EXHIBIT 13


SELECTED FINANCIAL INFORMATION
(In thousands, except per share and stock price data)

<TABLE>
<CAPTION>


-----------------------------------------------------------------------------------------------------------------------------------
FIVE YEARS ENDED DECEMBER 31,                              1997           1996           1995          1994           1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>            <C>           <C>           <C>    
Statement of Income Data:
     Net sales                                         $134,387        $99,329        $69,159       $60,172        $39,763
     Cost of goods sold                                 111,764         84,643         58,673        47,521         31,269
-----------------------------------------------------------------------------------------------------------------------------------
     Gross profit                                        22,623         14,686         10,486        12,651          8,494
     Selling and administrative expenses                 15,998         12,492          9,993         8,075          6,308
-----------------------------------------------------------------------------------------------------------------------------------
     Operating income                                     6,625          2,194            493         4,576          2,186
     Interest expense                                    (1,800)        (1,450)          (799)         (667)          (550)
     Other income, net                                      646            660          1,478           344            480
-----------------------------------------------------------------------------------------------------------------------------------
     Income before taxes                                  5,471          1,404          1,172         4,253          2,116
     Provision for Income taxes                           2,189            562            471           392            -  
-----------------------------------------------------------------------------------------------------------------------------------
     Net income                                          $3,282           $842         $  701       $ 3,861        $ 2,116
-----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Statement of Income Data
     Net income, as reported                             $  -           $  -           $  -         $ 3,861        $ 2,116
     Pro forma provision for taxes                          -              -              -           1,152            811
-----------------------------------------------------------------------------------------------------------------------------------
     Pro forma net income                                $  -           $  -           $  -         $ 2,709        $ 1,305
===================================================================================================================================
     Net income per share  - Basic & Diluted             $ 0.52         $ 0.13         $ 0.12        $ 0.60         $ 0.33
===================================================================================================================================

Cash Distributions for taxes*                            $  -           $  -           $  305       $ 1,795         $  746
===================================================================================================================================

Weighted average common shares outstanding
     Basic                                                6,255          6,106          5,955         4,509          4,000
     Diluted                                              6,314          6,107          6,006         4,518          4,000
===================================================================================================================================

Balance Sheet Data (End of Period)                         1997           1996           1995          1994           1993
-----------------------------------------------------------------------------------------------------------------------------------
Working capital                                         $21,643        $15,128        $15,360       $ 9,516         $  782
Total assets                                             75,508         53,534         46,084        33,258         19,098
Total long-term debt, net current maturities             22,075         13,346         15,194         5,282          4,230
Total shareholders' investment                           23,877         20,595         17,953        17,252          4,517
-----------------------------------------------------------------------------------------------------------------------------------

*Represent only distribution for estimated share holders' federal and state inocme tax liabilities from Company's status as
S corporation prior to initial public stock offering.  No other dividends were paid.  The Company is restricted from paying
dividends.  See Liquidity & Capital Resources in MD&A for a discussion of these restrictions.

</TABLE>


<PAGE>


Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>


                                                Gross       Operating       Net         Net Income     Common Stock Price
                                   Net Sales    Profit        Income       Income       Per Share**   High Close    Low Close
===================================================================================================================================
     <S>                            <C>         <C>          <C>           <C>            <C>         <C>           <C>
     1997
     First Quarter                 $34,034      $5,095       $1,495        $ 756           $0.12      $8.63         $5.75
     Second Quarter                 32,652       5,201        1,384          614            0.10       8.63          6.63
     Third Quarter                  32,728       5,802        1,587          889            0.14       9.00          6.63
     Fourth Quarter                 34,973       6,525        2,159        1,023            0.16       8.94          6.88

===================================================================================================================================
     1996
     First Quarter                 $19,976      $3,018       $  302         $ 51           $0.01      $6.00         $4.63
     Second Quarter                 21,169       2,704           85           14             -         6.38          4.75
     Third Quarter                  28,384       3,938          690          206            0.03       6.88          5.13
     Fourth Quarter                 29,800       5,026        1,117          571            0.09       6.25          4.75

===================================================================================================================================

**Basic and diluted net income per share are the same.

</TABLE>


Stock Market Information

The Nasdaq Stock Market:  FTHR
As of February 15, 1998, there were approximately 229 shareholders
of record and approximately 2000 beneficial shareholders.




<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

The following  discussion  pertains to the Company's  results of operations  and
financial condition for the years ended December 31, 1997, 1996 and 1995.

Results of Operations

Net Sales

     Featherlite  Mfg.,  Inc.  achieved a 35.3%  increase in net sales to $134.4
million for the year ended  December 31, 1997  following an increase of 43.6% to
$99.3  million in 1996 and an increase of 15.0% to 69.2  million in 1995.  These
gains were the result of strong growth in most product lines in 1997 and 1996 as
well as the Vantare  acquisition.  In 1996,  the Company  acquired the assets of
Vantare International, Inc., a converter of luxury motorcoaches and in 1995, the
assets  of  Diamond D  Trailer  Manufacturing,  Inc.,  a  manufacturer  of steel
trailers.

Gross Profit

     Significant sales expansion combined with lower aluminum costs and improved
labor efficiencies caused gross profit to increase to $22.6 million in 1997 from
$14.7 million in 1996 and $10.5 million in 1995. As a percentage of sales, gross
profit  margin  was 16.8% in 1997  compared  to 14.8% in 1996 and 15.2% in 1995.
Following is a summary of  components  of the change in the gross profit  margin
percentage, by year, for the years 1995 through 1997:

                                    1997 vs 1996
                            Consolidated    Trailers Only
--------------------------------------------------------------------------------
Aluminum                        2.5%             .5%
Other Materials                (2.8)             2.6
Labor and overhead              2.3              1.2
--------------------------------------------------------------------------------
Gross Margin Inc                2.0%             4.3%
--------------------------------------------------------------------------------
                                    1996 vs 1995
                            Consolidated    Trailers Only
--------------------------------------------------------------------------------
Aluminum                        7.2%            4.9%
Other Materials                (9.0)           (3.8)
Labor and overhead              1.4            (0.9)
--------------------------------------------------------------------------------
Gross Margin Inc(dec)          (0.4)%           0.2%
--------------------------------------------------------------------------------
                            1995 vs 1994
                            Trailers Only
--------------------------------------------------------------------------------
Aluminum                        (2.1)%
Other Materials                 (1.2)
Labor and overhead              (2.5)
--------------------------------------------------------------------------------
Gross Margin Inc(dec)           (5.8)%
--------------------------------------------------------------------------------

     The gross margin increase in 1997 over 1996 benefited from reduced aluminum
costs,  which  were  approximately  5%  lower  than in  1996,  changes  in other
materials due to product mix and improved  labor  efficiency.  This increase was
partially  offset  by the  effect  of  certain  used  and  new  slide-out  model
motorcoach sales which had a lower than normal gross margin. If motorcoaches are
excluded, the gross margin for 1997 is 19.8% compared to 15.4% in 1996.

     The gross margin decrease in 1996 compared to 1995 relates primarily to the
increased cost of luxury motorcoach conversion shells which offset the effect of
aluminum cost decreases during the year. If motorcoaches are excluded, the gross
profit  margin  for 1996 is  comparable  to 1995.  Other  materials  related  to
trailers  increased  due to greater sales of utility  trailers,  steel horse and
livestock   trailers  and  other  trailers  which  have  higher   percentage  of
non-aluminum materials.

     Aluminum  is a commodity  which is traded  daily on  commodity  markets and
fluctuates in price.  The average Midwest  delivered market cash price per pound

<PAGE>

for ingot  aluminum  during the three years ended December 31, 1997, as reported
to the Company by its  suppliers,  was $.78 in 1997,  $.72 in 1996,  and $.86 in
1995.  The  Company's  cost of aluminum  varies from these market  prices due to
vendor processing  charges,  timing of purchases,  contractual  commitments with
suppliers for specific  prices and other factors.  Its average cost of aluminum,
which peaked in the third and fourth quarters of 1995, was approximately 5% less
in 1997 than 1996 and 6% less in 1996 than in 1995.

Selling, Administration and Other

     Significant sales growth, coupled with expense control, reduced selling and
administrative costs as a percent of sales. Selling and administrative  expenses
decreased as a percentage of sales to 11.9% in 1997 from 12.6 % in 1996 compared
with 14.5% in 1995.  These costs increased by $3.5 million in 1997 to $15.9 from
$12.4 million in 1996 from $10.0 million in 1995. This increase in 1997 reflects
greater  advertising  and  marketing  expense due to a full year's  operation at
Vantare as well as other added selling and  administrative  expenses  related to
growth.  The increase in 1996 mainly  reflects sales and other  personnel  added
throughout  1995  to  improve  product  exposure  and to  build a  larger  sales
organization to support a higher sales volume and expanded  dealer network.  The
acquisition of Vantare  increased  selling and  administrative  expenses by $1.4
million in 1997 and $692,000 in 1996.

     Interest  expense  increased  in 1997 by $350,000 to $1.8 million from $1.5
million  in 1996 and  $799,000  in 1995 as the  result  of  increased  levels of
borrowings for working capital and aircraft in 1997 and 1996. Borrowings against
the line of credit  were  reduced  in the first half of 1995 as a portion of the
proceeds from the initial public offering were available to finance 1995 working
capital increases.  Other income was approximately the same in 1997 and 1996 and
decreased by $853,000 in 1996 over 1995.  Other income in 1997 includes gains on
sales of  aircraft  and other  property  of  $264,000  and in 1996 a  litigation
settlement  in the  amount  of  approximately  $245,000.  The  decrease  in 1996
compared  to  1995  is  substantially  due to the  non-recurrence  in  1996 of a
$750,000  development  grant received in 1995 for working  capital and operating
costs related to the facilities  expansion,  and additional sales of aircraft in
1995 which realized gains of $525,000.

Provision for Income Taxes

     The  provision  for income taxes  reflects an  effective  federal and state
income tax rate of 40% in 1997, 1996 and 1995.

Segment Information

     The  following  discussion  pertains to  information  on the  Company's two
principal business segments as set forth in Note 11 to the financial  statements
for the years ended December 31, 1997, 1996 and 1995

     Trailer Segment

                                1997      1996      1995
--------------------------------------------------------------------------------
Net sales (000's)            $99,703   $84,421   $69,159
Segment income (000's)        11,034     5,680     4,277
Segment income percent          11.1%      6.7%      6.2%

     Trailer  segment  sales  increased  by  18.1%  in 1997  and  23.7%  in 1996
primarily due to increased sales of Featherlite aluminum and steel trailers plus
the added sales of Diamond D trailers  (which was acquired in the 4th quarter of
1995). On a product line basis,  there were  significant  sales gains in 1997 in
most  product  lines with horse  trailers  up 5%, a 20%  increase  in  livestock
trailers, a 56% increase in sales of snowmobile and other recreational  trailers

<PAGE>

and a 23%  increase  in  race  car/specialty  transporter  trailers.  Commercial
trailers  were down 28% due mainly to  decreased  sales of drop frame moving and
other specialty van sales as well as the  discontinuation  of semi-trailer sales
in 1996. In 1996,  sales of horse and livestock  trailers were each up more than
20%,  snowmobile and other  recreational/utility  trailers were up over 60%, car
trailer and race car transporter sales were up about 10% and commercial trailers
were up by only 15%  reflecting the expansion of drop frame moving and specialty
van sales offset by the  discontinuation  of  semi-trailers  during 1996.  Other
factors contributing to the trailer sales growth in 1997 and 1996 included:  the
introduction of new trailer models in existing  product lines,  the introduction
of new product  lines and the expanded use of specialty  trailers in  activities
related to hobbies and  entertainment  of end user  customers.  A portion of the
sales increase in 1997 and 1996 was the result of price  increases  ranging from
2-5% introduced in those years.

     Trailer  segment  income  increased  in 1997 due to higher sales volume and
improvements in gross margin due to reduced aluminum and other material costs as
well as improved labor and overhead  efficiency.  There was a slight improvement
in 1996  compared to 1995  primarily  due to higher  sales  volume and  improved
margins resulting from reduced aluminum costs.  These  improvements in 1996 were
partially offset by increases in other  materials,  and labor and overhead cost.
Segment  income also  improved  due to lower sales and  marketing  expenses as a
percent of sales, which were 5.9% in 1997, 6.3% in 1996 and 6.9% in 1995.

     Motorcoach Segment

                                  1997           1996
--------------------------------------------------------------------------------
     Net sales (000's)         $34,684        $14,908
     Segment income (000's)        813            775
     Segment income percent        2.3%           5.2%

     The Company began developing and manufacturing  luxury motorcoaches in 1995
and it acquired  the assets of Vantare  International,  Inc. as of July 1, 1996.
Net sales for 1997 and 1996  include  sales of used  trade-ins  in the amount of
$12.4 and $5.2  million,  respectively,  which have a lower margin than new unit
sales. Also, 1997 segment income was reduced by the costs related to development
of slide-out  models which was  completed in 1997 as well as the sale of certain
new and used coaches at lower than normal  margins and  increased  marketing and
administrative  costs.  Marketing and  administrative  expenses  related to this
segment  increased in 1997 as the  organization was expanded to meet anticipated
sales growth and were  approximately  6.3% of segment income compared to 5.7% in
1995,  including  amortization  of  intangibles  related to the  acquisition  of
approximately $175,000 and $82,000 in 1997 and 1996, respectively.

Looking Forward

     The statements made in this annual report which are forward looking in time
involve risks and  uncertainties  discussed  here and in the Company's Form 10-K
and other filings with the SEC, including but not limited to: product demand and
acceptance  of  new  products  in  each  segment  of  the   Company's   markets,
fluctuations in the price of aluminum,  competition,  facilities utilization and
aircraft purchases and sales.

     Sales are expected to continue to be strong in 1998.  The Company  believes
its close  affiliation  with the  motorsports  industry  will continue to have a
positive  impact on its sales of specialty  trailers and luxury  motorcoaches as
well as other trailers used for leisure and  entertainment  purposes.  With more
than 75% of its  revenue  from end  users in the  motorsports  and  leisure  and
entertainment  categories,  which also  includes  horse  trailers,  and with its
strong  position in the livestock  trailer  market,  the Company  believes it is
strategically  well-situated to benefit from the strong growth in these markets.
The  Company  will  continue to put strong  emphasis on its horse and  livestock
product lines through the  introduction  of new models and offering new features
in existing models. The Vantare Division will continue to add significant luxury
motorcoach  sales  volume in 1998 as we  anticipate  the  strong  growth in this

<PAGE>

segment to  continue.  Additional  sales are  expected in  snowmobile  and other
recreational  trailers to Polaris and Yamaha dealers.  Modest growth is expected
in sales of drop frame delivery and moving vans which the company  introduced in
late 1995;  however,  increases are anticipated in other models such as kitchen,
hospitality and vending trailers.  These overall  expectations may not be met if
there are  significant  changes  in the  general  economy  or in the  market for
particular types of trailers or motorcoaches. Price increases of 2% announced in
late 1997 will be effective for all new orders  received in the first quarter of
1998 and another 2% price  increase will be effective  after March 1, 1998.  The
total sales order  backlog at December 31, 1997 was  approximately  $27 million,
including  $14  million  in  Vantar orders,  compared  with $28  million  at
December 31, 1996. All of this backlog will be delivered in 1998.

     The Company has  obtained  commitments  from  suppliers  to provide,  at an
agreed upon fixed price,  substantially  all of its total aluminum  requirements
for much of 1998.  The average cost of aluminum will  increase  about 4% in 1998
but this will not adversely  impact  margins due to price  increases  already in
effect. The overall gross margin percentage is expected to improve due to higher
overall margins on Vantare sales.

     There is a risk to  future  operating  results  related  to  losing a major
supplier of aluminum.  This risk is  relatively  nominal as there are  alternate
sources of supply.  It may take a little longer to replace an extruded  aluminum
supplier due to the fact that dies are  required and would have to be made.  The
Company routinely tries to keep at least two suppliers of each shape so it has a
backup supplier, if necessary. Many of these suppliers have multiple plants that
can be used to produce the material the Company requires.

     There  is also a risk if the  Company  were to lose its  sole  supplier  of
motorcoach  conversion shells,  Prevost Car Company,  although it could purchase
certain  shells from other  manufacturers.  The Company  does have  insurance to
cover certain  losses it may sustain if Prevost's  plant is destroyed by fire or
certain other catastrophes.

     Sales and administration  expenses are expected to increase at a lower rate
than sales.  Interest  expense will likely  remain higher in 1998 as the average
level of debt is expected to be greater in 1998 than 1997 although the effective
interest rate will be lower unless the prime rate of interest changes.  In 1997,
the  Company  signed  a joint  venture  agreement  with  GMR  Marketing  to form
Featherlite/GMR  Sports  Group,  LLC.  This  joint  venture  which will focus on
developing  promotional  events and  implementing  marketing  strategies  in the
motorsports  industry.  It is not  expected  that  the  Company's  share  of the
operating  results  related  to its  investment  in this joint  venture  will be
significant until 1999 and thereafter.

     The  Company has made  increased  use of leverage  and  incurred  increased
interest  and  related  expenses in the three years  ended  December  31,  1997.
Increased  debt incurred in  connection  with  acquisition  of Diamond D (fourth
quarter of 1995),  financing  operations of Vantare  (third quarter of 1996) and
financing  additional  working  capital.  The  Company  was  temporarily  out of
compliance  with certain  covenants in its loan  agreements  at certain times in
1996 and at December  31,  1997 but has  received  waivers  from its lenders for
these  variances and expects to be in compliance  with all covenants  throughout
1998.  Increased leverage and related expenses create a risk to future operating
results of the Company.

Liquidity and Capital Resources

     In 1997,  the Company  generated net cash of $1.4 million,  including  $5.0
million used for operating activities,  $13.0 million provided by increased debt
and $6.6 million  used for capital  expenditures  for  property,  equipment  and
aircraft.

     Operating  activities  used net cash of $ 5.0  million  for the year  1997,
primarily  for  investment  in  working  capital.  Net income for the year ended
December 31, 1997,  provided cash of $3.3 million.  This amount was increased by
adjustments  for  depreciation  and  amortization of $1.6 million and reduced by

<PAGE>

other non-cash  items in a net amount of $1.3 million.  Increases in receivables
and  inventories  used cash of $14.7  million and other  working  capital  items
provided cash of $6.1 million.  Inventories increased by $14.4 million including
$8.7 million to support the  increased  level of sales at the Vantare  operation
and the  anticipated  strong  sales in the  first  quarter  of 1998.  Additional
increases  may be  required in working  capital in the future to support  higher
sales levels throughout the next year.

     Investing  activities in the year ended December 31, 1997 used cash of $2.9
million  for plant and other  capital  improvements  including  the  addition of
20,000 square feet to its parts and rework  facility at a cost of $450,000,  the
puchase of land at a cost of $900,000  for future  expansion at Vantare and $3.7
million for aircraft  transactions.  Luxury motorcoaches with a cost of $907,000
which were leased to  outsiders  during the year were  returned  and included in
inventory at year end. The Vantare  production  facility expansion was completed
and sold to the  Seminole  Port  Authority  at a cost of  $975,000  and was then
leased back by the Company under the terms of a ten year  operating  lease.  The
proceeds from the sale were used to repay the Company's  interim bank borrowings
for the project. Net cash used for aircraft of $3.7 million primarily represents
the replacement of an aircraft sold at the end of 1996. The Company's investment
in aircraft for resale of $6.7  million at December 31, 1997 is not  anticipated
to change significantly in the foreseeable future.

     Financing activities provided net cash of $13.0 million, after borrowing an
additional  $24.4 million and repaying $11.4 million of aircraft and other debt.
The increased level of debt includes $4.0 million for net aircraft purchases and
$9.0 million to finance increased inventory levels and other working capital and
capital expenditure  requirements including land purchased in Florida for future
expansion.

     The Company has a working  capital line of credit with its primary  lender,
Firstar Bank Iowa,  N.A.  This line has a defined  borrowing  limit equal to the
lesser of $12.0  million or a defined  percentage  of eligible  receivables  and
inventory.  During the year, the maturity date of this line was extended to July
31, 1999 and is subject to future renewal and extension and the interest rate on
borrowings  on this line of  credit  was  reduced  from  prime to prime  less .5
percent  (8.0% at December  31,  1997).  The Company is required by the Bank to
maintain defined levels of working capital, tangible net worth and cash flow and
to limit leverage and capital expenditures. The Company received permission from
the Bank to exceed the leverage  requirement  at December  31, 1997.  Borrowings
under the line are secured by substantially all assets of the Company. There was
$9.8 million borrowed against this line as of December 31, 1997.

     The  Company  also has a  wholesale  floor  plan  agreement  with  Deutsche
Financial  Services to provide up to $7.5 million  (increased  from $3.5 million
during the year) financing for new and used motorcoaches held in inventory. This
agreement includes covenants requiring maintenance of defined levels of tangible
net worth,  leverage and working capital.  The Company received  permission from
Deutsche to exceed the leverage  requirement  at December 31, 1997.  At December
31, 1997, $6.0 million was borrowed against this line. The Company has requested
and received approval for this line be increased to $11 million.

     The Company  believes that its current cash  balances,  cash flow generated
from  operations  and  available  borrowing  capacity will be sufficient to fund
operations and capital requirements for the next year.

     As discussed in Note 6 to financial statements, the Company is contingently
liable under certain dealer floor plan and retail financing arrangements.  These
contingent  liabilities total  approximately $14.8 million at December 31, 1997.
Also,  the Company is  self-insured  for a portion of certain health benefit and

<PAGE>

workers'  compensation  insurance  claims.  At December  31, 1997 the  Company's
maximum  annual  claim  exposure  under  these  programs is  approximately  $2.4
million. The Company has obtained an irrevocable standby letter of credit in the
amount of $1,245,000 in favor of the workers compensation claim administrator.

     The  Company  has made a  commitment  to the City of Cresco to  construct a
hangar  facility  at a cost of  approximately  $300,000  as  part of an  airport
expansion  project  expected to be completed in 1998. In 1998,  the Company also
plans to build a  warehouse  facility  for raw  material  storage  at its Cresco
location at an approximate  cost of $1.8 million which will be financed with new
borrowings and may begin some phases of the Vantare facilities expansion.

     In October,  1997,  the Company  signed a joint venture  agreement with GMR
Marketing to form  Featherlite/GMR  Sports  Group,  LLC. The joint  venture will
focus on developing  promotional events and implementing marketing strategies in
the rapidly growing motorsports  industry.  It is not expected that this venture
will  require  significant  capital  from the Company to begin and  maintain its
operations.

     The Company leases certain office and production  facilities  under various
leases that expire at varying dates through  fiscal year 2007 as described  more
fully in Note 6 to the financial statements. Minimum lease payments for 1998 are
expected to total $497,000.

     For the foreseeable  future, the Company does not plan to pay dividends but
instead will follow the policy of  reinvesting  earnings in order to finance the
expansion and  development of its business.  As discussed in Note 5 to financial
statements, the Company is a party to certain loan agreements which prohibit the
payment of dividends without the lender's consent.

     Based  on a recent  assessment  by the  Company  of its  computer  software
programs and  communications  with significant third party vendors providing the
Company  payroll and benefit  services,  the Company has determined that certain
modification may be required to properly utilize dates beyond December 31, 1999.
The Company believes that with modification to existing software and conversions
to new software, the year 2000 issue can be mitigated at a nominal cost and that
such changes can be made on a timely  basis and will not have a material  impact
on the operations of the Company.

<PAGE>

                              FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

Featherlite Mfg., Inc.
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands)
                                                                                                  1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                 <C>          
ASSETS

CURRENT ASSETS:
     Cash                                                                                       $  1,632            $  256
     Trade accounts receivable                                                                     7,050             6,783
     Inventories                                                                                  39,664            25,235
     Prepaid expenses                                                                              1,110             1,094
     Deferred taxes                                                                                  824               481
------------------------------------------------------------------------------------------------------------------------------------
         Total current assets                                                                     50,280            33,849
------------------------------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT:
     Land and improvements                                                                         2,098             1,111
     Building and improvements                                                                     7,954             7,300
     Machinery and equipment                                                                      10,280             9,276
     Accumulated depreciation                                                                     (6,280)           (4,914)
------------------------------------------------------------------------------------------------------------------------------------

         Net property and equipment                                                               14,180            12,773
------------------------------------------------------------------------------------------------------------------------------------

GOODWILL AND OTHER ASSETS                                                                         11,048             6,912
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               $  75,508          $ 53,534
====================================================================================================================================

LIABILITIES AND SHAREHOLDERS' INVESTMENT

CURRENT LIABILITIES:
     Current maturities of long-term debt                                                        $ 1,173           $ 1,146
     Other notes payable                                                                           6,515             2,255
     Trade accounts payable                                                                       11,984             9,776
     Accrued liabilities                                                                           4,510             3,110
     Customer deposits                                                                             3,585             2,157
     Income taxes payable                                                                            870               240
------------------------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                                28,637            18,684
------------------------------------------------------------------------------------------------------------------------------------

LONG-TERM DEBT:
     Bank line of credit                                                                           9,800             9,100
     Other debt, net of current maturities                                                        12,275             4,246
------------------------------------------------------------------------------------------------------------------------------------
         Total long term debt                                                                     22,075            13,346
------------------------------------------------------------------------------------------------------------------------------------

DEFERRED GRANT INCOME                                                                                237               310
DEFERRED INCOME TAXES                                                                                682               599
------------------------------------------------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Note 6)
SHAREHOLDERS' INVESTMENT
     Common stock                                                                                 14,220            14,220
     Additional paid-in capital                                                                    4,062             4,062
     Retained earnings                                                                             5,595             2,313
------------------------------------------------------------------------------------------------------------------------------------

         Total shareholders' investment                                                           23,877            20,595
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               $  75,508          $ 53,534
====================================================================================================================================

                 See Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>


<TABLE>
<CAPTION>


Featherlite Mfg., Inc.
Consolidated Statements of Operations
For the years ended December 31, 1997, 1996 and 1995 
(In thousands,  except for per share data)

                                                                             1997               1996                1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>                  <C>    
Net sales                                                                 $134,387            $99,329              $69,159
Cost of sales                                                              111,764             84,643               58,673
------------------------------------------------------------------------------------------------------------------------------------
     Gross profit                                                           22,623             14,686               10,486
Selling, general and administrative expenses                                15,794             12,372                9,979
Amortization of intangibles                                                    204                120                   14
------------------------------------------------------------------------------------------------------------------------------------
     Income from operations                                                  6,625              2,194                  493
------------------------------------------------------------------------------------------------------------------------------------

Other income (expense):
     Interest expense                                                       (1,800)            (1,450)                (799)
     Grant income                                                               73                 73                  823
     Gain on aircraft and other sales                                          264                 60                  534
     Other income, net                                                         309                527                  121
------------------------------------------------------------------------------------------------------------------------------------

         Total other income (expense)                                       (1,154)              (790)                 679
------------------------------------------------------------------------------------------------------------------------------------

     Income before taxes                                                     5,471              1,404                1,172
     Provision for income taxes                                              2,189                562                  471
------------------------------------------------------------------------------------------------------------------------------------

         Net income                                                        $ 3,282             $  842               $  701
====================================================================================================================================


Net income per share - basic and diluted                                    $ 0.52             $ 0.13             $   0.12
====================================================================================================================================

Weighted average number of common
     shares outstanding - basic                                              6,255              6,106                5,955
====================================================================================================================================

Weighted average number of common
     shares outstanding - diluted                                            6,314              6,107                6,006
====================================================================================================================================


</TABLE>


<PAGE>

<TABLE>
<CAPTION>



Consolidated Statements of Shareholders' Investment For the years ended December
31, 1997, 1996 and 1995 (In thousands)
                                                                  --Common Stock--
------------------------------------------------------------------------------------------------------------------------------------
                                                           Outstanding                        Additional         Retained
                                                             Shares           Amount        Paid in Capital      Earnings
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>               <C>               <C>    
Balance December 31, 1994                                       5,955           $12,420           $4,062            $  770

     Net income for the period                                                                                         701

------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995                                       5,955            12,420            4,062             1,471

     Net income for the period                                                                                         842
     Issuance of common stock                                     300             1,800

------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996                                       6,255            14,220            4,062             2,313

     Net income for the period                                                                                       3,282

------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997                                       6,255           $14,220           $4,062            $5,595
====================================================================================================================================


</TABLE>

<PAGE>

<TABLE>
<CAPTION>

Featherlite Mfg., Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
(In thousands)
                                                                          1997                1996                1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                  <C>                <C>   
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
     Net income                                                           $3,282               $  842             $  701
     Adjustments to reconcile net income to net cash
         from (used for) operating activities
         Depreciation and amortization                                     1,610                1,454              1,244
         Trailers exchanged for advertising, net of amortization            (410)                (144)                99
         Grant income                                                        (73)                 (73)              (823)
         Deferred taxes                                                     (260)                  92                190
         Gain on sales of aircraft and other property                       (264)                 (60)              (534)
         Changes in current operating items, net of effect of
           business acquisitions
            Trade accounts receivable                                       (268)              (1,150)            (1,658)
            Refundable income taxes                                         -                     466               (466)
            Inventories                                                  (14,429)                (285)            (6,764)
            Prepaid expense                                                  104                 (148)              (128)
            Trade accounts payable                                         2,208               (1,999)             1,896
            Accrued liabilities                                            1,400                1,306                149
            Customer deposits                                              1,428                 (755)              (200)
            Income taxes payable                                             630                  240               -   
------------------------------------------------------------------------------------------------------------------------------------

     Net cash (used for) operations                                       (5,042)                (214)            (6,294)
------------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
     Acquisition of business                                                -                     231             (2,006)
     Investment in joint venture, net of equity in earnings                  (11)                -                  -   
     Purchases of property and equipment                                  (2,973)              (1,543)            (2,941)
     Proceeds from sale of equipment                                          57                   79                123
     Purchase of airplanes for resale                                     (6,839)                -                (5,514)
     Proceeds from sale of airplanes                                       3,166                2,789              4,225
------------------------------------------------------------------------------------------------------------------------------------

     Net cash from (used for) investing activities                        (6,600)               1,556             (6,113)
------------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
     Distribution for shareholder taxes                                     -                    -                  (305)
     Short-term debt increase                                              4,288                  140                524
     Proceeds from long-term debt and grants                              20,941                6,106             16,412
     Repayment of long-term debt                                         (12,211)              (8,143)            (6,212)
------------------------------------------------------------------------------------------------------------------------------------

         Net cash from (used for) financing activities                    13,018               (1,897)            10,419
------------------------------------------------------------------------------------------------------------------------------------

         Net cash increase (decrease) for period                           1,376                 (555)            (1,988)
Cash, beginning of the period                                                256                  811              2,799
------------------------------------------------------------------------------------------------------------------------------------

Cash, end of the period                                                   $1,632               $  256             $  811
====================================================================================================================================

</TABLE>


<PAGE>


Featherlite Mfg., Inc.
Notes To Consolidated Financial Statements

Note 1. Nature of Business

     Featherlite  Mfg.,  Inc. (the Company) is engaged in the  manufacturing  of
various types of specialty  trailers and luxury  motorcoaches as well as related
parts  and  accessories.  The  trailers  are  primarily  sold  at  wholesale  to
authorized  dealers  throughout  the United States and Canada.  Dealer terms and
conditions for business are defined by standard  agreements with each authorized
dealer.  The luxury  motorcoaches  are sold  directly by the Company to end user
customers. The Company is also involved in the purchase and resale of commercial
type aircraft used for business purposes.

Note 2. Summary of Significant Accounting Policies

     Principles of Consolidation:  The consolidated financial statements include
the  accounts  of the  Company  and its  wholly  owned  subsidiary,  Featherlite
Aviation  Company.  All  material  intercompany  accounts and  transactions  are
eliminated in consolidation.

     Fair Values of Financial Instruments: The carrying values of cash, accounts
receivable and payable, short-term debt and accrued liabilities approximate fair
value due to the  short-term  maturities  of these assets and  liabilities.  The
carrying amount of long term debt,  including current  maturities,  approximates
the fair value of  long-term  debt  because the related  interest  rates  either
fluctuate  with the lending  bank's  current prime rate or  approximate  current
interest rates for debt of a similar nature and maturity.

     Financial Statement  Estimates:  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 disclosures 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 these estimates.

     Cash: At December 31, 1997 and 1996,  the Company had cash with a financial
institution in excess of the Federal  Deposit  Insurance  Corporation  insurance
coverage.  The  Company has  performed  an  evaluation  of the  relative  credit
standing of this  financial  institution  and believes it has limited its credit
exposure accordingly.

     Inventories.  Inventories are stated at lower of first-in, first-out (FIFO)
cost or market and include materials,  labor and overhead costs. At December 31,
1997 and 1996 inventories were as follows: (In thousands)

                                     1997           1996
--------------------------------------------------------------------------------
     Raw Materials               $ 10,052        $ 8,053
     Work in Progress              11,815          8,410
     Finished Trailers
       & Motorcoaches              17,797          8,772
--------------------------------------------------------------------------------
       Total                      $39,664        $25,235
================================================================================


     Aircraft  Held for  Resale:  Aircraft  held by the  Company  for resale are
stated  at  cost.  Charges  for  depreciation  are not  taken,  but the  Company
periodically  evaluates the aircraft's  net realizable  value and, if necessary,
adjusts the carrying value by charges to operations. Gain or loss on the sale of
aircraft is included in other income during the period in which the aircraft are
sold.  Aircraft  held by the Company for resale are  classified as noncurrent as
prior history indicates that the aircraft may not be sold within the next twelve
months.

<PAGE>

     Property and  Equipment:  Property and equipment are  capitalized  at cost,
while  repair  and  maintenance   items  are  charged  to  current   operations.
Depreciation is provided for financial  reporting  purposes using  straight-line
and  accelerated  methods  over  estimated  useful  lives of 31 to 39 years  for
building and improvements and 5 to 7 years for machinery and equipment.

     Goodwill and Long-lived Assets: The Company assesses  long-lived assets for
impairment  under FASB  Statement  No. 121,  "Accounting  for the  Impairment of
Long-lived  Assets and for  Long-lived  Assets to Be  Disposed  Of." Under those
rules,  property and equipment,  goodwill  associated  with assets acquired in a
purchase  business  combination,  idle  facilities  held for sale and any  other
long-lived  assets  are  included  in  impairment  evaluations  when  events  or
circumstances exist that indicate the carrying amount of those assets may not be
recoverable.

     Product Warranty:  The Company's products are covered by product warranties
ranging  from one to six years after date of purchase  by the  consumer.  At the
time of sale, the Company  recognizes  estimated  warranty cost,  based on prior
history and expected future claims, by a charge to operations.



<PAGE>



     Cash  Flow  Information:   Cash  payments  for  interest  were  $1,675,000,
$1,461,000 and $770,000 for the years ended  December 31, 1997,  1996, and 1995,
respectively.  Cash payments for income taxes were $1,819,000 in 1997,  $143,000
in 1996 and  $825,000  in 1995.  Cash  provided  by (used  for)  acquisition  of
businesses in 1996 was as follows (In thousands):

                                                    1996
--------------------------------------------------------------------------------
     Fair Value of Assets
       Acquired                                  $ 9,412
     Liabilities Assumed                          (7,843)
     Issuance of Common
       Stock                                      (1,800)
--------------------------------------------------------------------------------
     Cash provided                                $  231
================================================================================



     Revenue Recognition: The Company recognizes revenue, net of all anticipated
discounts,  when the title to the trailer or  motorcoach  passes,  normally upon
completion  of  production  and  issuance of an invoice  and the  Manufacturer's
Statement of Origin.

     Deferred Grant Income:  The Company  recognizes  revenue  related to grants
received  from various  governmental  units over the life of the assets to which
the funding  relates or during the period in which the expense  occurs for which
grants  were  received.  Revenue  recognition  begins  when there is  reasonable
assurance that all  conditions of the grants,  principally  job creation  goals,
have been met.

     Income Taxes:  Deferred  taxes are provided on a liability  method  whereby
deferred tax assets are  recognized  for deductible  temporary  differences  and
deferred tax  liabilities  are  recognized  for taxable  temporary  differences.
Temporary differences are the differences between the reported amounts of assets
and  liabilities  and their tax bases.  Deferred  tax  assets  are  reduced by a
valuation  allowance when, in the opinion of management,  it is more likely than
not that some  portion or all of the  deferred  tax assets will not be realized.
Deferred tax assets and  liabilities  are adjusted for the effects of changes in
tax laws and rates on the date of enactment.

     Net Income Per Common Share:  Net income per basic share is computed  based
upon the weighted average number of common shares issued and outstanding  during
each year. Dilutive per share amounts assume conversion, exercise or issuance of
all potential common stock instruments  (stock options and warrants as discussed
in note 9) unless the effect is to reduce a loss or increase income per share.



<PAGE>



     Recent Accounting  Pronouncements:  In June, 1997, the FASB issued SFAS No.
130. "Reporting  Comprehensive  Income." Statement No. 130 establishes standards
for the reporting of  comprehensive  income and its  components in a full set of
general-purpose  financial  statements.  The  Company  will be required to adopt
Statement  No. 130 in 1998,  and does not expect  the  measure of  comprehensive
income to be materially different from the measure of net income.

     In June,  1997,  the  FASB  also  issued  SFAS No 131.  "Disclosures  about
Segments of an Enterprise  and Related  Information."  Statement No. 131 revises
information  regarding the reporting of operating segments.  It also establishes
standards for related disclosures about products and services,  geographic areas
and major customers.  The Company will be required to adopt Statement No. 131 in
1998.  The Company  does not believe  that the  adoption of this  standard  will
result in segment disclosures that are materially  different than those provided
under current accounting standards.


Note 3.  Goodwill  and Other Assets  

Goodwill  and other  assets  consist of the following:

                                  1997             1996
--------------------------------------------------------------------------------

     Goodwill, net                $3,461           $3,536
     Aircraft held
     for resale (note 5)           6,726            2,815
     Idle Facilities                 522              522
     Advertising and other           328               39
     Investment in
     Joint Venture                    11               --

--------------------------------------------------------------------------------
     Total                       $11,048           $6,912
================================================================================


     Goodwill: As discussed in Note 10, the excess of the total acquisition cost
of Vantare International,  Inc. and Diamond D Trailer  Manufacturing,  Inc. over
the fair value of the net assets  acquired of $3,648,000 is being amortized on a
straight-line basis over periods of up to 20 years. Amortization was $198,000 in
1997,  $108,000  in 1996 and  $4,000 in 1995 and  accumulated  amortization  was
$310,000 and $112,000 at December 31, 1997 and 1996, respectively.



<PAGE>



     Aircraft  Held for Resale:  The Company is a licensed  aircraft  dealer and
deals  in  business  class  aircraft.   In  1997,  the  Company's  net  aircraft
transactions  included  proceeds of $3.1  million  from the sale of aircraft and
$6.8 million in aircraft  purchases.  In 1996, there were aircraft sales of $2.8
million and no aircraft purchases.

     Idle  Facilities:  The Company  owns land and  buildings  in Grand  Meadow,
Minnesota  that  was  previously   used  as  its  corporate   headquarters   and
delivery/maintenance  facility.  The net book value of the facilities  have been
reclassified  from  property and  equipment to other assets and a provision  has
been made to reduce the facility to its expected  realizable value.  Portions of
these  facilities are being rented under operating leases to cover costs related
to holding these properties while they are being marketed for resale.

     Advertising  and  Other:  In 1997,  1996 and 1995,  the  Company  exchanged
trailers and coaches (total sales value $669,000 in 1997,  $276,000 in 1996, and
$155,000  in 1995) for future  personal  service,  promotional  and  advertising
services of an equivalent value.  These contracts were capitalized and are being
amortized over the period the services will be rendered.  Amortization  of these
agreements to  advertising  expense was $254,000 in 1997,  $315,000 in 1996, and
$254,000 in 1995. Advertising expense was $1,441,000 in 1997, $1,299,000 in 1996
and $1,116,000 in 1995.

     Investment in Joint  Venture:  In 1997,  the Company signed a joint venture
agreement with GMR Marketing to form the Featherlite/GMR  Sports Group, LLC. The
joint  venture  will focus on  developing  promotional  events and  implementing
marketing  strategies in the motorsports  industry.  The Company's investment in
and the  operations  of the joint venture were not  significant  at December 31,
1997.

Note 4. Income Tax Matters

The components of the income tax provision  charged to operations in 1997,  1996
and 1995 are as follows (In thousands):

                           1997         1996       1995
--------------------------------------------------------------------------------
Current
   Federal               $2,145         $425       $259
   State                    304           45         22
--------------------------------------------------------------------------------
                         $2,449         $470       $281
--------------------------------------------------------------------------------
Deferred
   Federal                (229)           82        171
   State                   (31)           10         19
--------------------------------------------------------------------------------
                          (260)           92        190
--------------------------------------------------------------------------------
Total                    $2,189         $562       $471
================================================================================


A reconciliation of the provision for income taxes at the federal statutory rate
to the provision for income taxes in the financial statement is as follows:

                           1997         1996       1995
--------------------------------------------------------------------------------
Provision at
statutory rate           $1,910         $478       $421

State income taxes,
   net of Federal
   income tax benefit       253           60         38

Other                        26           24         12
--------------------------------------------------------------------------------
Total                    $2,189         $562       $471
================================================================================

<PAGE>

Deferred tax assets and  liabilities  consist of the following  components as of
December 31, 1997 and 1996 (In thousands):

                                     1997          1996
--------------------------------------------------------------------------------

 Deferred Tax Assets:
   Accrued expenses                  $383          $270
   Accrued warranty reserve           209           100
   Inventory allowances               168            64
   Receivable allowances               64            47
--------------------------------------------------------------------------------
                                     $824          $481
--------------------------------------------------------------------------------
 Deferred Tax Liabilities:
   Depreciation                     ($682)        ($599)
--------------------------------------------------------------------------------
 Net deferred tax assets (liabilities)$142        $(118)
================================================================================



Note 5.  Financing Arrangements

Other  Notes  Payable:  At  December  31,  1997 and 1996,  other  notes  payable
consisted of the following (In thousands):

                                      1997      1996
--------------------------------------------------------------------------------
Wholesale floor plan line
   of credit*                     $6,072        $1,817

Insurance premiums;
   interest at 6.0%, payable
   in monthly installments           443           438
--------------------------------------------------------------------------------
                                  $6,515        $2,255
================================================================================




<PAGE>



     *The Company has a wholesale  finance  agreement with a financial  services
company  for a $7.5  million  line of credit to finance  completed  new and used
motorcoaches  held  in  inventory.  Amounts  borrowed  are  subject  to  defined
percentages of eligible  inventory.  Borrowings bear interest at prime (8.5% at
December 31, 1997) and are secured by the  motorcoach  financed and other assets
of the Company.  The  agreement  includes  covenants  requiring  maintenance  of
defined levels of tangible net worth,  leverage and working capital. The Company
was allowed by the lender to exceed the  leverage  requirement  as December  31,
1997. The agreement is subject to renewal on October 31, 1999.

     Bank Lines of credit:  The Company has a Credit  Agreement with a bank that
provides  for a working  line of credit to provide  for  borrowing  equal to the
lesser of  $12,000,000  or a  defined  percentage  of  eligible  trade  accounts
receivable and inventory. Borrowings under this arrangement, which bear interest
at prime less .5% (8.0% at December 31, 1997), are secured by substantially all
assets of the Company. The agreement includes covenants requiring maintenance of
defined levels of working capital,  tangible net worth,  leverage, and cash flow
and prohibits the payment of dividends without approval of the bank. The Company
was allowed by the Bank to exceed the  leverage  requirements  at  December  31,
1997.  Borrowings  against this line of credit were $9,800,000 and $9,100,000 at
December 31, 1997 and 1996,  respectively.  These  borrowings  are classified as
long-term debt as the Credit Agreement matures and is subject to renewal on July
31, 1999.

     Long term debt: (In thousands)

                                         1997        1996
--------------------------------------------------------------------------------
Bank notes payable; interest
   to 8.5%, payable in varying
   monthly  installments plus 
   interest through 2002;
   contains same collateral 
   and covenant provisions as
   working capital line of credit.     $6,492      $2,176

Bank notes payable;  interest at 
   prime plus .75%,  adjusted  
   quarterly (9.25% at December 31,
   1997);  payable in varying  
   monthly  installments with
   interest through November,
   1999; collateralized by aircraft     5,457       1,559



<PAGE>



Notes and capitalized leases to          1997        1996
   banks and others, interest to
   11.5%, payable in varying
   monthly installments through
   2003; collateralized by real
   estate and partial shareholder
   guarantees.                          1,495       1,656
--------------------------------------------------------------------------------

   Total                               13,448       5,391

   Less current maturities             (1,173)     (1,145)
--------------------------------------------------------------------------------

                                      $12,275     $ 4,246
================================================================================



Annual  maturities during the five years subsequent to December 31, 1997 are (In
thousands):

1998 - $1,173; 1999 - $7,014; 2000 - $1,061; 2001 - $421; and 2002 - $3,710.


Note 6. Commitments and Contingencies

     Pursuant to dealer inventory floor plan financing arrangements, the Company
may be required,  in the event of default by a financed  dealer,  to  repurchase
products from the financial  institutions or to reimburse the  institutions  for
unpaid balances including finance charges, plus costs and expenses.  The Company
was  contingently  liable  under  these  arrangements  for a  maximum  amount of
$14,888,000 at December 31, 1997.

     The  Company  has  two  separate  agreements  which  provide  approximately
$620,000 for job training purposes. The amounts are to be repaid,  together with
interest,  over a ten year period from state  withholding  taxes on employees at
the Company's Iowa facilities.  The Company may be required to provide funds for
the repayment of these  training  credits if sufficient  withholding  and unused
training funds are not available.

     The Company is  self-insured  for a portion of certain  health  benefit and
workers'  compensation  insurance  claims.  The Company's  maximum  annual claim
exposure under these programs is approximately $2.4 million,  including $844,000
accrued for  estimated  unpaid  claims at  December  31,  1997.  The Company has
obtained an irrevocable  standby letter of credit in the amount of $1,245,000 in
favor of the workers compensation claim administrator.



<PAGE>



     The Company leases certain office and production  facilities  under various
operating  leases that  expire at varying  dates  through  fiscal  2007.  Rental
expense under these operating leases for the years ended December 31, 1997, 1996
and 1995 was  approximately  $327,000,  $68,000 and $0. The  approximate  annual
minimum future lease payments  under these  operating  leases for the five years
after December 31, 1997 are as follows (In thousands):  1998- $497;  1999- $424;
2000-$374; 2001- $366; 2002 - $359.

     The Company in the course of its  business has been named as a defendant in
various legal actions.  Most, but not all, of such actions are product liability
or workers'  compensation  claims in which the  Company is covered by  insurance
subject to applicable deductibles.  Although the ultimate outcome of such claims
cannot be  ascertained  at this time,  it is the  opinion of  management,  after
consultation  with  counsel,  that the  resolution of such suits will not have a
material  adverse  effect on the financial  position of the Company,  but may be
material to the Company's operating results for any particular period.


Note 7. Deferred Grant Income

     Deferred grant income consists of forgivable loans (grants) in an aggregate
amount of $2,030,000  provided to the Company by various  governmental  units to
assist with the  establishment  of the  Company's  headquarters  and  production
facility in Cresco, Iowa and its Nashua, Iowa production  facility.  These loans
are wholly or partially  forgivable  based on  fulfillment  and retention of job
creation goals through June,  1999.  These grants are being recognized as income
as  they  are  earned.  Accumulated  income  recognized  for  these  grants  was
$1,792,000 at December 31, 1997, $1,719,000 at December 31, 1996, and $1,646,000
at December 31, 1995.


Note 8. Related Party Transactions

     The  Company   recorded  sales  to  authorized   Featherlite   dealers  and
Featherlite  Credit,  that are  related  entities  under  common  ownership,  of
$2,326,000, $3,154,000, and $1,276,000, in 1997, 1996, and 1995, respectively.

     The Company has leased various equipment from certain  shareholders  during
current and prior periods.  Payments  related to these leases totaled $57,000 in
1997, $91,000 in 1996, and $91,000 in 1995.

     In  1997,   1996  and  1995,  the  Company  entered  into  agreements  with
Featherlite Credit Corporation, related under common ownership, to compensate it
for various credit related  services it provided for the Company,  including the
development  of the  Featherlite  Master  Lease  program.  Expenses  under  this
agreement  totaled $42,000 in 1997,  $100,000 in 1996 and $170,000 in 1995. Also
under the terms of this agreement, Featherlite Credit will reimburse the Company
$96,000,  $116,000  and $88,000 for salaries and other costs paid by the Company
in 1997, 1996 and 1995, respectively.


Note 9. Shareholders' Investment

     Capitalization: The Company's authorized capital is 40,000,000 shares of no
par Common Stock and  10,000,000  shares of  undesignated  stock.  In 1994,  the
Company completed an initial public offering of 1,955,000 shares of Common Stock
including an over-allotment  option to the underwriter for an additional 255,000
shares at a price of 120 percent of the initial  public  offering price of $6.00
per share.


<PAGE>

     Stock  option Plan:  At December  31, 1997,  the Company has a stock option
plan  which  reserves  up to  550,000  shares of Common  Stock for  issuance  as
options.  These  options  may be  granted  to  employees  and  directors  at the
discretion of the Board of  Directors,  which may grant either  incentive  stock
options or non-statutory stock options. All incentive options must be granted at
no less than 100  percent of the fair  market  value of the stock on the date of
grant,  (110  percent for  employees  owning more than 10 percent of fair market
value on the date of grant.) The options  expire at varying dates  generally not
to exceed ten years from date of grant and are non-transferable.

     Grants  under  this plan are  accounted  for using APB  Opinion  No. 25 and
related interpretations.  Accordingly,  no compensation cost has been recognized
for grants  under the stock  option plan.  Had  compensation  cost for the stock
option plan based on the grant date fair value of awards  (the method  described
in FASB Statement No. 123) reported net income and earnings per share would have
been reduced to the pro forma amounts shown below.

                             1997        1996        1995
--------------------------------------------------------------------------------

   Net income (000's)
      As reported          $3,282       $ 842       $ 701
      Pro forma             3,164         728         701
================================================================================
   Basic earnings per share
      As reported           $ .52       $ .13       $ .12
      Pro forma               .51         .12         .11
================================================================================
   Diluted earnings per share
      As reported           $ .52       $ .13       $ .12
      Pro forma               .50         .12         .11
================================================================================

     The fair value of each  option has been  estimated  at the grant date using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions for grants in 1997, 1996 and 1995, respectively: dividend rate of 0%
for all years;  price  volatility of 47.5,  48.5 and 50.2%,  risk-free  interest
rates of 6.3,  6.3 and 6.6% for the five year  options  and 6.5 and 6.8% for the
ten year options and expected  lives of 5 and 10 years for the five and ten year
options respectively.

     A summary of the status of the stock option plan at December 31, 1997, 1996
and 1995 and changes during the years ended on those dates and as follows:

                                       Weighted Average
     1997                 Shares        Exercise Price
--------------------------------------------------------------------------------
Outstanding,
   beginning of year      249,380           $6.02

Granted                    62,000            6.77

Exercised/forfeited          -                 -
--------------------------------------------------------------------------------
Outstanding,
   end of year            311,380            6.17
================================================================================
Exercisable at
   end of year            228,380
================================================================================
Weighted-average
fair value per share
of options granted
during the year            $3.87
================================================================================

<PAGE>


                                       Weighted Average
     1996                 Shares        Exercise Price
--------------------------------------------------------------------------------
Outstanding,
   beginning of year      159,168           $6.28

Granted                    90,212            5.54

Exercised/forfeited          -                 -
--------------------------------------------------------------------------------
Outstanding,
   end of year            249,380           $6.02
================================================================================
Exercisable at
   end of year            158,755
================================================================================
Weighted-average
fair value per share
of options granted
during the year            $3.74
================================================================================





<PAGE>


                                       Weighted Average
     1995                 Shares        Exercise Price
--------------------------------------------------------------------------------
Outstanding,
   beginning of year      152,500            $6.16

Granted                    6,668              9.00

Exercised/forfeited          -                 -
--------------------------------------------------------------------------------
Outstanding,
   end of year            159,168            $6.28
================================================================================
Exercisable at
   end of year             97,918
================================================================================
Weighted-average
fair value per share
of options granted
during the year            $4.68
================================================================================

     At December 31, 1997, the options  outstanding have exercise prices ranging
from $5.50 to $9.00 and a weighted  average  remaining  contractual  life of 7.9
years.  All but 6,668  shares are  exercisable  at prices  ranging from $5.50 to
$7.25. All of the non-vested options are expected to eventually vest.


Note 10. Business Combination

     In  July,   1996,   the  Company   acquired   all  the  assets  of  Vantare
International,  Inc., a  privately-held  converter of purchased  bus shells into
luxury motorcoaches,  in exchange for 300,000 restricted shares of the Company's
common stock with a value of  approximately  $1.8 million and the  assumption of
certain  liabilities.  An additional  100,000  shares may be issued  pending the
attainment of certain  defined net earnings,  as  determined  annually,  through
December  31,  2000.  None of these  additional  shares were earned for the year
1997. This acquisition was accounted for as a purchase and accordingly,  results
of  operations of Vantare have been  included in the  accompanying  statement of
operations  since July 1, 1996,  the  acquisition  date.  The  Company  recorded
intangible assets of $3.2 million,  including  goodwill,  trade name and certain
other rights which are being amortized over 20 years.

     In October,  1995, the Company acquired all the assets of Diamond D Trailer
Manufacturing,  Inc.,  a  privately-held  manufacturer  of steel  trailers,  for
approximately  $2.4  million,  including  cash  and the  assumption  of  certain
liabilities.  This  acquisition was accounted for as a purchase and accordingly,
results of operations of the acquired company,  which are not significant to the
Company's  operations,  have  been  included  in the  accompanying  consolidated
financial  statements  since  the  acquisition  date.  The  purchase  price  was
allocated  on the  basis of the  estimated  fair  value of assets  acquired  and
liabilities  assumed with the remaining  excess purchase price of $356,000 to be
amortized over 15 years.


Note 11. Segment Reporting

     In 1997 and 1996 the Company had two principal business segments:  trailers
and  motorcoaches.  Prior to 1996, the Company only manufactured and distributed
trailers.  Sales to customers  outside of the United States  represent less than
10% of consolidated sales.


<PAGE>

     Information on business segments is as follows:
(In thousands)
                                1997     1996      1995
--------------------------------------------------------------------------------
Net sales
 Trailers                     $99,703   $84,421   $69,159
 Motorcoaches                  34,684    14,908        --
--------------------------------------------------------------------------------
 Total net sales             $134,387   $99,329   $69,159
================================================================================
Income (Loss) from operations
 Trailers                     $11,034    $5,680    $4,277
 Motorcoaches                     813       775        --
 General corporate expenses    (5,222)   (4,261)   (3,784)
 Other income/(expense), net   (1,154)     (790)      679
--------------------------------------------------------------------------------
 Income before income taxes    $5,471    $1,404    $1,172
================================================================================


Identifiable assets
 Trailers                     $39,491   $31,708   $35,881
 Motorcoaches                  21,882    13,646       968
 General corporate assets      14,135     8,180     9,235
--------------------------------------------------------------------------------
 Total assets as reported     $75,508   $53,534   $46,084
================================================================================
Capital Expenditures
 Trailers                      $1,382   $ 1,034    $2,066
 Motorcoaches                     588        18        --
 Corporate                      1,003       491       876
--------------------------------------------------------------------------------
 Total capital expenditures    $2,973    $1,543    $2,942
================================================================================
Depreciation and Amortization
 Trailers                        $713     $ 945     $ 911
 Motorcoaches                     270       106        --
 Corporate                        627       403       333
--------------------------------------------------------------------------------
 Total depreciation and
  amortization                 $1,610    $1,454    $1,244
================================================================================

     *Certain 1996 and 1995 amounts  previously  reported have been reclassified
between segments to be consistent with 1997 classifications.





<PAGE>



Note 12. Earnings per Share

     Effective  December 31, 1997 the Company  adopted FASB  Statement  No. 128,
Earnings per Share.  The  statement  requires the  presentation  of earnings per
share by all entities that have common stock or potential common stock,  such as
options,  warrants and convertible securities outstanding that trade in a public
market.  Those entities that have only common stock  outstanding are required to
present basic  earnings per share  amounts.  All other  entities are required to
present basic and diluted per share  amounts.  Diluted per share amounts  assume
the conversion,  exercise or issuance of all potential common stock  instruments
unless the effect is to reduce a loss or  increase  the income per common  share
from  continuing  operations.  As  required  by the  statement,  the Company has
restated all per share information from prior years to conform to the statement.

     The  weighted-average  number of shares of common stock used to compute the
basic  earnings per share were  increased by 59,354 in 1997,  1,004 in 1996, and
51,431 in 1995, for the assumed exercise of the stock options and warrants (Note
9), in computing the diluted earnings per share data. Basic and diluted earnings
per share,  as  calculated  under FAS  Statement  No.  128,  are not  materially
different  than  primary  and fully  diluted  earnings  per share as  previously
reported for all prior periods.





<PAGE>



To the Board of Directors
Featherlite Mfg., Inc.
Cresco, Iowa



      We  have  audited  the   accompanying   consolidated   balance  sheets  of
Featherlite  Mfg.,  Inc.  as of  December  31,  1997 and 1996,  and the  related
consolidated statements of operations,  changes in shareholders' investment, 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 consolidated  financial  statements referred to above
present fairly, in all material respects,  the financial position of Featherlite
Mfg.,  Inc. as of December 31, 1997 and 1996,  and the results of its operations
and its cash flows for each of the three years in the period ended  December 31,
1997 in conformity with generally accepted accounting principles.





                                               McGLADREY & PULLEN, LLP


Rochester, Minnesota
February 2, 1998