-A-Car, Inc., Hyatt Hotels Corp., Life Care Centers
of America, Marriott Hotels Inc., and Dollar Rent-A-Car.

     The Company markets its products in the United States primarily through a
number of Company operated sales centers located in 11 states and, to a lesser
extent, through several independent dealers.  The Company also markets its
products internationally on a limited basis primarily from its headquarters in
Griffin, Georgia. See "Sales and Marketing" below.

     Since the introduction of the Classic in 1986, the Company has experienced
continuous growth in its unit sales, revenues and earnings. The Company's growth
has been enhanced by the introduction of the Eurotrans line in 1990, the
Eurotrans XLT(TM) and the Classic II(TM) in late 1992, the Classic Commuter(TM)
in late 1993 and the Legacy LJ in 1996.  In late 1997, the Company announced two
additional product lines  the Anthem and the Irizar Century with deliveries
scheduled to begin in mid 1998. See "Products" Below.

     In order to sustain its growth and increase its manufacturing capacity, the
Company moved its manufacturing and administrative offices to the current
location in Griffin, Georgia during 1992. During 1997, the Company manufactured
an average of approximately 20 Classics and Classic IIs, one to two Eurotrans
and Eurotrans XLTs per week, and one to two Legacy LJs per week. The Company
estimates existing capacity in its present facilities to manufacture up to 35
Classic and Classic IIs, 5 Eurotrans and Eurotrans XLTs per week, and 5 Legacy
LJs per week while maintaining its current one shift operation. Substantially
all of the buses and coaches manufactured by the Company are based on firm
customer orders received in advance of production.

     The Company was incorporated in 1982. During the period from 1982 until the
introduction of the Classic in 1986, the Company marketed the Metrotrans, a mid-
size bus designed by the Company but manufactured on a private label basis by a
third party manufacturer, as well as another mid-size bus product manufactured
by a large manufacturer of recreational vehicles.

     The Company incorporated a wholly-owned subsidiary, Bus Pro, Inc. ("Bus
Pro"), in February 1997 for the purpose of operating its used coach division.
Refurbishes and remarkets to various secondary markets used buses

                                       3
<PAGE>

received by the Company through trade-ins related to new bus sales and purchased
under terminating lease agreements.  In March 1996, the Company liquidated three
wholly-owned subsidiaries - Spalding Molded Products, Inc., Eurotrans Corp., and
Metrotrans Overseas, Inc. and consolidated the operations of those entities with
the operations of the Company.


PRODUCTS

     HISTORY.  The Company originally marketed buses manufactured by third
parties.  These buses were designed and built based on recreational vehicle
principles and standards using electrical and mechanical systems that overlapped
and were dependent upon the chassis manufacturer's system. Additionally, the
buses were equipped with light duty components designed for occasional
recreational use.  In 1984 and 1985, the Company designed a mid-size bus
utilizing a "cutaway" cab chassis as well as electrical and mechanical
engineering techniques that the Company believes had not been used in small and
mid-size bus manufacturing. The Company began manufacturing its Classic line in
1986 based on its new designs.


     DESIGN.  During the Company's design process, the Company's design team
emphasizes safety and quality over all other features.  The Company's Classic
and Legacy LJ designs include 16-gauge steel tubing welded into a roll cage
completely surrounding the passenger seating area. In addition there is a roll
cage constructed in the cab of the Classic over the driver's head. The floor of
the Classic and Legacy LJ is constructed of 11 and 14-gauge steel cross-members
and is gusseted full length on each side by 11-gauge steel tubing. The Company's
Eurotrans product is built using similar engineering standards, including a 14-
gauge steel roll cage surrounding the sides and top of the entire bus, modified
to accommodate the larger size of the Eurotrans.


     Despite the fact that there are few safety standards specific to the mid-
size bus industry, the Company's Classic line is designed and has been tested to
exceed the strict safety standards established for school buses. The Company has
certified the crash-worthiness of its vehicles and components with Atlanta
Testing & Engineering Inc., an independent testing laboratory. The Classic line
has been certified to withstand 200% of the vehicle's weight on the roof and
sides without catastrophic failure in a roll-over. Federal standards require
that a school bus withstand 150% of the vehicle's weight in a roll-over test.
The Company has met the requirements of the Ford Motor Home and Transit Bus
Qualified Vehicle Modifier Program to attain "FM-Fully Meets" status. In
addition, certain of the Company's products have been tested at the Alatoona Bus
Testing Center in order to qualify the vehicles for government funded
purchasing.


     DESCRIPTION  The Company manufactures and markets shuttle and mid-size
touring buses and mid-size and full-size coaches that can accommodate varying
numbers of passengers at prices ranging from $30,000 to $360,000.  The interior
configuration of the Company's buses may be custom designed to accommodate the
needs of the specific customer. For example, car rental agencies typically
require that the bus or coach contain large, open racks for luggage storage
while medical and retirement facilities often require a configuration that will
accommodate one or more wheelchairs and a paratransit lift and door.

                                       4
<PAGE>

     Set forth below is information regarding each of the Company's current
models.


THE CLASSIC LINE

     The Classic. The Company introduced the Classic bus in 1986. The Classic
was the Company's initial entry into mid-size bus manufacturing and continues to
be the Company's leading seller. The Classic utilizes a dual rear wheel cutaway
cab, engine, chassis and transmission manufactured by Ford Motor Company
("Ford") or General Motors Corporation ("GM"). During the period from the
introduction of the Classic in 1986 to date, the Company made and continues to
make modifications to the Classic in response to customer suggestions. For
example, the Classic has been modified to include optional aircraft style
positive closing interior overhead luggage compartments and a gull-wing type
rear luggage and paratransit lift door which provides weather protection while
open.


     THE CLASSIC II. The Company introduced the Classic II in 1992. The Classic
II utilizes a single rear wheel cutaway chassis manufactured by Ford or General
Motors and is a smaller and less expensive alternative to the Classic seating up
to 17 passengers. The Classic II is marketed primarily to parking lot operators,
rental car agencies, churches and schools. The Classic II has virtually all of
the standard features incorporated in the Classic and is available with similar
options.  The Classic II may be operated without a commercial operator's
license.

     THE CLASSIC COMMUTER. The Company introduced the Classic Commuter in late
1993. The Classic Commuter, like the Classic II, utilizes a single rear wheel
Ford or General Motors cutaway chassis and can accommodate up to 17 passengers.
The Classic Commuter is not as tall as the Classic II and is intended to provide
an alternative to passenger vans by offering the interior comfort, styling and
safety features of a mid-size bus, including a welded steel roll cage not
available in passenger vans, at a price that is generally $5,000 to $8,000
higher than an average passenger van.

THE LEGACY LINE

     THE LEGACY LJ. In 1995, the Company introduced the Legacy LJ, a down-sized
rear engine coach accommodating up to 33 passengers and built on a Spartan
Motors Inc. ("Spartan") chassis designed exclusively for the Company. A product
that fills a gap between a cutaway chassis shuttle bus and a full-size motor
coach, the Legacy LJ offers the image and reliability of a coach with the
maneuverability of a shuttle bus featuring a 16 foot, 4 inch turning radius
which allows operation in narrow streets or compact parking lots.

THE EUROTRANS LINE

     THE EUROTRANS. The Company first introduced the Eurotrans in 1990. The
Eurotrans seats up to 41 passengers and utilizes a rear mount turbo diesel
engine manufactured by Cummins Engine Company, a four-speed automatic
transmission manufactured by Allison Transmission Company and a chassis
manufactured by Spartan. The Eurotrans superstructure is supported by a 14-gauge
welded steel roll cage manufactured by the Company. The Eurotrans also utilizes
a one-piece windshield which offers the driver and passengers the safety and
convenience of unobstructed visibility.

     THE EUROTRANS XLT. In late 1992, the Company introduced the Eurotrans XLT.
The Eurotrans XLT features a raised platform chassis manufactured exclusively
for the Company by Spartan allowing for full undercarriage luggage storage

                                       5
<PAGE>

similar to that found in full-size motorcoaches. The Eurotrans XLT seats up to
41 passengers and utilizes a more powerful Cummins turbo diesel engine than that
used in the standard Eurotrans and a six-speed electronic transmission
manufactured by Allison Transmission Company.


THE ANTHEM LINE


     THE ANTHEM.  The Company introduced the Anthem and began accepting orders
in late 1997 and anticipates initial customer deliveries of production units in
mid-1998.  The 35', two-axle Anthem is the first bus manufactured by the Company
with a semi-monoque integral construction and, accordingly, offers a substantial
amount of undercarriage luggage storage.  The Anthem seats up to 45 passengers
and utilizes a Cummins C8.3 turbo diesel engine and an Allison B400 World
transmission.



THE IRIZAR CENTURY LINE


     THE IRIZAR CENTURY.  The Company established a relationship with Irizar
S.Coop. during 1997 whereby the Company, given its substantial distribution
system and industry expertise in the United States, is marketing and providing
after-sale support for certain full-size Irizar motorcoaches in North America.
The bus bodies of these motorcoaches are manufactured in Spain by Irizar on
chassis supplied by the Company from the United States.  The Century motorcoach,
produced in either 40' or 45' lengths and seating up to 56 passengers, has been
in production by Irizar for several years for other markets and has received a
number of Coach of the Year awards in Europe.  The Company-supplied chassis
presently in use has been jointly developed by the Company, Irizar and Spartan
Motors and is manufactured by Spartan.  The chassis utilizes American
components, including either a Cummins M11 or Detroit Diesel Series 60 turbo
diesel engine and an Allison B500 World transmission.



SALES AND MARKETING

     The Company markets its buses and coaches primarily through a number of
Company operated sales centers in the United States. The Company's direct sales
force only markets the Company's product. The Company advertises in industry
trade journals and showcases vehicles in industry trade shows. The Company also
has implemented a direct mail program targeted at specific markets identified by
the Company.  The Company currently markets its products domestically through
sales centers in or near the following cities:


                    Atlanta Georgia
                    Chicago Illinois
                    Cincinnati Ohio
                    Dallas, Texas
                    Denver, Colorado
                    Ft. Lauderdale, Florida
                    Los Angeles, California
                    Nashville, Tennessee
                    Orlando, Florida
                    Philadelphia, Pennsylvania
                    San Francisco, California
                    Washington, D.C.

                                       6
<PAGE>

     The Company currently utilizes approximately 25 full-time sales personnel
operating out of the Company's sales and service centers. The Company's direct
sales personnel are responsible for the performance of their respective sales
centers and are compensated primarily on a commission basis. The commission
earned on each sale is based on a percentage of the amount by which the actual
sales price exceeds the "dealer" invoice price established by the Company. The
Company also markets its products through several independent distributors
located in Honolulu, Hawaii; Dallas, Oregon (Salem); San Juan, Puerto Rico; and
Vancouver, British Columbia.


CUSTOMERS

     The Company has a customer base comprised of companies in a number of
different industries, including tour and charter companies, hotels, automobile
rental companies, airport parking companies, medical and retirement facilities,
limousine companies, intracity and rural transit companies, and churches. During
1997, the Company's customers included ATE Management and Service Company, Inc.
(a wholly owned subsidiary of Ryder Systems, Inc.) which operates public
transportation systems in a number of areas in the United States, Budget Rent-A-
Car Corp., Alamo Rent-A-Car, Inc., Life Care Centers of America, Marriott Hotels
Inc., Hyatt Hotels Corp., and Dollar Rent-A-Car Corp.

PRODUCT SUPPORT AND CUSTOMER SERVICE

     The Company offers a free two-day service education program designed to
teach the customer's mechanics and other service personnel about the mechanical
and electrical systems used in the Company's buses and coaches.  The Company
also provides technical assistance on an as needed basis.  The Company's buses
and coaches are generally covered by a 13-month unlimited mileage warranty
(excluding the chassis, engine, drivetrain, tires and certain other items that
are covered by the manufacturer's standard warranty).  The Company currently
provides maintenance and service facilities at several of its sales centers and
has approximately 40 authorized independent full-service centers.  Additionally,
the manufacturers of certain components of the Company's buses and coaches,
including the chassis, engine and drivetrain, have service centers authorized to
service their specific components in large population centers throughout the
United States.  Customers may choose to operate as an authorized service center
(many fleet customers have these capabilities) and may recommend local
facilities to become authorized service centers.  In either case, the centers
must be qualified and approved by the Company.  All warranty repairs must be
made at an authorized service center.  The Company's customers may call the
METROCARE toll free number to receive repair authorization and/or guidance on
service and maintenance.

     The Company has an administration agreement with Automobile Protection
Corporation ("APCO") whereby the Company offers extended service contracts to
its bus customers. APCO administers and adjusts claims by working directly with
the customer and the repair facility chosen by the customer once the initial
Company or chassis manufacturer warranty has expired.

MANUFACTURING AND PURCHASING

     The Company is a vertically integrated manufacturer that constructs the
body framing and coach work, molds its own plastic and fiberglass, constructs
the cabinets and assembles certain of the electrical circuitry for each of its

                                       7
<PAGE>

buses and coaches.  By manufacturing these items, the Company is able to
maintain substantial control over product safety and quality, supply and
scheduling.  The vertical integration also allows the Company greater
flexibility in its design and allows the customer to choose the design features
and options that best meet the customer's needs.  The Company also controls
costs by purchasing most of its parts and supplies on an as needed basis and
manufacturing substantially all of its buses based on firm customer orders.  The
Company purchases pre-assembled chassis, including engines, transmission
drivetrain and axle assemblies, for use in its buses and coaches.  By purchasing
the chassis from third party suppliers, the Company is able to offer to its
customers the warranty programs of the suppliers.  The Company is a participant
in the Ford Motor Home and Transit Bus Qualified Vehicle Modifier Program and
has attained "FM-Fully Meets" status.  Ford established this program to assist
manufacturers, such as the Company, in complying with Ford's strict engineering
guidelines.  As a participant in the program, the Company is able to make
certain modifications to the Ford chassis used in most of its Classic line of
buses, including lengthening the chassis without affecting the standard warranty
covering the chassis.

     During 1997, substantially all of the Company's manufacturing of its buses
and coaches was conducted in a 100,000 square foot manufacturing facility in
Griffin, Georgia, using three production lines.  The production capacity for
each of the lines could increase further with the addition of more work shifts.
The Company's manufacturing facility has primary assembly lines with designated
areas for body manufacturing, electrical harness installation, interior
installation and finishing.  Sub-assemblies (electrical harness, cabinet making,
seating, upholstery and coachwork) occur adjacent to the assembly lines allowing
for sub-assembled components to feed the lines at an optimum location minimizing
line time on each unit.  The Company contracts with a third party for the
exterior painting of its vehicles.  Currently, it takes approximately ten days
to build a Classic, Classic II or Classic Commuter and approximately 25 days to
build a Eurotrans or Eurotrans XLT coach or a Legacy LJ bus.

     The Company maintains a strict quality control program providing for a
quality control inspection at each stage of the manufacturing process for each
vehicle manufactured.  Additionally, each vehicle undergoes a leak test,
electrical testing, a complete systems test and two heating and cooling tests.
Each vehicle also undergoes a complete road test by at least two inspectors so
that problems can be identified and corrected prior to delivery of the vehicle
to the customer.

     The Company purchases raw materials, supplies, parts and subcomponents from
approximately 600 vendors. The Company attempts to minimize its level of
inventory by ordering most parts on an as needed basis. As a result, the Company
does not maintain substantial inventories of any of its parts and supplies. All
of the chassis utilized in the Classic, Classic II and Classic Commuter buses
are purchased fully assembled from Ford or General Motors Corporation. All of
the chassis utilized in the Eurotrans, Eurotrans XLT, and Legacy LJ coaches are
manufactured for the Company by Spartan and are shipped to the Company with the
engine and drivetrain in place. The chassis were designed in cooperation with
the Company and are manufactured for the Company by Spartan. The Company
believes that it has satisfactory relationships with these suppliers.

                                       8
<PAGE>

COMPANY WARRANTY

     The Company provides a 13-month, unlimited mileage, limited warranty on all
of its buses and coaches that covers all parts of the vehicle except the
chassis, engine, drivetrain, tires and certain other items that are covered
under separate warranties by their manufacturers.  The Company also provides an
extended service agreement for an additional price.  The service agreement is
administered by APCO.  See "Product Support and Customer Service" for additional
information.

RESEARCH AND DEVELOPMENT

     The Company is engaged in ongoing research and development devoted to
enhancing its current product line as well as to the development of new
products.  The Company currently maintains an engineering department of
approximately ten employees who continuously seek to improve upon the Company's
products and to quickly respond to customer needs and comments.  The Company
also works closely with its strategic suppliers in the development process to
maximize the economy and effectiveness of new products.  The chassis for the
Legacy LJ and the Irizar Century being sold in the United States was the result
of joint development between the Company and Spartan.

     The Company's research and development have been driven by pro-active
relationships with its customers as well as its suppliers. The direct sales
method of distribution provided by the Company's sales force gives management
and engineering immediate feedback on product areas that need improvement and on
opportunities for new products and design enhancements of existing products. The
Company's contact with its customers resulted in the development of the original
Classic in 1986, the Eurotrans in 1990, the Eurotrans XLT and the Classic II in
late 1992, the Classic Commuter in late 1993, the Legacy LJ in 1996, and the
Irizar Century in 1997.

USED VEHICLE SALES

     Many of the Company's fleet customers and potential customers rotate their
fleet every two to four years.  These fleet rotations, as well as lease
maturities, have resulted in the development of an active market for previously-
owned buses and coaches.  The Company constructed a new 24,000 square foot
facility during 1996 situated along Interstate 75 in McDonough, Georgia for the
purpose of expanding its capabilities in the used coach refurbishing and resale
markets.  In connection with fleet sales in its direct distribution territories,
the Company accepts "trade-in" vehicles of its own and other brands.  The
"trade-in" vehicles may be sold by the Company "as is", typically at
approximately 15% to 35% of original value after four years use with average
maintenance, or refurbished at the Company's manufacturing facility and sold for
a greater percentage of their original value.  Based on its marketing
experience, the Company believes its "trade-in" policy increases new bus and
coach purchases by fleet customers.  The Company's and Bus Pro's sales personnel
sell the used buses and coaches primarily to churches, start-up tour and charter
operators and wholesalers who resell the buses and coaches to a variety of end-
users.

                                       9
<PAGE>

BACKLOG

     The Company's customers typically place orders for the Classic line for
delivery within six  to twelve weeks after the order and orders for the
Eurotrans line for delivery within two to six months after the order.  Orders
for the Legacy LJ have experienced longer lead times as the Company has been
working to establish a smooth production flow for the new product.  The lead
time for Anthem orders is expected to be similar to that of the Eurotrans after
completion of initial production units.  Delivery of Irizar Century units are
expected within three to six months after the order as a result of the overseas
shipping time.  As of December 31, 1997 and 1996, the Company's backlog of
orders was approximately $25,500,000 and $22,000,000, respectively.  At March
15, 1998, the Company's backlog of orders was approximately $26,000,000.

COMPETITION

     The market for each of the Company's products is highly competitive.
Competition in the markets for the Company's products is based on a number of
factors, including product quality and reliability, safety, product features,
driving performance, quality of product support and customer service, loyalty of
customers and price.

     The Company primarily competes with approximately ten competitors for sales
of the Classic line and several competitors for sales of each of its Eurotrans,
Legacy LJ, Anthem and Irizar Century lines.  Some of the Company's competitors
have greater financial resources than the Company.  The Company believes that it
must continue its research and development efforts to further enhance its
products and to lower the cost of its products through manufacturing
efficiencies and other cost saving measures in order to remain competitive.
These efforts, together with the Company's continuing sales and marketing
efforts, will be critical to the Company's future success.  There can be no
assurance that the Company will be able to maintain or improve its competitive
position in the mid-size bus and coach market. The Company currently competes in
the market for its shuttle and mid-size buses primarily with Eldorado National
(a division of Thor Industries, Inc.) and with Champion Motorcoach which was
acquired during 1997 by Thor Industries Inc. from Champion Industries, Inc.
These competitors and some other existing and potential competitors are owned by
substantially larger entities than the Company.

GOVERNMENT REGULATIONS

     The manufacture and operation of passenger buses are subject to a variety
of federal, state and local regulations, including the National Traffic and
Motor Vehicle Safety Act, administered by the National Highway Traffic Safety
Administration ("NHTSA"), and safety standards for passenger vehicles and their
components that have been promulgated by the Department of Transportation. These
standards permit NHTSA to require a manufacturer to repair or recall vehicles
with safety defects or vehicles that fail to conform to applicable safety
standards. The Company's products meet or exceed all applicable vehicle safety
regulations and standards imposed by NHTSA.  Many states regulate the sale,
transportation and marketing of passenger buses. Some states also legislate
additional safety and construction standard for passenger buses.

     In the future, governmental laws and regulations may be adopted that impose
stricter safety, environmental or operational standards on the Company's
products.  The Company is committed to meet or exceed all current and future
applicable regulatory requirements.

                                       10
<PAGE>

PROPRIETARY RIGHTS

     The names "Classic" and  "Eurotrans" are registered trademarks of the
Company.  The Company also claims rights to a number of unregistered trademarks.
Management believes, however, that the Company's competitive success will not
depend on the ownership of intellectual property rights.

EMPLOYEES

     As of December 31, 1997, the Company had 350 full-time employees.  Of the
Company's total employees, approximately 30 were in sales and marketing,
approximately 10 were engaged in engineering activities, including research and
development, approximately 275 were in manufacturing, and approximately 35 were
in administration.  The Company's employees are not represented by a collective
bargaining agreement and the Company has never experienced a work stoppage.
Management believes the Company's relationship with its employees is good.


ITEM 2. PROPERTIES
------------------

     The Company's corporate headquarters and primary manufacturing,
distribution and research and development facilities are located in
approximately 113,000 square feet of leased space in Griffin, Georgia. The
Company leases the facility from the Griffin-Spalding County Development
Authority (the "Authority") which financed the purchase of the land and
construction of the facility through the sale of tax exempt Industrial Revenue
Bonds. The Company is obligated to purchase the land and facility from the
Authority upon payment of nominal additional consideration upon the maturity of
the Bonds in 2011. The Griffin facility is comprised of approximately 13,000
square feet of office space and approximately 100,000 square feet of
manufacturing space. The Company's current manufacturing facility has the
capacity to produce and provide inventory for approximately 50 buses and coaches
per week.

     The Company owns a 22,000 square foot facility located in Ellenwood,
Georgia, in which the Company manufactures the fiberglass and plastic molded
products used by the Company in its buses and coaches.

     The Company constructed a 24,000 square foot facility during 1996 for its
used coach subsidiary, BUS PRO, INC., in McDonough, Georgia, which is used for
refurbishment and sale of used buses and coaches.  The facility is comprised of
approximately 21,000 square feet of shop area and 3,000 square feet of office
space.  The facility is bordered by a parking area capable of accommodating over
230 buses.

     The Company's sales centers are located in leased facilities ranging in
size from 300 to 3,600 square feet.  The Company primarily leases these
facilities under short-term leases.  See "Item 1.  Business - Sales and
Marketing."

     The Company believes that its current facilities are suitable for and
adequate to support its present level of operations.

                                       11
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.
--------------------------

     The Company from time to time is a party to legal proceedings arising out
of and incidental to the operations of the Company.  However, management does
not anticipate that any of such proceedings will have a material adverse effect
on its financial condition or results of operation.  The Company may be subject
to product liability claims arising from the use of its products.  The Company
maintains product liability insurance which it currently considers adequate.

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

     No matter was submitted by the Company to a vote of security holders during
the fiscal quarter ended December 31, 1997.


ITEM 4A.  EXECUTIVE OFFICERS OF THE COMPANY
-------------------------------------------

     Information relating to the directors and executive officers of the Company
is set forth in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders.  Such information is incorporated herein by reference.

     Set forth below is certain information as of December 31, 1997 regarding
the executive officers of the Company.

     D. MICHAEL WALDEN, age 47, has served as Chairman, President and Chief
Executive Officer of the Company since its incorporation in 1982.

     TERRI B. HOBBS, age 41, has served as Executive Vice President of the
Company since July 1990.  From 1987 until July 1990, Ms. Hobbs served as
Director of Marketing for the Company and, from 1985 through 1987, Ms. Hobbs was
engaged in sales and administration for the Company.

     RICHARD M. BRUNO, age 45, joined the Company in May 1995 and has served as
Vice President, Chief Financial Officer, Treasurer and Secretary since that
time.  From January 1994 to May 1995, Mr. Bruno was Treasurer of Mohawk
Industries, Inc., a carpet manufacturing company.  From October 1983 to January
1994, Mr. Bruno was with Engraph, Inc., a packaging manufacturing company, and
served as its Treasurer for more than five years.

     Set forth below is certain information as of December 31, 1997 regarding
certain significant employees of the Company who are not executive officers.

     THOMAS HOLLENBECK, age 49, has served as Vice President - Sales and
Marketing since March 1997.  From February 1991 to March 1997, Mr. Hollenbeck
was associated with MJM International, Inc. which served as a sales
representative of the Company for California and Hawaii.  From 1988 to 1991, Mr.
Hollenbeck was Senior Vice President of General Rent-a-Car of Fort Lauderdale,
Florida, a rental car company, and from 1975 to 1988 served as Vice President -
Sales and Marketing of National Coach Corp., a shuttle bus manufacturer.

     J. DOUGLAS DUNN, age 43, has served as Vice President  Sales Administration
of the Company since October 1997.  Prior to that time and for more than five

                                       12
<PAGE>

years, he was owner and president of J.D. Dunn, Inc., dba Magnum Transportation,
Inc., an independent distributor of buses for El Dorado National, a division of
Thor Industries, Inc.

                                       13
<PAGE>

                                    PART II


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

     The Company's Common Stock has been traded on The Nasdaq National Market
under the symbol "MTRN" since the Company's initial public offering in June
1994.  Prior to the initial public offering, there was no established trading
market for the Company's Common Stock.  The Company did not issue or sell any
shares of its Common Stock that were not registered under the Securities Act of
1933, as amended.  As of March 25, 1998, the number of stockholders of record of
the Company's Common Stock was approximately 188.  The following table sets
forth, by fiscal quarter, the high and low closing sale prices of the Common
Stock as reported by The Nasdaq National Market for the three years ended
December 31, 1997.



<TABLE>
<CAPTION>

PERIOD                                     HIGH                    LOW
------                                    ------                  -------
<S>                                       <C>                     <C>
=============================================================================
Fourth Quarter 1997                       $13.38                  $10.75
-----------------------------------------------------------------------------
Third Quarter 1997                        $13.50                  $ 9.25
-----------------------------------------------------------------------------
Second Quarter 1997                       $10.25                  $ 7.50
-----------------------------------------------------------------------------
First Quarter 1997                        $15.25                  $ 9.75
=============================================================================
Fourth Quarter 1996                       $14.75                  $12.25
-----------------------------------------------------------------------------
Third Quarter 1996                        $14.50                  $12.50
-----------------------------------------------------------------------------
Second Quarter 1996                       $14.75                  $12.00
-----------------------------------------------------------------------------
First Quarter 1996                        $12.50                  $ 8.25
=============================================================================
Fourth Quarter 1995                       $ 9.00                  $ 7.00
-----------------------------------------------------------------------------
Third Quarter 1995                        $ 8.50                  $ 6.25
-----------------------------------------------------------------------------
Second Quarter 1995                       $ 8.00                  $ 5.25
-----------------------------------------------------------------------------
First Quarter 1995                        $ 6.00                  $ 5.25
=============================================================================
</TABLE>


     The Company intends to retain all future earnings for the expansion and
development of the Company's business and does not anticipate paying cash
dividends in the foreseeable future. Future dividend policy and the payment of
dividends, if any, will be determined by the Company's Board of Directors in
light of circumstances then existing including the Company's earnings, financial
condition, and other factors deemed relevant by the Board of Directors.

                                       14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
-------------------------------

     The following selected financial data for and as of the end of each of the
years ended December 31, 1997, 1996, 1995, 1994, and 1993 are derived from the
financial statements of the Company, which financial statements have been
audited by Arthur Andersen LLP, independent public accountants.  The selected
financial data is qualified in its entirety by the more detailed information and
financial statements, including the notes thereto, included elsewhere in this
report.  The financial statements of the Company as of December 31, 1997 and
1996 and for each of the years in the three year period ended December 31, 1997,
and the report of Arthur Andersen LLP thereon, are included elsewhere in Item 8
of this report.

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                  --------------------------------------------------
                                                    1997      1996       1995       1994       1993
                                                  --------- ---------  --------   --------   -------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>       <C>       <C>        <C>        <C>
INCOME STATEMENT DATA:
Net Revenue....................................    $80,132   $77,482   $64,027    $52,271    $39,033
Cost of Sales..................................     66,153    62,814    50,914     42,494     30,177
                                                   -------   -------   -------    -------    -------
Gross Profit...................................    13,979     14,668    13,113      9,777      8,856
Selling general, and administrative
  expenses.....................................     9,823      8,477     7,458      6,900      5,320
                                                   -------   -------   -------    -------    -------
Operating Income...............................     4,156      6,191    5,655       2,877      3,536
Interest expense, net..........................     1,330        736      711         498        583
                                                   -------   -------   -------    -------    -------
Income before
  income taxes.................................     2,826      5,455    4,944       2,379      2,953
Income tax provision (1).......................     1,109      2,136    1,914         920      1,122
                                                   -------   -------   -------    -------    -------
Net income.....................................    $1,717     $3,319   $3,030      $1,459     $1,831
                                                   =======   =======   =======    =======    =======
Diluted weighted average number of
shares (2).....................................     4,112      4,107    3,993       3,698      3,335
                                                   ======     ======   ======      ======     ======
Diluted net income per share...................    $ 0.42     $ 0.81   $ 0.76      $ 0.39     $ 0.55
                                                   ======     ======   ======      ======     ======

                                                                       DECEMBER 31,
                                                  --------------------------------------------------
                                                    1997      1996       1995       1994       1993
                                                  --------- ---------  --------   --------   -------
                                                            (IN THOUSANDS, EXCEPT OTHER DATA)
BALANCE SHEET DATA:
Working capital (deficit)......................   $23,292    $13,508    $11,214    $ 6,723    $(1,495)
Total assets...................................    40,508     36,564     29,667     20,848     25,521
Long-term debt.................................    11,945      2,719      3,727      4,122      4,062
Stockholders' equity...........................    19,029     17,096     13,663      9,637        436

OTHER DATA:
Total units sold or leased.....................     1,168      1,284      1,117        982        835
</TABLE>
____________

/(1)/  The Company elected S Corporation status effective January 1, 1989. On
       May 31, 1994, the Company converted its status to a C Corporation and,
       accordingly, from June 1, 1994 has been subject to federal and state
       income taxes. Net income prior to June 1, 1994, includes federal and
       state income taxes as if the Company had been a C Corporation, based on
       the effective tax rates that would have been in effect during the periods
       reported.

/(2)/  The weighted average number of shares outstanding prior to the third
       quarter of 1994 gives effect to the estimated number of shares of Common
       Stock that would be required to be sold (at the initial public offering
       price of $8.50 per share) to fund a $4.5 million S Corporation
       distribution to the S Corporation stockholders.

                                       15

<PAGE>

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

OVERVIEW

  The Company was incorporated in 1982 for the purpose of designing,
manufacturing and marketing shuttle and mid-size buses. During the period from
its incorporation in 1982 to the introduction in 1986 of its initial
manufactured product, the Classic, the Company focused its efforts on marketing
buses manufactured by other companies. Since the introduction of the Classic,
the Company has experienced significant growth in unit sales and revenues.  The
market for the Company's products is diverse and broad based. Set forth below
are the principal markets identified by the Company together with the
approximate number of units sold or leased in each market during the periods
indicated.

<TABLE>
<CAPTION>

                                       Number of Units Sold or Leased
                                       ------------------------------
Market                                   1997         1996       1995
-------                                 ------       ------     ------
<S>                                    <C>          <C>        <C>
Tour and Charter Companies                 333          217        188
Automobile Rental Companies                185          246        264
Hotels/Motels                              130          124        121
Intracity and Rural Transit Operators      110          226        204
Parking Lot Operators                      109           38         67
Retirement/Long-Term Care Facilities       102          127         44
Airport Ground Transportation Companies     60           71         26
Other                                      139          235        203
                                         -----        -----      -----
     Total                               1,168        1,284      1,117
                                         =====        =====      =====
</TABLE>

     The diversity of the customer base from which the Company derives its
revenue has made the Company less vulnerable to economic downturns in a
particular market.  Additionally, several of the Company's larger customers
typically rotate their fleets every two to four years which can result in
significant orders to the Company during their respective purchasing cycles.

                                       16
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth selected financial information derived from
the Company's income statements expressed as a percentage of net revenue for the
periods indicated.
<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                     ---------------------------------------------------------------
                                        1997         1996         1995         1994          1995
                                     ---------    ---------    ---------     ---------     ---------
<S>                                   <C>         <C>          <C>           <C>           <C>
Net revenue                             100.0%      100.0%       100.0%        100.0%        100.0%
ost of sales                             82.6        81.1         79.5          81.3          77.3
                                        -----       -----        -----         -----         -----

Gross profit                             17.4        18.9         20.5          18.7          22.7
Selling, general and administrative
  expenses                               12.2        10.9         11.7          13.2          13.7
                                        -----       -----        -----         -----         -----
Operating income                          5.2         8.0          8.8           5.5           9.0
Other income, net                         0.0         0.0          0.0           0.2           0.4
Interest expense                          1.7         1.0          1.1           1.2           1.8
                                        -----       -----        -----         -----         -----

Income before income taxes                3.5         7.0          7.7           4.5           7.6
Income tax provision                      1.4         2.7          3.0           1.7           2.9
                                        -----       -----        -----         -----         -----
Net income                                2.1%        4.3%         4.7%          2.8%          4.7%
                                        =====       =====        =====         =====        =====
</TABLE>

_______________

  The following table sets forth total unit sales and average revenue per unit
for 1997, 1996, and 1995.

<TABLE>
<CAPTION>
                                1997                       1996                       1995
                          --------------             --------------              -------------
                                    AVERAGE                       AVERAGE                       AVERAGE
                                   REVENUE/                       REVENUE/                     REVENUE/
                     UNITS           UNIT           UNITS           UNIT          UNITS          UNIT
                   ---------    -------------     ---------    ------------     --------    -------------
<S>                <C>          <C>               <C>          <C>              <C>         <C>
Classic               1,017        $ 50,000          1,192        $ 48,000        1,050        $ 47,000
Eurotrans                68        $147,000             77        $147,000           67        $134,000
Legacy LJ (1)            83        $ 83,000             15        $ 79,000            -        $      -
                    -------                        -------                      -------
          Total       1,168                          1,284                        1,117
                    =======                        =======                      =======
</TABLE>


(1)  The Company first introduced the Legacy LJ in 1996.

                                       17
<PAGE>

1997 COMPARED TO 1996

          NET REVENUE. Net revenue increased $2.7 million or 3.4% from $77.5
million in 1996 to $80.1 million in 1997. This increase results primarily from
the net of increases of approximately $5.7 million in sales of Legacy LJ units
and $2.9 million in Bus Pro sales offset by reductions of approximately $6.0
million in Classic sales and $1.3 million in Eurotrans sales. An increase in
parts sales and extended service agreement revenue accounted for the remainder
of the increase in net revenue. The Legacy LJ's first full year of sales was
1997. The decline in Classic sales was affected by production difficulties in
the first quarter and by a lower backlog of orders over the third and fourth
quarter. The order backlog for Classics was influenced by the Company's sales
focus on new product introductions rather than by any overall change in the
market demand for shuttle buses.

     The 48.6% increase in net revenue from Bus Pro sales of used buses acquired
by the Company from trade-ins and lease maturities, from $6.0 million in 1996 to
$8.9 million in 1997, resulted from an increase in the used coach selling effort
and the increased capability to perform refurbishment on used coaches available
for sale.  Order backlog for the Company at December 31, 1997 was $25 million,
including $7.5 million in orders for the newly-introduced Irizar Century full-
size motorcoach, compared with $22 million at December 31, 1996.

          COST OF SALES AND GROSS PROFIT.  Gross profit declined from $14.7
million in 1996 to $14.0 million in 1997.  As a percentage of net revenue, gross
profit declined from 18.9% of sales to 17.4%.  The Company experienced uneven
production flow and cost inefficiencies during the first quarter and throughout
the latter portion of 1997.  This uneven flow and cost inefficiency resulted in
higher than normal materials use and more labor and overhead cost per unit than
in the prior year.

     The difficulties early in 1997 were a continuation of manufacturing issues
that arose during the fourth quarter of 1996 and included the establishment of a
new Legacy LJ production line, an attempt to produce a record volume of
Eurotrans, and a reorganization of manufacturing management. Each of these
factors had a disruptive effect on the output of the Classic production line. In
the latter portion of 1997, output of Legacy LJ units was slowed when a planned
conversion to a different drivetrain chassis was delayed due to late deliveries
from the supplier and when a number of engineering redesign issues, such as a
redesigned front cap, were implemented. Output of Classic units was negatively
affected by the lower backlog of orders which resulted in shorter lead times for
materials procurement. Isolated shortages of materials caused disruptions in
production flow and resulted in higher than anticipated manufacturing costs.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME.
Operating income declined to $4.2 million from $6.2 million in 1996. As a
percentage of net revenue, operating income declined from 8.0% in 1996 to 5.2%
in 1997. Selling, general and administrative expenses ("SG&A") were $9.8 million
in 1997, up 15.9% from $8.5 million in 1996. As a percentage of net revenue,
SG&A rose from 10.9% in 1996 to 12.2% in 1997. The increase in SG&A is
attributable to a number of factors, including a number of senior management
changes and additions during 1997 resulting in an increase in compensation
expense, relocation and other employment-related costs and higher legal expenses
incurred in connection with legal matters.

     INTEREST EXPENSE.  Net interest expense increased from $736,000 in 1996 to
$1.3 million in 1997 and resulted primarily from an increase of approximately $4
million in the average level of borrowing under the Company's bank credit

                                       18
<PAGE>

facility during 1997 over 1996 and from an approximate additional $200,000 in
interest charges in 1997 over 1996 incurred under the Ford Motor Credit
Corporation ("Ford Credit") pooled chassis agreement for chassis held on
consignment beyond the 90-day interest-free period.

1996 COMPARED TO 1995

     NET REVENUE.    Net revenue increased $13.5 million or 21.0% from $64.0
million in 1995 to $77.5 million in 1996.  This increase reflects an increase in
the number of units sold and the sales of higher priced units.  The number of
units sold in the Classic line increased 13.5% to 1,192 in 1996 from 1,050 in
1995.  Average revenue per Classic unit increased to $48,000 in 1996 from
$47,000 in 1995.  Unit sales of Eurotrans coaches increased 14.9% to 77 units in
1996 from 67 units in 1995 while average revenue per Eurotrans unit increased to
$147,000 in 1996 from $134,000 in 1995.  The Company began selling the Legacy LJ
in 1996.

     Net revenue from sales of used buses acquired by the Company from trade-ins
and lease maturities increased $2.5 million or 71.6% to $6.0 million in 1996
from $3.5 million in 1995.  The increase in sales of used buses resulted from an
increase in the used coach selling effort and the increased capability to
perform refurbishment on used coaches available for sale.  The Company completed
construction of a new facility for its used coach operation at yearend and has
incorporated a wholly-owned subsidiary, BUS PRO, INC., to continue the expansion
of its used coach activities.  The Company's investment in the new facility is
approximately $1.2 million.

     COST OF SALES AND GROSS PROFIT.  Gross profit increased 11.8% to $14.7
million in 1996 from $13.1 million in 1995.  As a percentage of net revenue,
gross profit declined from 20.5% in 1995 to 18.9% in 1996.  The reduced gross
margin was largely the result of factors affecting the fourth quarter of 1996
during which the gross margin of 15.5% was impacted primarily by a) lower
margins on sales of Eurotrans units to transit customers in spite of record
Eurotrans unit volume, b) inefficiencies in existing production lines causing
increases in material, labor and plant overhead costs as well as reduced
production volume of the Classic line and resulting from the significant unit
volume increase in both the Eurotrans and Legacy LJ rear engine product lines as
well as from engineering issues related to the newly-designed General Motors
cutaway chassis models, and c) uneven production flow of the newly introduced
Legacy LJ resulting from the need to resolve design issues in the custom
chassis.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME.
Operating income increased to $6.2 million in 1996 from $5.7 million in 1995.
Selling, general and administrative expenses ("SG&A") were $8.5 million in 1996,
an increase of 13.7% over $7.5 million in 1995.  As a percentage of net revenue,
SG&A improved to 10.9% in 1996 from 11.7% in 1995.  The increase in SG&A
resulted primarily from the increase in unit sales and net revenue.

     INTEREST EXPENSE.  Net interest expense increased 3.5% to $736,000 in 1996
from $711,000 in 1995.  The relative consistency of interest expense from 1995
to 1996 is largely the result of average borrowings and interest rates remaining
stable during the years.

                                       19
<PAGE>

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     The following table presents certain unaudited quarterly results prepared
by the Company on a basis consistent with its audited financial statements and
includes all adjustments, consisting only of normal recurring adjustments, that
the Company considered necessary for a fair presentation of the data. Such
quarterly results are not necessarily indicative of future results of
operations. This information should be read in conjunction with the financial
statements and the notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>

                                                    1997                                     1996
                                ----------------------------------------    ----------------------------------------
                                 FIRST      SECOND     THIRD     FOURTH      FIRST     SECOND      THIRD     FOURTH
                                Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                -------    -------    -------    -------    -------    -------    -------    -------
                                             (in thousands, except per share data)
<S>                             <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net revenue                     $15,016    $21,969    $21,731    $21,416    $17,200    $20,614     $19,881   $19,787
Cost of sales                    13,328     17,541     17,482     17,802     14,144     16,463      15,482    16,725
                                -------    -------    -------    -------    -------    -------     -------   -------
Gross profit                    $ 1,688    $ 4,428    $ 4,249    $ 3,614    $ 3,056    $ 4,151     $ 4,399   $ 3,062
                                =======    =======    =======    =======    =======    =======     =======   =======
Operating income (loss)         $  (193)   $ 1,579    $ 1,823    $   947    $ 1,286    $ 1,903     $ 1,959   $ 1,043
                                =======    =======    =======    =======    =======    =======     =======   =======
Income (loss) before income
    taxes                       $  (616)   $ 1,209    $ 1,567    $   666    $ 1,100    $ 1,717     $ 1,819   $   819
                                =======    =======    =======    =======    =======    =======     =======   =======
Net income (loss)               $  (374)   $   735    $   952    $   404    $   674    $ 1,052     $ 1,116   $   477
                                =======    =======    =======    =======    =======    =======     =======   =======
Diluted weighted average
  shares outstanding              4,104      4,109      4,109      4,121      4,068      4,117       4,115     4,116
                                =======    =======    =======    =======    =======    =======     =======   =======

Diluted net income per share    $ (0.09)   $  0.18    $  0.23    $  0.10    $  0.17    $  0.26     $  0.27   $  0.12
                                =======    =======    =======    =======    =======    =======     =======   =======
</TABLE>
          The Company historically has experienced significant fluctuations in
its financial results from quarter to quarter due to factors such as
availability of cutaway chassis, the mix of buses and coaches sold, the timing
of orders and delivery dates, the purchasing cycles of certain large customers
that typically rotate their fleets every two to four years and the state of the
economy.  Furthermore, because of the relatively high selling prices of buses
and coaches such as those manufactured by the Company, a small variation in the
number and mix of buses and coaches sold in any quarter can have a significant
effect on sales and operating results for that quarter.

LIQUIDITY AND CAPITAL RESOURCES

          The Company has financed its operations primarily through cash flow
from operations, bank borrowings and financing arrangements with Ford Motor
Credit Corporation ("Ford Credit").

          Net cash of  $52,000 was used in operating activities during 1997.  An
increase in inventories of $2.7 million was primarily responsible for offsetting
the funds provided by net income, depreciation and a decrease in accounts
receivable of approximately $1.0 million.  The inventory increase resulted
largely from an increase in finished goods at December 31, 1997 comprised of a
higher than normal level of customer-ordered units awaiting delivery and of a
build-up of demonstrator units during 1997 needed in support of new product line
sales of the Legacy LJ, Anthem and Irizar Century. The $1.0 million decline in
accounts receivable is the result of normal volatility in the timing of
shipments and customer payments at a period end. Capital expenditures of $1.6
million were primarily to purchase manufacturing equipment as well as a store
location in Orlando, Florida and land for potential expansion at the Griffin
facility. The capital expenditures and acquisition costs of Magnum
Transportation of $449,000,

                                       20

<PAGE>

net of the continued decrease in investment in sales-type leases substantially
accounted for the $2.0 million net cash used in investing activities. The
Company continues to direct its customers to third-party financing programs that
do not give rise to lease accounting and anticipates its investment in sales-
type leases to continue to decline. Net cash provided by financing activities of
$1.9 million resulted primarily from a net increase in credit facility borrowing
of $2.7 million as the prior short-term line of credit was replaced in September
1997 with a multi-year facility classified as long-term debt.

          Net cash of $939,000 was used in operating activities during 1996 with
the increases in accounts receivable of $1.2 million and inventories of $5.1
million more than offsetting the funds provided by net income, depreciation and
amortization.  The increase in accounts receivable results primarily from the
significant volume of bus shipments near the end of the year, including the
increased activity of yearend sales by the used coach division.  Capital
expenditures of $1.9 million, most significant of which is the new facility
developed for the used coach division's refurbishment and sales activities, were
primarily responsible for the net cash used in investing activities of $1.2
million.  The increased capital expenditures, however, were partially offset by
the declining investment in sales-type leases as the Company has reduced the
volume of sales via leases requiring capital lease treatment.  Net cash provided
by financing activities of $2.2 million came primarily from increased borrowings
under the Company's line of credit of $3.1 million offset by repayments of long-
term debt of $1.0 million.

          Net cash provided by operations during 1995 was $600,000, reflecting
in part, an increase in accounts receivable of over $4.6 million more than
offsetting $4.0 million provided by net income, depreciation and amortization.
The increase in accounts receivable was largely the result of the significant
volume of bus shipments near the end of the year.  Investing activities during
the year used $164,000 and resulted from capital expenditures of $277,000 offset
by sales-type lease investment activity, both of which were lower than in the
prior year.  Debt repayments and reductions in collateralized borrowings
totalling $502,000 were partially funded by $891,000 of cash repayments from
majority stockholders in connection with the Company's 1994 initial public
offering.

         During the third quarter of 1997, the Company entered into a new
revolving credit facility with its primary bank. The $16 million, three-year
unsecured credit facility provides interest rate pricing at reduced spreads over
LIBOR that vary based on leverage. The credit facility is available for general
corporate purposes. At December 31, 1997, the Company had $10,000,000
outstanding under this credit facility.

          The Company has a pooled chassis agreement with Ford Credit pursuant
to which Ford Credit maintains an inventory of Ford chassis at the Company's
manufacturing facility in Griffin, Georgia.  Ford Credit retains title to each
chassis until the date the chassis enters the production line at which time the
Company becomes obligated to purchase the chassis from Ford Credit.  The time
between delivery of the chassis at the Company's facility, and the time the
chassis enters production is termed the consignment period.  The Company is
obligated to pay interest at the prime rate plus 1% charged on consigned chassis
during any portion of the consignment period that extends beyond 90 days.

          The Company believes that cash flow from operations and funds
available under the Company's credit facilities are sufficient to meet the
Company's funding needs for its present operations for fiscal 1998.

                                       21
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------



                 METROTRANS CORPORATION AND SUBSIDIARIES



                    CONSOLIDATED FINANCIAL STATEMENTS
                 AS OF DECEMBER 31, 1997, 1996, AND 1995
                              TOGETHER WITH

                             AUDITORS' REPORT

                                       22
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Metrotrans Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of METROTRANS
CORPORATION (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1997 and
1996 and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metrotrans Corporation and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 18, 1998

                                      23
<PAGE>

                            METROTRANS CORPORATION

                               AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS

                          DECEMBER 31, 1997 AND 1996

                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)



                 ASSETS                               1997               1996
                                                    -------            -------
CURRENT ASSETS:
  Cash                                              $    50            $    22
  Accounts receivable, net of allowance
    for doubtful accounts of $77 and
    $282 in 1997 and 1996, respectively               9,151             10,109
  Current portion of net investment
    in sales-type leases                                877                810
  Inventories                                        20,932             17,903
  Prepaid expenses and other                          1,333                784
                                                    -------            -------
      Total current assets                           32,343             29,628

PROPERTY, PLANT, AND EQUIPMENT, NET                   6,922              5,447
NET INVESTMENT IN SALES-TYPE LEASES                     405              1,098
INTANGIBLES                                             536                  0
DEPOSITS AND OTHER                                      302                391
                                                    -------            -------
                                                    $40,508            $36,564
                                                    =======            =======


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term borrowings                             $     0            $ 7,297
  Accounts payable and accrued expenses               7,726              7,139
  Current portion of long-term debt                   1,087              1,132
  Customer deposits                                     238                552
                                                    -------            -------
      Total current liabilities                       9,051             16,120
                                                    -------            -------
LONG-TERM DEBT, NET OF CURRENT PORTION               11,945              2,719
                                                    -------            -------
OTHER NONCURRENT LIABILITIES                            300                  0
                                                    -------            -------
DEFERRED INCOME TAXES                                   183                629
                                                    -------            -------
COMMITMENTS AND CONTINGENCIES (NOTE 7)

STOCKHOLDERS' EQUITY:
  Preferred stock, no par value;
    10,000,000 shares authorized                          0                  0
  Common stock, $.01 par value;
    20,000,000 shares authorized,
    4,084,294 and 4,077,383 shares
    issued and outstanding in 1997
    and 1996, respectively                               41                 41
Additional paid-in capital                           10,577             10,466
Deferred compensation                                  (210)              (315)
Retained earnings                                     8,621              6,904
                                                    -------            -------
                                                     19,029             17,096
                                                    -------            -------
                                                    $40,508            $36,564
                                                    =======            =======

             The accompanying notes are an integral part of these
                         consolidated balance sheets.

                                      24
<PAGE>

                             METROTRANS CORPORATION

                                AND SUBSIDIARIES


                       CONSOLIDATED STATEMENTS OF INCOME

             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

                     (In Thousands, Except Per Share Data)


                                                  1997     1996     1995
                                                 -------  -------  -------
NET REVENUE                                      $80,132  $77,482  $64,027

COST OF SALES                                     66,153   62,814   50,914
                                                 -------  -------  -------
   Gross profit                                   13,979   14,668   13,113

SELLING, GENERAL, AND ADMINISTRATIVE
  EXPENSES                                         9,823    8,477    7,458
                                                 -------  -------  -------
   Operating income                                4,156    6,191    5,655

INTEREST EXPENSE, NET                              1,330      736      711
                                                 -------  -------  -------
INCOME BEFORE INCOME TAXES                         2,826    5,455    4,944

INCOME TAX PROVISION                               1,109    2,136    1,914
                                                 -------  -------  -------
NET INCOME                                       $ 1,717  $ 3,319  $ 3,030
                                                 =======  =======  =======
EARNINGS PER SHARE:
   Basic                                         $  0.43  $  0.83  $  0.76
                                                 =======  =======  =======
   Diluted                                       $  0.42  $  0.81  $  0.76
                                                 =======  =======  =======
WEIGHTED AVERAGE  SHARES OUTSTANDING:
   Basic                                           4,040    4,015    3,985
                                                 =======  =======  =======
   Diluted                                         4,112    4,107    3,993
                                                 =======  =======  =======


 The accompanying notes are an integral part of these consolidated statements.

                                      25
<PAGE>

                    METROTRANS CORPORATION AND SUBSIDIARIES


                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

                       (In Thousands, Except Share Data)


<TABLE>
<CAPTION>


                                                          Common Stock   Additional   Due From
                                                       -----------------   Paid-In    Majority      Deferred    Retained
                                                        Shares    Amount   Capital  Stockholders  Compensation  Earnings   Total
                                                       ---------  ------   -------  ------------  ------------  --------  -------
<S>                                                   <C>         <C>      <C>        <C>          <C>          <C>       <C>
BALANCE, December 31, 1994                             3,976,275    $40    $ 9,933      $(891)       $   0       $  555   $ 9,637
  Net income                                                   0      0          0          0            0        3,030     3,030
  Repayment of distributions to majority stockholders          0      0          0        891            0            0       891
  Issuance of restricted stock to employees              100,000      1        524          0         (525)           0         0
  Compensation under restricted stock award                    0      0          0          0          105            0       105
                                                       ---------    ---    -------      -----        -----       ------   -------
BALANCE, December 31, 1995                             4,076,275     41     10,457          0         (420        3,585    13,663

  Net income                                                   0      0          0          0            0        3,319     3,319
  Compensation under restricted stock award                    0      0          0          0          105            0       105
  Issuance of stock grants to employees                      108      0          2          0            0            0         2
  Exercise of stock options and related tax benefit        1,000      0          7          0            0            0         7
                                                       ---------    ---    -------      -----        -----       ------   -------
BALANCE, December 31, 1996                             4,077,383     41     10,466          0         (315)       6,904    17,096

  Net income                                                   0      0          0          0            0        1,717     1,717
  Compensation under restricted stock award and
   related tax benefit                                         0      0         63          0          105            0       168
  Issuance of stock grants to employees                       36      0          1          0            0            0         1
  Exercise of stock options and related tax benefit        6,875      0         47          0            0            0        47
                                                       ---------    ---    -------      -----        -----       ------   -------
BALANCE, December 31, 1997                             4,084,294    $41    $10,577      $   0        $(210)      $8,621   $19,029
                                                       =========    ===    =======      =====        =====       ======   =======

                           The accompanying notes are an integral part of these consolidated statements.

</TABLE>

                                      26
<PAGE>

                            METROTRANS CORPORATION

                               AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

                                (In Thousands)


                                                 1997      1996      1995
                                                -------   -------   -------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                    $ 1,717   $ 3,319   $ 3,030
                                                -------   -------   -------
  Adjustments to reconcile net income
   to net cash (used in) provided by
   operating activities:
    Depreciation and amortization                   708       575       944
    Deferred taxes                                 (446)      532      (307)
    Compensation under restricted
     stock award                                    105       105       105
    Changes in assets and liabilities,
     net of acquired business:
      Accounts receivable                           958    (1,231)   (4,635)
      Inventories                                (2,716)   (5,132)       97
      Other assets                                 (460)     (108)       37
      Accounts payable and accrued
       expenses                                     500     1,053     1,057
      Customer deposits                            (314)      (52)      272
                                                -------   -------   -------
        Total adjustments                        (1,665)   (4,258)   (2,430)
                                                -------   -------   -------
        Net cash (used in) provided
         by operating activities                     52      (939)      600
                                                -------   -------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                           (1,629)   (1,908)     (277)
  Purchase of Magnum Transportation                (449)        0         0
  Net (increase) decrease in property
   held for lease                                  (504)       (56)        9
  Net decrease in investment in
   sales-type leases                                626       728       104
                                                -------   -------   -------
        Net cash used in investing
         activities                              (1,956)   (1,236)     (164)
                                                -------   -------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (repayments) borrowings under
   line of credit                                (7,297)    3,128      (323)
  Proceeds from refinancing of debt              10,000         0         0
  Net (decrease) increase in
   collateralized borrowings                        (45)       45      (985)
  Payments of long-term debt                       (774)   (1,008)      (85)
  Net proceeds from issuance
   of common stock                                   48         9         0
  Cash repayments from
   majority stockholders                              0         0       891
                                                -------   -------   -------
        Net cash provided by (used in)
         financing activities                     1,932     2,174      (502)
                                                -------   -------   -------
NET INCREASE (DECREASE) IN CASH                      28        (1)      (66)

CASH AT BEGINNING OF YEAR                            22        23        89
                                                -------   -------   -------
CASH AT END OF YEAR                             $    50   $    22   $    23
                                                =======   =======   =======
CASH PAID FOR INTEREST                          $ 1,323   $   749   $   714
                                                =======   =======   =======
CASH PAID FOR INCOME TAXES                      $   515   $ 2,670   $ 2,206
                                                =======   =======   =======

 The accompanying notes are an integral part of these consolidated statements.


                                      27
<PAGE>

                            METROTRANS CORPORATION

                               AND SUBSIDIARIES


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1997, 1996, AND 1995

1.   ORGANIZATION AND BASIS OF PRESENTATION

   The accompanying consolidated financial statements include the accounts of
   Metrotrans Corporation and its wholly owned subsidiaries (the "Company").
   All significant intercompany transactions and accounts have been eliminated
   in consolidation.

   The Company manufactures and sells shuttle and midsize touring buses.  The
   Company markets its products in the United States, primarily through Company
   operated sales centers.  Additionally, the Company accepts trade-in vehicles
   of its own and other brands.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   PRESENTATION

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and the disclosure
   of contingent assets and liabilities at the date of the financial statements
   and the reported amounts of revenues and expenses during the reporting
   period.  Actual results could differ from those estimates.

   REVENUE RECOGNITION

   Revenue from bus sales is recognized upon shipment to the customer.  Customer
   deposits for partial payment of vehicles are deferred and treated as current
   liabilities until the vehicles are shipped and recognized as revenue.

   WARRANTIES

   The Company offers a 13-month (unlimited mileage) limited warranty on all new
   vehicles and service plans that extend limited coverage for longer periods.
   The Company accrues a liability for its warranty coverage based on historical
   experience.

   INVENTORIES

   Chassis inventories are valued at cost.  Units taken in trade are valued on a
   specific identification basis and do not exceed estimated realizable value.
   Inventories of conversion materials and supplies and work in process are
   valued at the lower of average cost or market on a first-in, first-out
   ("FIFO") basis.

                                      28
<PAGE>

   Inventories as of December 31, 1997 and 1996 consist of the following (in
   thousands):

                                        1997     1996
                                       -------  -------
        Chassis awaiting conversion    $ 3,437  $ 3,044
        Raw materials                    4,549    4,482
        Work in process                  1,524    2,328
        Finished goods                   6,287    2,758
        Used vehicles                    5,135    5,291
                                       -------  -------
                                       $20,932  $17,903
                                       =======  =======

   PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment are stated at cost, less accumulated
   depreciation.  Depreciation is provided using the straight-line method over
   the assets' estimated useful lives of 3 to 7 years, except for buildings,
   which have estimated useful lives of 30 years.

   The detail of property, plant, and equipment as of December 31, 1997 and 1996
   is as follows (in thousands):

                                           1997      1996
                                         -------   -------
        Land                             $ 1,031   $   693
        Buildings                          4,021     2,800
        Property held for lease            3,070     2,565
        Machinery and equipment            1,735     1,348
        Furniture and fixtures               674       520
        Construction in progress             506       935
                                         -------   -------
                                          11,037     8,861
        Less accumulated depreciation     (4,115)   (3,414)
                                         -------   -------
                                         $ 6,922   $ 5,447
                                         =======   =======

   INTANGIBLES

   Intangibles consist of goodwill and a noncompete agreement related to the
   Company's acquisition of Magnum Transportation.  Goodwill is being amortized
   over 40 years.  The noncompete agreement is being amortized over the life of
   the agreement of 10 years.

   ACCOUNTS PAYABLE

   Accounts payable include book overdrafts created by outstanding checks.  At
   December 31, 1997 and 1996, the book overdrafts totaled $382,000 and
   $969,000, respectively.

   EARNINGS PER SHARE

   In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
   of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share,"
   effective for fiscal years ending after December 15, 1997.  The Company has
   adopted the new guidelines for the calculation and presentation of earnings
   per share, and all prior periods have been restated.  Basic earnings per
   share is based on the weighted average number of

                                      29
<PAGE>

   shares outstanding. Diluted earnings per share is based on the weighted
   average number of shares outstanding and the dilutive effect of outstanding
   stock options and unvested restricted stock. For years ending December 31,
   1997, 1996, and 1995, outstanding options of 96,500, 15,000, and 0,
   respectively, have been excluded from diluted weighted average shares
   outstanding as the exercise price exceeded the average stock price and thus,
   their impact was antidilutive.

   CONCENTRATIONS OF CREDIT RISK

   Concentrations of credit risk with respect to trade receivables are limited
   due to the wide variety of customers and markets for which the Company's
   products are provided, as well as their dispersion across many different
   geographic areas.  As a result, as of December 31, 1997, the Company does not
   consider itself to have any significant concentrations of credit risk.

   FAIR VALUE OF FINANCIAL INSTRUMENTS

   The book values of cash, trade accounts receivable, and trade accounts
   payable approximate their fair values principally because of the short-term
   maturities of these instruments.  The fair value of the Company's long-term
   debt is estimated based on the current rates offered to the Company for debt
   of similar terms and maturities.  Under this method, the Company's fair value
   of long-term debt was not significantly different than the stated value as of
   December 31, 1997.

   LONG-LIVED ASSETS

   The Company periodically reviews the values assigned to long-lived assets,
   such as property and equipment and intangibles, to determine whether any
   impairments are other than temporary.  Management believes that the long-
   lived assets in the accompanying balance sheets are appropriately valued.

3.   PRODUCT LEASES
   The Company leases its products to customers under various arrangements, with
   the leases recorded as either operating or sales-type leases, depending on
   the terms of the lease.

   For operating leases, rental revenue is recognized over the life of the
   lease, and the related equipment is depreciated over its estimated useful
   life.  Net revenues recognized under operating leases during 1997, 1996, and
   1995 were $330,000, $232,000, and $882,000, respectively.  For sales-type
   leases, the discounted present value of lease revenues is recorded as sales,
   with related equipment cost (net of the discounted present value of any
   residual value) recorded as cost of sales.  Financing income applicable to
   these leases is recognized over the life of the lease using the effective
   interest method.  Net revenues recognized under sales-type leases during
   1997, 1996, and 1995 were $1,479,000, $343,000, and $3,729,000, respectively.

                                      30
<PAGE>

   The components of the investment in sales-type leases as of December 31, 1997
   and 1996 are as follows (in thousands):

                                                    1997    1996
                                                   ------  ------
        Total minimum lease payments receivable    $1,335  $2,041
        Less unearned income                           53     133
                                                   ------  ------
        Net investment                              1,282   1,908
        Less current portion                          877     810
                                                   ------  ------
                                                   $  405  $1,098
                                                   ======  ======

   Minimum lease payments receivable as of December 31, 1997 are as follows:

                                    Sales-Type
                                      Leases
                                    ----------
               1998                   $  896
               1999                      291
               2000                       93
               2001                       11
               2002 and Thereafter        44
                                      ------
                                      $1,335
                                      ------

4.   LONG-TERM DEBT
   The Company's long-term debt as of December 31, 1997 and 1996 consists of the
   following (in thousands):

                                                     1997       1996
                                                   -------     ------
Revolving credit facility, payable
September 2000; interest payable monthly at
prime (8.5% at December 31, 1997) or LIBOR
plus a margin of .75% to 1.25%, depending
on the Company's leverage ratio, as defined
(7.1% at December 31, 1997), unsecured             $10,000     $    0

Industrial development revenue ("IDR") bonds,
payable through quarterly mandatory sinking
fund redemption payments varying from $15 to
$40 from June 1992 through 2011; interest
payable monthly at variable rates, as defined
in the agreement, secured by the real estate         1,620      1,700

Notes payable to leasing companies for
property held for operating leases,
collateralized by the leased equipment and
customer lease payments receivable,
payable in varying monthly installments,
bearing interest at rates approximating 8%               0         98

Notes payable to leasing companies for products
sold under sales-type leases, secured by the
leased equipment and customer notes receivable,
payable in varying monthly installments,
bearing interest at rates approximating 8%
through 1999                                           349        679

                                      31
<PAGE>

                                                     1997       1996
                                                   -------     ------
Notes payable to a leasing company for products
sold under sales-type leases, secured by the
leased equipment, payable at the end of each
lease through 2000, including interest at
various rates approximating 8%                         933      1,239

Note payable to a bank, bearing interest at
7.5%, payable in monthly installments of $3
through March 1997, secured by property located
in Ellenwood, Georgia                                    0        135

Note payable to a bank, bearing interest at
prime plus 1% (9.5% at December 31, 1997),
payable monthly, unpaid interest and principal
due August 1998, secured by property located
in Orlando, Florida                                    130          0
                                                   -------     ------
                                                    13,032      3,851
Less amount due within one year                      1,087      1,132
                                                   -------     ------
                                                   $11,945     $2,719
                                                   =======     ======

During September 1997, the Company restructured its revolving credit facility.
The new facility provides for maximum borrowings of $16,000,000, of which
$10,000,000 was outstanding at December 31, 1997 and $6,000,000 was available
for future borrowings. The facility requires the Company to maintain certain
financial ratio covenants, as defined.

The IDR bonds were issued in December 1991, with a face value of $2,000,000. The
proceeds were used in 1991 and 1992 to fund the construction of a new
manufacturing facility. The rate on the IDR bonds (average rate of 5.8% in 1997)
may vary as frequently as every seven days to maintain a rate on the IDR bonds
necessary to retain a market value approximating par value. At the Company's
option, the interest rate on the IDR bonds can be fixed at the minimum rate
necessary to retain a market value approximating par value.

Future maturities of long-term debt as of December 31, 1997 are as follows
(in thousands):

             1998                   $ 1,087
             1999                       359
             2000                    10,174
             2001                       111
             2002 and thereafter      1,301
                                    -------
                                    $13,032
                                    =======

5.   INCOME TAXES
   The provision for income taxes consists of the following (in thousands):

                           1997     1996    1995
                          ------   ------  ------
        Current taxes:
         Federal          $1,509   $1,417  $1,987
         State               199      187     234
        Deferred            (599)     532    (307)
                          ------   ------  ------
                          $1,109   $2,136  $1,914
                          ======   ======  ======

                                      32
<PAGE>

   The differences between the federal statutory income tax rate and the
   Company's effective tax rate were:

                                                  1997   1996   1995
                                                  ----   ----   ----
      Federal statutory rate                      34.0%  34.0%  34.0%
      State income taxes, net of federal
        tax benefit                                4.5    4.5    4.0
      Other, net                                   0.7    0.7    0.7
                                                  ----   ----   ----
                                                  39.2%  39.2%  38.7%
                                                  ====   ====   ====

   Components of the net deferred tax asset (liability) as of December 31, 1997
   and 1996 are as follows (in thousands):

                                                   1997    1996
                                                  ------  ------
        Deferred tax liabilities:
          Revenue recognition                     $(443)  $(596)
          Leasing activities                          0    (106)
                                                  -----   -----
            Total deferred tax liabilities         (443)   (702)
                                                  -----   -----
        Deferred tax assets:
          Inventories                               234     147
          Leasing activities                        260       0
          Liabilities not currently deductible      406     292
          Allowance for doubtful accounts            45      93
          Other                                       0      73
                                                  -----   -----
            Total deferred tax assets               945     605
                                                  -----   -----
        Net deferred tax asset (liability)        $ 502   $ (97)
                                                  =====   =====

   As of December 31, 1997 and 1996, current income taxes payable (receivable)
   amounted to $498,000 and $(448,000), respectively.

6.   RELATED-PARTY TRANSACTIONS

   During 1996 and 1995, the Company leased space from an entity that is
   controlled by the Company's majority stockholders.  Lease costs during 1996
   and 1995 were $7,000 and $12,700, respectively.

   In November 1992, the Company and an affiliate of the Company's majority
   stockholders entered into a lease agreement with the affiliate which owned an
   airplane.  The lease agreement provided that the Company lease the airplane
   on an as-needed basis at fair market hourly rental rates.  Rental costs for
   use of the airplane were $363,000 and $447,000 in 1996 and 1995,
   respectively.  All commitments by the Company in connection with this
   agreement were terminated in October 1996.

7.   COMMITMENTS AND CONTINGENCIES
   SUPPLIERS

   The Company has a supply agreement with a major motor vehicle chassis
   manufacturer.  Under the agreement, the Company is shipped chassis on
   consignment and is obligated to pay interest at prime on consigned chassis
   during any portion of the consignment period which extends beyond 90 days.
   The consignment period is the period from delivery of the chassis to the date
   the chassis is placed in production by the Company.  During the

                                      33
<PAGE>

   consignment period, the vehicle manufacturer retains title to the chassis and
   has the right to redistribute the chassis to its other customers. Similarly,
   the Company has the right to return the chassis within the consignment period
   and must make full payment at the end of the consignment period if it desires
   to retain the chassis. At December 31, 1997, chassis on hand accounted for as
   consigned inventory was approximately $3,330,000. Interest paid on consigned
   chassis amounted to $531,000, $339,000, and $327,000 in 1997, 1996, and 1995,
   respectively.

   The Company currently purchases all of its chassis, including the engine and
   drivetrain, from three major suppliers.  Although the Company believes other
   sources for these components are available, any significant interruption or
   delay in the supply of chassis from the three suppliers could have a material
   adverse effect on the financial condition and results of operations of the
   Company.

   LEASES

   As discussed in Note 3, the Company enters into various leasing arrangements
   with customers and leasing companies.  Certain leases contingently obligate
   the Company to indemnify the leasing company for any losses it incurs up to a
   specified amount on the lease in the event the lessee defaults.  In addition,
   the Company enters into agreements with a financial institution whereby the
   Company guarantees varying amounts of customers' purchase debt obligations.
   The Company's obligation under these guarantees becomes effective in the case
   of default in payments by the customers or certain other defined conditions.
   When notified of a lessee default, the Company has the option of honoring its
   guarantee (which is generally less than the debt obligation) or purchasing
   the buses for the outstanding debt obligation.

   During 1997, the Company purchased buses totaling $1,900,000 related to the
   above guarantees and in 1996 and 1995 purchased an insignificant amount of
   buses. Additionally, the Company expects to purchase in 1998 additional buses
   totaling $2,300,000 related to 1997 lessee defaults and litigation
   settlements.  Purchases to date have been or are expected to be sold to third
   parties at amounts approximating the purchase price.  As of December 31,
   1997, the Company's aggregate potential liability under the above
   arrangements was $11,997,000.  In the opinion of management, the Company's
   obligation under the above arrangements will not have a material adverse
   impact on the Company's financial position or results of operations.

   The Company leases certain office space, equipment, and an airplane under
   operating leases.  Future minimum lease payments under these agreements as of
   December 31, 1997 are as follows (in thousands):

                  1998          $  700
                  1999             703
                  2000             594
                  2001             548
                  2002             492
                  Thereafter     1,447
                                ------
                                $4,484
                                ======

   Rental expense for 1997, 1996, and 1995 totaled $710,000, $287,000, and
   $256,000, respectively.

                                      34
<PAGE>

   LITIGATION

   The Company is involved in certain legal matters primarily arising in the
   normal course of business.  In the opinion of management, the Company's
   liability in any of these matters will not have a material adverse effect on
   its financial condition or results of operations.

8.   STOCKHOLDERS' EQUITY
   PREFERRED STOCK

   The board of directors has authorized 10,000,000 shares of preferred stock
   with no par value.  The board of directors has the authority to issue these
   preferred shares and to fix dividends, voting and conversion rights,
   redemption provisions, liquidation preferences, and other rights and
   restrictions.

   INCENTIVE STOCK PLANS

   In March 1994, the Company adopted long-term incentive plans which allow the
   issuance of grants or awards of incentive stock options, nonqualified stock
   options, and restricted stock to employees and directors of the Company to
   acquire up to 601,500 shares of the Company's common stock.  Options
   generally become exercisable over three to four years and expire ten years
   after the date of grant.  At December 31, 1997, 209,625 shares were reserved
   for future grants under the incentive plans.

   During 1997 and 1996, the Company issued 5,000 and 20,000, respectively,
   nonqualified stock options outside of the above incentive plans.  The options
   were issued at fair market value at the date of grant and become exercisable
   over three to four years.

   Stock option activity during each of the three years ended December 31, 1997
   is summarized as follows:

                                                       Weighted
                                              Number   Average
                                                of     Exercise
                                              Shares    Price
                                             --------  --------
        Outstanding at December 31, 1994       10,000   $ 8.50
          Granted                             187,000     7.22
          Exercised                                 0     0.00
          Canceled                                  0     0.00
                                              -------
        Outstanding at December 31, 1995      197,000     7.28
          Granted                             141,000    13.46
          Exercised                                 0     0.00
          Canceled                            (16,000)    7.41
                                              -------
        Outstanding at December 31, 1996      322,000    10.33
          Granted                             147,000    10.05
          Exercised                            (6,875)    6.89
          Canceled                            (76,125)   10.87
                                              -------
        Outstanding at December 31, 1997      386,000     9.85
                                              =======
        Exercisable at December 31, 1997      104,375     8.74
                                              =======

                                      35
<PAGE>

   The weighted average remaining life of the options outstanding at December
   31, 1997 was 8.6 years.

   In February 1995, the Company awarded 50,000 shares of restricted stock under
   the plans to each of two employees.  Each of these grants vests 2,500 shares
   upon grant, with the remaining 47,500 shares vesting 2,500 per quarter
   through 1999.  Unearned compensation of $525,000 was charged on the date of
   the grant, which represented the market value on such date, and is being
   amortized to expense over the vesting period.

   The Company accounts for the stock option plans under Accounting Principles
   Board ("APB") Opinion No. 25, which requires compensation costs to be
   recognized only when the option price differs from the market price at the
   grant date.  FASB Statement No. 123 allows a company to follow APB Opinion
   No. 25 with additional disclosure that shows what the Company's net income
   and earnings per share would have been using the compensation model under
   FASB Statement No. 123.

   The fair value of each option grant is estimated on the date of grant using
   the Black-Scholes option pricing model using the following weighted average
   assumptions used for grants in each of the last three years:

                                     1997      1996      1995
                                   -------   -------   -------
        Risk-free interest rate        5.8%      6.4%      6.4%
        Expected dividend yield        0.0%      0.0%      0.0%
        Expected lives             6 years   6 years   6 years
        Expected volatility           51.0%     45.0%     45.0%


   The total values of the options granted during the years ended December 31,
   1997, 1996, and 1995 were computed as approximately $661,000, $808,000, and
   $563,000, respectively, which would be amortized over the vesting period of
   the options.  If the Company had accounted for these plans in accordance with
   SFAS No. 123, the Company's net income and net income per share would have
   been reduced to the following pro forma amounts:

                                     1997      1996      1995
                                   -------   -------   -------
        Net income:
          As reported               $1,717    $3,319    $3,030
          Pro forma                  1,690     3,167     3,003
        Basic earnings per share:
          As reported               $ 0.43    $ 0.83    $ 0.76
          Pro forma                   0.42      0.79      0.75
        Diluted earnings per share:
          As reported               $ 0.42    $ 0.81    $ 0.76
          Pro forma                   0.41      0.77      0.75

9.   ACQUISITION

   In October 1997, the Company purchased substantially all of the assets of
   J.D. Dunn, Inc. d/b/a Magnum Transportation for $427,000 in cash and $450,000
   in seller obligations.  The seller obligations are payable in three payments
   of $150,000.  The first payment in January 1998 is payable in cash and has
   been included in accounts payable and accrued expenses in the accompanying
   balance sheets.  The second and third payments are payable in the

                                      36
<PAGE>

   form of common stock in January 1999 and January 2000, respectively, and have
   been included in other noncurrent liabilities in the accompanying balance
   sheets.

   Total consideration, including transaction costs of $22,000, was $899,000.
   The transaction was accounted for as a purchase.  The excess of purchase
   price over the fair value of net assets purchased of $536,000 was allocated
   to goodwill and a noncompete agreement.

                                      37
<PAGE>

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

     Not Applicable.

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
--------------------------------------------------------

     Information relating to the directors of the Company, including directors
who are executive officers of the Company is set forth in the Company's
definitive Proxy Statement for the 1998 Annual Meeting of Stockholders.  Such
information is incorporated herein by reference.

     Pursuant to Instruction 3 of Item 401(b) of Regulation S-K and General
Instruction G(3) of Form 10-K, information relating to the executive officers of
the Company who are not directors and certain other significant employees of the
Company is set forth in Item 4A of this report under the caption "Item 4A.
Executive Officers of the Company."  Such information is incorporated herein by
reference.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission thereunder require the
Company's directors and executive officers and any persons who own more than 10%
of the Company's Common Stock, as well as certain affiliates of such persons, to
file initial reports with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Directors, executive officers
and persons owning more than 10% of the Company's Common Stock are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based solely on its review of the
copies of such reports received by it and written representations that no other
reports were required of those persons, the Company believes that during 1997,
all filing requirements applicable to its directors and executive officers were
complied with in a timely manner except that Forms 5 for each of D. Michael
Walden, Terri B. Hobbs, Richard M. Bruno, and George W. Mathews, Jr. were not
filed in a timely manner. The Company is not aware of any other persons other
than directors and executive officers who own more than 10% of the Company's
Common Stock.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     Information required by this item is set forth under the captions "Election
of Directors - Director Compensation" and "Executive Compensation" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders
of the Company.  Such information is incorporated herein by reference.

                                      38
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT
-----------------------------------------------------------------------

     Information required by this item is set forth under the caption "Voting -
Principal Stockholders" in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders of the Company.  Such information is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     Information required by this item is set forth under the caption "Certain
Transactions" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders of the Company.  Such information is incorporated herein
by reference.

                                      39
<PAGE>

                                    PART IV

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

     (a)  Documents Filed as Part of This Report

          1. Financial Statements

             The following financial statements of the Company and the related
             report of independent public accountants thereon are set forth in
             Item 8 of this Report.

             Report of Independent Public Accountants
             Consolidated Balance Sheets as of December 31, 1997 and 1996
             Consolidated Statements of Income for the Years Ended December 31,
               1997, 1996 and 1995
             Consolidated Statements of Stockholders' Equity for the Years Ended
               December 31, 1997, 1996 and 1995
             Consolidated Statements of Cash Flows for the Years Ended December
               31, 1997, 1996 and 1995
             Notes to Consolidated Financial Statements

          2. Financial Statement Schedules

             No financial statement schedules are required to be included in
             this report under the related instructions or because the
             information required is included in the consolidated financial
             statements or notes thereto.

          3. Exhibits

             The following exhibits are filed with or incorporated by reference
             in this report. Where such filing is made by incorporation by
             reference to a previously filed registration statement or report,
             such registration statement or report is identified in parentheses.
             The Company will furnish any exhibit upon request to Richard M.
             Bruno, Chief Financial Officer, 777 Greenbelt Parkway, Griffin,
             Georgia 30223. There is a charge of $.50 per page to cover expense
             for copying and mailing.

                                      40
<PAGE>

 Exhibit
 Number      Description
--------     -----------

   3.1       Amended and Restated Articles of Incorporation of the Company
             (Exhibit 3.1 to the Company's Registration Statement on Form S-1,
             No. 33-76492).

   3.2       Amended and Restated Bylaws of the Company (Exhibit 3.2 to the
             Company's Registration Statement on Form S-1, No. 33-76492).

  10.1       (a)  Authorized Converter Pool Agreement dated July 10, 1990 by and
                  between the Company and Ford Motor Company with respect to
                  chassis purchases. (Exhibit 10.1(a) to the Company's
                  Registration Statement on Form S-1, No. 33-76492).

             (b)  FMCC Pool Company Wholesale Finance Plan - Application for
                  Wholesale Financing and Security Agreement, dated June 26,
                  1990, by and between the Company and Ford Motor Credit Company
                  with respect to Ford chassis financing (Exhibit 10.1(b) to the
                  Company's Registration Statement on Form S-1, No. 33-76492).

             (c)  Intercreditor Agreement dated June 26, 1990, by and between
                  the Company, Ford Motor Credit Company and NationsBank of
                  Georgia, N.A. (formerly known as The Citizens and Southern
                  National Bank) ("NationsBank"), granting to FMCC a first
                  priority lien on Ford chassis with respect to Ford chassis
                  financing (Exhibit 10.1(c) to the Company's Registration
                  Statement on Form S-1, No. 33-76492).

  10.2       (a)  Loan Agreement between Metrotrans Corporation and NationsBank,
                  N.A. dated September 5, 1997 (Exhibit 10.9 to the Company's
                  Quarterly Report on Form 10-Q for the Quarter Ended September
                  28.1997).

  10.3       (a)  Indenture of Trust dated as of December 1, 1991, between the
                  Griffin-Spalding County Development Authority (the
                  "Authority") and the First National Bank of Chicago, as
                  trustee, with respect to the bond financing on the Company's
                  manufacturing facility (Exhibit 10.5(a) to the Company's
                  Registration Statement on Form S-1, No. 33-76492).

             (b)  Lease Agreement dated December 1, 1991, between the Authority
                  and EMS Properties, Inc., with respect to the Company's
                  manufacturing facility (Exhibit 10.5(b) to the Company's
                  Registration Statement on Form S-1, No. 33-76492).

             (c)  Assignment and Assumption of Lease dated as of January 1,
                  1994, by and between EMS Properties, Inc. and the Company with
                  respect to the assignment of EMS Properties' leasehold
                  interest to the Company (Exhibit 10.5(c) to the Company's
                  Registration Statement on Form S-1, No. 33-76492).

             (d)  Remarketing Agreement dated as of December 1, 1991, among the
                  Authority, EMS Properties, Inc. and NationsBank, as
                  Remarketing Agent, with respect to the industrial revenue
                  bonds (Exhibit 10.5(d) to the Company's Registration Statement
                  on Form S-1, No. 33-76492).

  10.4**          Employment Agreement dated March 15, 1994 between D. Michael
                  Walden and the Company (Exhibit 10.7 to the Company's
                  Registration Statement on Form S-1, No. 33-76492).

                                      41

<PAGE>

  10.5            1994 Employee Stock Incentive Plan (Exhibit 10.8 to the
                  Company's Registration Statement on Form S-1, No. 33-76492).

  10.6            1994 Directors Stock Incentive Plan (Exhibit 10.9 to the
                  Company's Registration Statement on Form S-1, No. 33-76492).

  10.7            Aircraft Lease Agreement dated December 20, 1996, between
                  General Electric Credit Corporation and the Company (Exhibit
                  10.8 to the Company's Annual Report on Form 10-K for the
                  Fiscal Year Ended December 31, 1994.

  11*             Computation of Earnings Per Share.

  21*             Subsidiaries of the Registrant.

  23*             Consent of Arthur Andersen LLP.

  27*             Financial Data Schedule.

_______________
*    Filed herewith
**   The indicated exhibit is a management contract or compensatory plan.

     (b)  Reports on Form 8-K.

          No reports on Form 8-K  have been filed by the Registrant during
          the quarter ended December 31, 1997.

                                      42
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) 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.

                                    METROTRANS CORPORATION
                                           (Registrant)


                                    By /s/ D. Michael Walden
                                      ------------------------------------------
                                      D. Michael Walden
                                      Chairman of the Board,
                                      President and Chief Executive Officer

                                    Date:  March 30, 1998
                                         ---------------------------------------

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1998.


/s/ D. Michael Walden        Chairman of the Board,
--------------------------   President and Chief Executive
D. Michael Walden            Officer


/s/ Patrick L. Flinn         Director
--------------------------
Patrick L. Flinn


/s/ George W. Mathews, Jr.  Director
--------------------------
George W. Mathews, Jr.


/s/ M. Earl Meck             Director
--------------------------
M. Earl Meck


/s/ William C. Pitt III      Director
--------------------------
William C. Pitt III


/s/ Randy B. Stanley         Director
--------------------------
Randy B. Stanley


/s/ Richard M. Bruno         Chief Financial Officer,
--------------------------   Vice President, Treasurer,
Richard M. Bruno             and Secretary
                             (Principal Financial and
                             Accounting Officer)

                                      43