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, 1998

[ ] 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 Company 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 Company (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 Company 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 Company'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. X
-

The aggregate market value of the Company's outstanding Common Stock held by
non-affiliates of the Company on March 31, 1999 was $ 4,414,862. There were
4,129,737 shares of Common Stock outstanding as of March 31, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference in Parts I and III hereof.
Pursuant to General Instruction G (3) of Form 10-K, the Registrant
will file the definitive Proxy Statement with the Securities and Exchange
Commission no later than April 30, 1999.

METROTRANS CORPORATION
Annual Report On Form 10-K
For the Fiscal Year Ended December 31, 1998

Table of Contents
-----------------
Item Page
Number Number
- ------ ------

PART I

1. Business............................................................ 3

2. Properties.......................................................... 16

3. Legal Proceedings................................................... 16

4. Submission of Matters to a Vote of Security Holders................. 17

4A. Executive Officers of the Company.................................. 17

PART II

5. Market for the Registrant's Common Equity and Related Stockholder
Matters......................................................... 18

6. Selected Financial Data............................................ 20

7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 21

7A. Quantitative and Qualitative Disclosures About Market Risk......... 30

8. Financial Statements and Supplementary Data........................ 31

9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 31

PART III

10. Directors and Executive Officers of the Registrant................. 31

11. Executive Compensation............................................. 31

12. Security Ownership of Certain Beneficial Owners and Management..... 32

13. Certain Relationships and Related Transactions..................... 32

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 32

SIGNATURES................................................................ 35
INDEX OF EXHIBITS......................................................... 36
INDEX OF FINANCIAL STATEMENTS.............................................F-1

PART I

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

Forward-looking statements

In addition to historical information, this Annual Report on Form 10-K
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act"), as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used
in this report, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions or
statements regarding future periods are intended to identify forward-looking
statements. All forward-looking statements are inherently uncertain as they are
based on various expectations and assumptions concerning future events, which by
their nature involve substantial risks and uncertainties beyond Metrotrans
Corporation's control. Among other things, these risks and uncertainties
include: the availability of third party lending on terms favorable to the
company; changes in price and demand for the company's products; the ability of
Metrotrans Corporation to attract and retain qualified management, manufacturing
and sales personnel; the ability to control manufacturing costs; the effects of
competition; changes in accounting policies and practices; the ability of
Metrotrans Corporation, its vendors, suppliers and customers to be Year 2000
compliant; the ability to complete the implementation of a manufacturing cost
accounting system; and, the ability to obtain chassis on a timely basis on terms
acceptable to the company. Forward-looking statements may also be made in
Metrotrans Corporation's other reports filed under the Exchange Act, press
releases, and other documents; as well as by management in oral statements.
Metrotrans Corporation undertakes no obligation to update or revise any forward-
looking statements for events or circumstances after the date on which such
statement is made. New factors emerge from time to time, and it is not possible
for Metrotrans Corporation to predict all of such factors. Further, Metrotrans
Corporation cannot assess the impact of each such factor on its business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's opinion as of the date of this report.
Metrotrans Corporation refers readers to the information set forth under the
captions "Item 1. Business", "Item 3. Legal Proceedings" and "Item 5.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein, for a more complete discussion of certain risk
factors.

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
manufactured products are it's Classic line of shuttle and mid-size touring
buses, the Eurotrans line of mid-size coaches and its Legacy LJ by Metrotrans
line of mid-size coaches, positioned between the Classic and Eurotrans lines.
The Anthem is an integral semi-monocoque constructed coach designed for a niche
market between the Eurotrans XLT and the Irizar Century. The Anthem is standard
with many of the features that attract the full-size coach buyer at a moderate
price in comparison to the full-size 45-foot coach. The Company is the
exclusive North American distributor of a line of full-size motorcoaches, the
Century manufactured by Irizar S. Coop. in Spain but marketed and distributed by
the Company in the United States. 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, intra-city 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., Marriott Hotels
Inc., Dollar Rent-A-Car, Holiday Management, Inc., Allright Parking, Pritzker
Group, Essex Group Management and Emeritus Corporation.

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

The Company introduced the Classic in 1986. The Company's product offering
has been enhanced by the introduction of the Eurotrans line in 1990, the
Eurotrans XLT and the Classic II in late 1992, the Classic Commuter in late
1993, the Legacy LJ by Metrotrans in 1996, the Anthem in 1997 and the Classic
XLT in 1998. The Company announced the addition of the Irizar Century exclusive
marketing and distribution agreement in late 1997 with the first deliveries
occurring in 1998.

The Company manufactures its products in Griffin, Georgia in a facility
built and occupied in 1992. During 1998, the Company manufactured an average of
approximately 16 Classics, Classic IIs and Classic XLTs, one to two Eurotrans
and Eurotrans XLTs and one to two Legacy LJ by Metrotrans per week. The Company
manufactured two Anthems in 1998, however the processes and equipment required
for steady high-quality output has necessitated further evaluation of the
production process capabilities on the Anthem line. The Company currently is
evaluating alternatives for the production of the Anthem, including production
by a foreign or other third party manufacturer. The Company estimates existing
capacity in its present facilities to manufacture up to six buses per day while
maintaining it's 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.

Historically, the buyers of the Company's products have obtained financing
through independent third-party lenders or lessors under various arrangements.
In some cases, the Company has provided credit enhancements to the lessor in
order to facilitate the sale of its buses.

The Company incorporated a wholly-owned subsidiary, Bus Pro, Inc. ("Bus
Pro"), in February 1997 for the purpose of operating its used coach division.
Bus Pro refurbishes and re-markets to various secondary markets used buses
received by the Company through trade-ins related to new bus sales and purchased
under terminating lease agreements.

Recent Developments

On September 15, 1998, The Mayflower Corporation plc, a corporation
organized under the laws of the United Kingdom ("Mayflower"), purchased from M.
Earl Meck and Randolph B. Stanley, each of whom were non-management directors of
the Company, an aggregate of 1,650,400 shares (the "Shares") of Common Stock of
the Company ("Common Stock") at a purchase price of $15.00 per share (or an
aggregate of $24,756,000) pursuant to an Agreement dated as of August 21, 1998
(the "Mayflower Agreement"), between Mayflower, Mayflower (U.S. Holdings), Inc.,
the Company, D. Michael Walden, Terri B. Hobbs, M. Earl Meck and Randolph B.
Stanley. As a result of the transaction, Mayflower acquired 40.4% of the
outstanding Common Stock of the Company. It is the Company's understanding,
based solely upon statements made by Mayflower in its Schedule 13D filed with
the Securities and Exchange Commission on September 24, 1998, with respect to
its acquisition of the Shares, that, other than the Shares, Mayflower does not
own any other shares of Common Stock and the source of funds Mayflower used to
purchase the Shares was from available working capital of Mayflower. At the
time of the Mayflower Agreement, Mr. Walden was Chairman of the Board and Chief
Executive Officer of the Company and Ms. Hobbs was Deputy Chief Executive
Officer of the Company. Pursuant to the Mayflower Agreement, Mr. Meck and Mr.
Stanley resigned as directors of the Company effective as of September 15, 1998.

The Mayflower Agreement also provided, among other things, for the
following:

. The Board of Directors of the Company will be expanded from six to eight
directors consisting of five directors selected by the current directors
of the Company and three directors designated by Mayflower. Mr. Walden
will continue as Chairman of the Board and Chief Executive Officer of the
Company.

. Mayflower, Mr. Walden and Ms. Hobbs agreed to vote their shares of Common
Stock to maintain the composition and membership of the Board of Directors
of the Company as provided above.

. Mayflower agreed to vote its shares of Common Stock in accordance with the
vote of the majority of the Board of Directors of the Company with respect
to all matters presented to a vote of the stockholders; provided that
Mayflower may vote its shares of Common Stock as it shall determine in
connection with certain matters set forth in the Mayflower Agreement,
should any such matter be presented to a vote of stockholders.

. Mayflower agreed to loan to the Company up to $15 million (the "Loan") for
a term of 5 years which will be used by the Company for working capital
and to finance capital expenditures. If Mr. Walden exercises his Put (as
defined below) or Mayflower exercises its Call (as defined below),
Mayflower will have the right at anytime thereafter to convert the
outstanding principal, interest, fees and other amounts owing under the
Loan into shares of Common Stock. The price per share for such conversion
will be the average of the closing bid and asked price for the Common
Stock reported by the Nasdaq National Market (or other exchange or
quotation system on which the Common Stock is then traded) for the 20
trading days immediately prior to the date of the exercise of the
conversion right or, if the Common Stock is not then traded on an
exchange, the appraised value determined by an independent appraiser. The
terms of the Loan are set forth in a Loan Agreement dated as of August 21,
1998 (the "Loan Agreement"), a copy of which is filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated September 25, 1998, and is
incorporated herein by reference.

. Mr. Walden and Ms. Hobbs shall have the right (the "Put"), commencing
December 31, 2000 and expiring 45 days after results of operation are
published by the Company for the period ending December 31, 2002 (the
"Option Term"), to tender all of either of their shares of Common Stock to
Mayflower at a price equal to the average of the closing bid and asked
prices reported on the NASDAQ National Market for the 20 trading days
immediately prior to the date that notice of intent to exercise the Put is
given; provided that in no event will the purchase price per share exceed
$40.00 per share, and provided further that the purchase price per share
shall be no less than $10.00 per share for the period from December 31,
2000 to December 31, 2001; no less than $12.50 per share for the period
from January 1, 2002 to September 30, 2002; and no less than $15.00 per
share for the period from October 1, 2002 to December 31, 2002. As of the
date of the Mayflower Agreement, Mr. Walden beneficially owned 843,950
shares (20.6%) of Common Stock (including vested options to purchase
18,750 shares of Common Stock) (the "Walden Shares") and Ms. Hobbs
beneficially owned 70,200 shares (1.7%) of Common Stock (including vested
options to purchase 18,750 shares of Common Stock, 12,500 restricted
shares that are subject to forfeiture upon certain circumstances and 450
shares owned by her spouse (which shares are excluded from the Mayflower
Agreement)) (the "Hobbs Shares").

. In the event that the Option Term expires without Mr. Walden and Ms.
Hobbs, or either of them, having exercised the Put or under certain other
circumstances, Mayflower shall have the right to purchase (the "Call"), at
any time prior to December 31, 2004, all of the Walden Shares and the
Hobbs Shares at a purchase price of $15.00 per share.

. Until such time as Mr. Walden has exercised his Put, Mayflower has
exercised its Call with respect to the Walden Shares, or the Option Term
has expired, whichever occurs first (the "Standstill Period"), (i)
Mayflower agreed not to directly or indirectly sell or purchase, contract
to sell or purchase, obtain a right to purchase or sell or otherwise
acquire or sell any shares of Common Stock and (ii) each of Mr. Walden and
Ms. Hobbs covenanted and agreed that he or she will not (A) except with
respect to certain shares of Common Stock owned by Ms. Hobbs, offer for
sale, sell, transfer (including by way of gift), tender, pledge, encumber
or otherwise subject to a lien, assign or otherwise dispose of, or enter
into any contract or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, or other disposition of, or exercise any discretionary powers
to distribute, any of his or her shares of Common Stock, or (B) grant any
proxies or powers of attorney with respect to any of his or her shares of
Common Stock, deposit any of his or her shares of Common Stock into a
voting trust or enter into a voting agreement with respect to any of his
or her shares. The foregoing does not apply to the exercise by Mr. Walden
or Ms. Hobbs of options to purchase Common Stock granted to either of them
by the Company.

. After the Standstill Period, Mayflower may offer to acquire all of the
remaining shares of Common Stock of the Company, provided, however, that
in the event that Mayflower shall offer to acquire all of the publicly
traded shares of Common Stock prior to 45 days after publication of
results of operations of the Company for the year ended December 31, 2001,
Mayflower shall offer a price of not less than $15.00 per share, subject
to receipt of a fairness opinion satisfactory to the Board of Directors of
the Company. Based on the number of shares of Common Stock currently
outstanding, Mayflower would acquire in excess of 61% of the outstanding
Common Stock upon exercise of the Put or Call.

. Mayflower has agreed to provide various technical services to the Company,
at the request of Mr. Walden. These shall include, but not be limited to,
Mayflower arranging for its affiliated company, Walter Alexander, to
second Mr. Nigel McGaughey or such other person(s) designated by Mayflower
and approved by the Company (which approval may not be unreasonably
withheld) on behalf of the Company for a period of up to two years.
Mayflower and the Company will also select various specialized industry
consultants, satisfactory to both Mayflower and the Company, which will be
retained by the Company. The Company will pay the base salary while Mr.
McGaughey or such other person(s) are assigned to the Company not to
exceed $150,000 per year. The Company will also pay the fees of any
consultants which may be retained to provide technical services to the
Company.

. Mayflower agreed to enter into a separate agreement with Mr. Walden and
Ms. Hobbs, which will contain a non-competition provision effective
following exercise of the Put or the Call in consideration for the payment
upon the exercise of the Put or Call of $1,500,000.00 to Mr. Walden and
$500,000.00 for Ms. Hobbs.

. The expansion of the Board of Directors of the Company did not occur in
1998 since Mayflower did not designate directors as provided in the
Mayflower Agreement.

A copy of the Mayflower Agreement and the Loan Agreement filed as Exhibits
10.1 and 10.2 to the Company's Current Report on Form 8-K dated September 25,
1998, and are incorporated herein by reference. The foregoing is not a complete
description of the terms of the Mayflower Agreement, the Loan Agreement or the
transactions contemplated thereby and is subject to and qualified in its
entirety by reference to the Mayflower Agreement and the Loan Agreement.

As of December 31, 1998, Mayflower had loaned to the Company $1.9 million
of the amount available under the Loan Agreement, but refused to fund additional
advances requested by the Company. Mayflower also provided some technical and
administrative services to the Company but, based upon Mayflower's refusal of
further funding and the discovery that the technical and administrative
employees were reporting directly to Mayflower in London, the Mayflower
personnel are no longer providing services for the Company pending resolution of
disputes between Mayflower and the Company. The Company has filed suit against
Mayflower, and litigation is pending. See "Item 3. Legal Proceedings."

On November 18, 1998, the Company gave notice of termination of Jerry J.
Schweiner's employment as the President and Chief Operating Officer of the
Company. The Company is currently involved in litigation with Mr. Schweiner.
See "Item 3. Legal Proceedings."

In an unrelated event in early September 1998, Richard M. Bruno delivered
his resignation as the Chief Financial Officer, Treasurer and Secretary of the
Company effective September 30, 1998. There where no disputes with Mr. Bruno,
who resigned to pursue opportunities closer to his residence.

In early March 1999, D. Michael Walden, the Chairman of the Board and
Chief Executive Officer of the Company, took a medical leave of absence as an
officer of the Company for an indefinite period of time. Mr. Walden remains the
Chairman of the Board.

In early March 1999, the Board of Directors of the Company appointed Henry
J. Murphy as Interim Chief Executive Officer of the Company. Mr. Murphy has
agreed to serve in such capacity until at least June 1999, subject to extension
by mutual agreement by the Company and Mr. Murphy.

In early March 1999, the Board of Directors of the Company appointed Terri
B. Hobbs as Acting President of the Company. Previously, Ms. Hobbs served as
Deputy Chief Executive Officer.

On March 22, 1999, George W. Mathews submitted his resignation as a
director of the Company. There were no disputes or disagreements with Mr.
Mathews.

In March 1999, the Company engaged a third-party consulting firm to assist
the Company with its business planning, including enhancing its financial and
management information and reporting systems.

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 by Metrotrans 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 by Metrotrans 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.

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 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 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 Classic XLT. The Company introduced the Classic XLT in mid-1998. The
Classic XLT is built with the same basic body structure and attention to safety
and detail as the other Classic products. The Classic XLT is built on a heavy-
duty Navistar 3400 chassis and features an industry-exclusive 102 inch wide body
(the Classic is 96 inches wide and the Classic II is 85 inches wide). This
width enables the use of larger coach-style seats while still maintaining a
maneuverable aisle. The Classic XLT accommodates up to 32 passengers and has
been well received in the tour and charter market.

The Legacy LJ by Metrotrans Line

The Legacy LJ by Metrotrans. In 1995, the Company introduced the Legacy LJ
by Metrotrans, 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 by Metrotrans 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. In 1998, the Company and Spartan Motors redesigned the chassis to
accommodate a diesel engine manufactured by Cummins Engine Company.

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 was redesigned
in 1998 with chassis changes, a two-piece windshield and maintenance-friendly
exterior hinged panels to appeal to the transit industry as well as various
airport markets.

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
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 designed the Anthem in 1997 as an integral semi-
monocoque coach seating up to 45 people with luggage storage capacity unhindered
by chassis rails. The Anthem features as standard many of the amenities seen on
the full-size Irizar Century with a moderate price structured to fill a niche
between the largest Eurotrans XLT and the Irizar Century coach.

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, Inc. 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.

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.

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, intra-city and rural transit companies, and churches.
During 1998, 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., Hyatt Hotels Corp., Marriott Hotels,
Inc., Dollar Rent-A-Car Corp, Holiday Management, Inc., Allright Parking,
Pritzker Group, Essex Group Management and Emeritus Corporation.

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
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 attempts to control 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 from third party manufacturers 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 1998, 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 15 days to
build a Classic, Classic II, Classic Commuter or Classic XLT and approximately
24 days to build a Eurotrans, Eurotrans XLT or Legacy LJ by Metrotrans coach.

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 165 primary 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 by
Metrotrans coaches are currently manufactured for the Company by Spartan and
currently 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. The Company currently is in discussions with
Spartan relating to delays in delivery of chassis and nonconformity of chassis
to the Company's specifications and quality requirements. These issues have
resulted in delayed delivery of rear engine buses to the Company's customers as
well as increased warranty claims.

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 fifteen 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 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 by Metrotrans in
1996, the Anthem in 1997, the Irizar Century in 1997, and the Classic XLT in
1998.

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.

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
and Legacy LJ by Metrotrans lines for delivery within two to six months after
the order. As of December 31, 1998 and 1997, the Company's backlog of orders for
such product lines was approximately $24,100,000 and $25,500,000, respectively.
At April 7, 1999, the Company's backlog of orders for such product lines was
approximately $28,700,000.

Delivery of the 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, 1998, the Company's backlog of Irizar orders was approximately
$14,700,000. At April 7, 1999, the Company's backlog of Irizar orders was
approximately $9,300,000.

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 by Metrotrans, 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 standards 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.

Proprietary Rights

The names "Classic", "Legacy LJ by Metrotrans", "Anthem" 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, 1998, the Company had 376 full-time employees. Of the
Company's total employees, approximately 80 were in sales and marketing,
approximately 15 were engaged in engineering activities, including research and
development, approximately 209 were in manufacturing, and approximately 72 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. In August 1997 the Company purchased approximately 11 acres of land
adjacent to the Company's manufacturing facility, and another 5.15 acres in the
same business park in Griffin, Georgia. The property may be used for future
expansion of the Company's manufacturing capabilities.

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 purchased approximately five acres of land in Orlando, Florida
in April 1998. This land was purchased to construct a sales and service center
to help support the Irizar Century Motorcoach product. Construction began on a
facility in October 1998, but was recently discontinued due to restrictions on
capital expenditures imposed by the Company's credit facility.

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

Jerry J. Schweiner v. Metrotrans Corporation, Superior Court for Spalding
--------------------------------------------
County, State of Georgia, Civil Action File No. 98-CV-1994. In November 1998,
the Company gave notice of termination of Jerry J. Schweiner's employment with
the Company. Mr. Schweiner had served as President and Chief Operating Officer
of the Company since April 1998. On December 29, 1998, Mr. Schweiner filed a
Complaint against the Company alleging that the Company wrongfully terminated
him in violation of his employment contract with the Company. Mr. Schweiner is
seeking compensatory damages in the amount of $375,000.00. The Company filed
its Answer and Counterclaim against Mr. Schweiner on January 28, 1999. The
parties have begun discovery.

Metrotrans Corporation v. The Mayflower Corporation, plc, and Mayflower
-----------------------------------------------------------------------
(U.S. Holdings), Inc., United States District Court for the Northern District of
- ---------------------
Georgia, Atlanta Division, Case No. 1:99-CV-0681-WBH. On March 15, 1999, the
Company filed a Complaint against Defendants Mayflower, and its subsidiary,
Mayflower (U.S. Holdings), Inc. In its Complaint, the Company seeks
compensatory damages in excess of $4,682,000, punitive damages, and specific
performance of the Mayflower Agreement and the Loan Agreement between the
Company and the Defendants based on theories of breach of contract, quantum
meruit, promissory estoppel, breach of fiduciary duty, and fraudulent
misrepresentation and concealment. The Company's Complaint is based in part on
the contention that Mayflower has refused to fund additional loans to the
Company under the Loan Agreement or to pay a fee for the Company's provision of
material assistance, at Mayflower's request, in connection with Mayflower's
acquisition of Dennis Group, plc. The Company also has filed a motion with the
court seeking both leave to begin discovery immediately and expedited discovery.
After 5:00 p.m., Easter Daylight Time, on April 14, 1999, the Company received a
copy of Mayflower's Answer and Counterclaim to the Company's Complaint. Due to
the timing of delivery, the Company did not have sufficient time to review and
evaluate Mayflower's Answer and Counterclaim in advance of this filing.
Additional information concerning the Company's agreements with the Defendants
is set forth under the caption "Item 1. Business - Recent Developments."

The Company from time to time is a party to other 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 operations. 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, 1998.

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 1999 Annual
Meeting of Stockholders. Such information is incorporated herein by reference.

Set forth below is certain information as of December 31, 1998 regarding
the executive officers of the Company.

D. MICHAEL WALDEN, age 48, has served as Chairman, President and Chief
Executive Officer of the Company since its incorporation in 1982. In early March
1999, Mr. Walden began a medical leave of absence as an officer of the Company
for an indefinite period of time. He remains a director and Chairman of the
Board of the Company.

HENRY J. MURPHY, age 63, was appointed by the Board of Directors of the
Company in early March 1999 as Interim Chief Executive Officer of the Company.
Mr. Murphy has agreed to remain with the Company until at least June 1999
subject to extension by mutual agreement of Mr. Murphy and the Company. Mr.
Murphy is a former partner of Arthur Andersen LLP, having taken early
retirement in March of 1996. He served as Interim Chief Executive Officer of
Coastal Physician Inc., a publicly held health care company, from October 1997
to February 1998. He also has served as an independent consultant.

TERRI B. HOBBS, age 42, has served as Acting President of the Company since
March 1999. She was Deputy Chief Executive Officer from April 1998 to March
1999 and 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.

Set forth below is certain information as of December 31, 1998, regarding
certain significant employees of the Company who are not executive officers.

J. DOUGLAS DUNN, age 44, has served as Vice President Sales Administration
of the Company since October 1997. Prior to that time and for more than five
years, he was owner and president of J.D. Dunn, Inc., d.b.a. Magnum
Transportation, Inc., an independent distributor of buses for Eldorado National,
a division of Thor Industries, Inc.

BARRY HINES, age 40, has served as Director of Engineering of the Company
since May 1997. From February 1999, he has served as Director of Operations
and Engineering. Prior to May 1997, he served as Director of Engineering at
Eldorado National, a division of Thor Industries, Inc.

PART II

ITEM 5. MARKET FOR THE COMPANY'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, 1999, the number of stockholders of record of
the Company's Common Stock was approximately 186. The following table sets
forth, by fiscal quarter, the high and low sale prices of the Common Stock as
reported by The Nasdaq National Market for the three years ended December 31,
1998.

- ------------------------------------------------------------------
Period High Low
- ------------------------------------------------------------------
Fourth Quarter 1998 $ 8.75 $ 4.00
- ------------------------------------------------------------------
Third Quarter 1998 $12.88 $ 7.75
- ------------------------------------------------------------------
Second Quarter 1998 $11.00 $ 8.00
- ------------------------------------------------------------------
First Quarter 1998 $12.00 $ 7.00
- ------------------------------------------------------------------
Fourth Quarter 1997 $13.50 $10.25
- ------------------------------------------------------------------
Third Quarter 1997 $13.50 $ 9.25
- ------------------------------------------------------------------
Second Quarter 1997 $10.25 $ 7.25
- ------------------------------------------------------------------
First Quarter 1997 $15.25 $ 9.25
- ------------------------------------------------------------------
Fourth Quarter 1996 $14.75 $12.25
- ------------------------------------------------------------------
Third Quarter 1996 $14.63 $12.50
- ------------------------------------------------------------------
Second Quarter 1996 $15.25 $11.50
- ------------------------------------------------------------------
First Quarter 1996 $13.50 $ 8.25
- ------------------------------------------------------------------

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.

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

The following selected financial data for and as of the end of each of the
years ended December 31, 1998, 1997, 1996, 1995, and 1994 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, 1998 and
1997 and for each of the years in the three year period ended December 31, 1998,
and the report of Arthur Andersen LLP thereon, are included elsewhere in Item 8
of this report.

YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net revenue.......................... $76,114 $80,132 $77,482 $64,027 $52,271
Cost of sales........................ 69,026 66,153 62,814 50,914 42,494
------- ------- ------- ------- -------

Gross profit......................... 7,088 13,979 14,668 13,113 9,777
Selling general, and administrative
expenses............................ 13,568 9,823 8,477 7,458 6,900
------- ------- ------- ------- -------

Operating income..................... 803 4,156 6,191 5,655 2,877
Other income......................... 803 0 0 0 105
Interest expense, net................ 1,237 1,330 736 711 498
------- ------- ------- ------- -------

Income before income taxes (loss)... (6,914) 2,826 5,455 4,944 2,379
Income tax provision (benefit)/1/.... (2,575) 1,109 2,136 1,914 920
------- ------- ------- ------- -------

Net income (loss).................... $(4,339) $ 1,717 $ 3,319 $ 3,030 $ 1,459
------- ------- ------- ------- -------

Diluted weighted average number of
shares/2/........................... 4,087 4,112 4,107 3,993 3,698
------- ------- ------- ------- -------

Diluted net income per share......... (1.06) $0.42 $0.81 $0.76 $0.39
------- ------- ------- ------- -------

- ---------------------
/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.

YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital (deficit)... $21,318 $23,292 $13,508 $11,214 $ 6,723
Total assets................ 59,301 40,508 36,564 29,667 25,521
Long-term debt.............. 16,076 11,945 2,719 3,727 4,122
Stockholders' equity........ 14,891 19,029 17,096 13,663 9,637

OTHER DATA:
Total units sold or leased.. 927 1,168 1,284 1,117 982

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

Forward Looking Statements

In addition to historical information, this Annual Report on Form 10-K
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act"), as amended, and Section 21E of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). When
used in this report, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions or
statements regarding future periods are intended to identify forward-looking
statements. All forward-looking statements are inherently uncertain as they are
based on various expectations and assumptions concerning future events, which by
their nature involve substantial risks and uncertainties beyond Metrotrans
Corporation's control. Forward-looking statements may also be made in Metrotrans
Corporation's other reports filed under the Exchange Act, press releases, and
other documents; as well as by management in oral statements. Metrotrans
Corporation undertakes no obligation to update or revise any forward-looking
statements for events or circumstances after the date on which such statement is
made. Among other things, these risks and uncertainties include: the ability of
Metrotrans Corporation to attract and retain qualified management and
manufacturing personnel; the ability to control manufacturing costs; and, the
ability to obtain chassis on a timely basis on terms acceptable to the company.
New factors emerge from time to time, and it is not possible for Metrotrans
Corporation to predict all of such factors. Further, Metrotrans Corporation
cannot assess the impact of each such factor on its business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinion as of the date of this
report. Metrotrans Corporation refers readers to the information set forth
under the captions "Item 1. Business", "Item 3. Legal Proceedings" and "Item 5.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein, for a more complete discussion of certain risk
factors.

Overview

The Company was incorporated in 1982 for the purpose of designing,
manufacturing and marketing shuttle and mid-size buses. The Company's product
development strategy is to design and introduce new products after clearly
identifying a market need based, in large part, on suggestions made by existing
and potential customers. This approach resulted in the introduction of the
Eurotrans in 1990, the Eurotrans XLT and the Classic II in 1992, the Classic
Commuter in 1993, the Legacy LJ by Metrotrans in 1996 the Anthem in 1997 and the
Classic XLT in 1998. Metrotrans began exclusive marketing of the Irizar Century
in 1997 with the first deliveries occurring in the second quarter of 1998.

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.

Years Ended December 31,
-----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----

Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.7 82.6 81.1 79.5 81.3
------ ----- ----- ----- -----

Gross profit 9.3 17.4 18.9 20.5 18.7
Selling, general and adminis-
trative expenses 17.8 12.2 10.9 11.7 13.2
------ ----- ----- ----- -----

Operating (loss) income (8.5) 5.2 8.0 8.8 5.5
Other income, net 1.0 0.0 0.0 0.0 0.2
Interest expense 1.6 1.7 1.0 1.1 1.2
------ ----- ----- ----- -----

(Loss) income before income taxes (9.1) 3.5 7.0 7.7 4.6
Income tax (benefit) provision (3.4) 1.4 2.7 3.0 1.8
------ ----- ----- ----- -----

Net (loss) income (5.7)% 2.1% 4.3% 4.7% 2.8%
====== ===== ===== ===== =====

The following table sets forth total unit sales and average
revenue per unit for 1998, 1997 and 1996.

1998 1997 1996
----------------- ------------------------- ------------------------
Average Average Average
Revenue/ Revenue/ Revenue/
Units Unit Units Unit Units Unit
------ -------- ------- --------- -------- --------------

Classic 816 $ 48,958 1,017 $ 50,000 1,192 $ 48,000
Eurotrans 34 $145,676 68 $147,000 77 $147,000
Legacy LJ by Metrotrans 42 $ 73,930 83 $ 83,000 15 $ 79,000
Irizar Century(1) 35 $337,371 0 $ 0 0 $ 0
--- ----- -----

Total 927 1,168 1,284
=== ===== =====

- --------------
(1) The Company's first deliveries of the Irizar occurred in the second quarter
of 1998.

1998 Compared to 1997

Net Revenue. Net revenue decreased 5.0% to $76.1 million in 1998 from $80.1
million in 1997. The decrease in net revenue was caused by several factors.
Finished goods inventory was at an all time high as of December 31, 1998 of
approximately $19.9 million, resulting from several customers delaying delivery
of multi-unit orders until subsequent to year end. Sales of all rear engine
units manufactured by the Company were adversely affected by the inability of
the Company's sole source vendor of rear engine chassis to deliver units in
accordance with agreed delivery schedules. Revenues also were adversely impacted
by a decline in the average sales price of vehicles.

Production backlog at December 31, 1998 was approximately $38.8 million,
including approximately $14.7 million orders for the Irizar Century full-size
coach, compared with $25.5 million at the end of 1997. Sales of used buses by
the Company's wholly-owned subsidiary, Bus Pro, increased 14.6% to $10.2 million
in 1998 compared to $8.9 million in 1997. The increase in Bus Pro sales is a
result of the greater capacity brought about by its relocation to a newly-
constructed sales, refurbishment and service facility in 1997 and the Company's
focus on reducing its investment in used vehicles.

Cost of Sales And Gross Profit. Cost of sales increased in 1998 to $69.0
million from $66.2 in 1997. Cost of sales in 1998 was adversely affected by
abnormal materials costs and production delays, which caused lower absorption of
plant overhead. Materials costs increased from 29.7% of sales to 33.6% of
sales as a result of price increases awarded numerous key vendors and
inefficiencies created by a change of key personnel in the purchasing and
materials control areas without implementation of succession planning and
specialized training. Plant overhead increased 4.7% from $4.4 million in 1997
to $4.7 million in 1998 due to an increase in employees in engineering, plant
maintenance and plant supervisory personnel. Also included in the plant
overhead was extensive training necessary for the conversion of engineering
design software from Auto-cad to the Pro E three-dimensional solid modeling
system. As a percent of sales, plant overhead increased to 8.0% of sales from
6.4% of sales.

Also impacting cost of sales are sales of vehicles not manufactured at the
Company's Griffin manufacturing facility. Cost of Irizar sales was $11.9
million or 80.3% of Irizar sales in 1998 versus $0 in 1997. Cost of used
vehicles was $10.1 million or 98.6% of used vehicle sales in 1998 versus $8.0
million or 89.6% of sales in 1997. This increase was primarily due to a recent
focus of reducing the Company's investment in used vehicles which has resulted
in lower selling prices.

During the fourth quarter of 1998, the Company increased its reserve
against the carrying value of its used vehicles by $1.4 million. This
adjustment was required due to a number of factors including market conditions,
a substantial increase in buses purchased under the Company's lease guarantees,
and the Company's desire to substantially reduce its investment in used
vehicles.

For the foregoing reasons, the Company's gross profit decreased 49.3% to
$7.1 million in 1998 from $14.0 million in 1997. Gross profit as a percent of
net revenue was 9.3% during 1998 versus 17.4% in 1997.

Selling, General And Administrative Expenses And Operating Income. Selling,
general and administrative expenses ("SG&A") increased 38.1% to $13.6 million in
1998 from $9.8 million in 1997. SG&A as a percentage of net revenue increased
to 17.8% in 1998 from 12.2% in 1997. Increases in SG&A were due primarily to
increased legal expenses, higher expenditures for advertising, promotion and
sales software, higher travel expenses, employee signing bonuses and relocation
expenses for secondary level managers and costs related to the new position of
Chief Operating Officer. The services of the Chief Operating Officer were
terminated in November 1998. See "Item 3. Legal Proceedings."

Subsequent to December 31, 1998, the Company has taken steps to reduce the
amount of SG&A expenses. The steps include additional personnel reductions,
changes in advertising methodology and reductions in travel and entertainment
expense. However, these reductions will be somewhat offset by increased
consulting expenses. The Company has engaged a third party consulting firm to
assist the Company with its business planning, including enhancing its financial
and management information and reporting systems. The Company also has engaged
an Interim Chief Executive Officer. See "Item 1. Business - Recent
Developments."

Other Income. Other income was $803,000 in 1998 compared to $0 in 1997.
The 1998 other income related to the Company's sale of its airplane lease
obligation in November 1998.

The Company had an operating loss of $6.5 million for 1998 as compared to
operating income of $4.2 million in 1997.

Interest Expense. Interest expense of $1.2 million in 1998 decreased 7%
from $1.3 million in 1997. The decrease for the year primarily was the net
result of lower interest rates in 1998, offset by a higher average balance
outstanding under the Company's revolving credit facility during the year as a
result of higher inventory levels and higher accounts receivable, partially
offset by a reduction in the amount of interest paid to Ford Motor Credit
Corporation for chassis held under the consignment pool agreement due to the
institution of procedures to better control chassis inventory levels.

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 by Metrotrans
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 by Metrotrans 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 by Metrotrans 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 by Metrotrans 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
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.

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.

1998 1997
-------------------------------------- ----------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------------------------------------- ----------------------------------
(in thousands, except per share data)

Net revenue $16,018 $22,899 $20,282 $16,915 $15,016 $21,969 $21,731 $21,416
Cost of sales 13,796 18,528 18,835 17,867 13,328 17,541 17,482 17,802
------- ------- ------- ------- ------- ------- ------- -------

Gross Profit (loss) $ 2,222 $ 4,371 $ 1,447 $ (952) $ 1,688 $ 4,428 $ 4,249 $ 3,614
======= ======= ======= ======= ======= ======= ======= =======
Operating income
(loss) $ (686) $ 1,514 $(2,616) $(4,692) $ (193) $ 1,579 $ 1,823 $ 947
======= ======= ======= ======= ======= ======= ======= =======
Income (loss)
before income $ (965) $ 1,239 $(2,981) $(4,207) $ (616) $ 1,209 $ 1,567 $ 666
taxes ======= ======= ======= ======= ======= ======= ======= =======

Net income (loss) $ (586) $ 753 $(1,811) $(2,695) $ (374) $ 735 $ 952 $ 404
======= ======= ======= ======= ======= ======= ======= =======
Diluted weighted
average shares
outstanding 4,084 4,121 4,085 4,091 4,109 4,109 4,109 4,121
======= ======= ======= ======= ======= ======= ======= =======

Diluted net
income per share $(.14) $.18 $(.44) $(.66) $(0.09) $0.18 $0.23 $0.10
======= ======= ======= ======= ======= ======= ======= =======

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

Net cash used in operating activities during 1998 totaled $3.6 million
compared with cash provided by operating activities of $52,000 in 1997. The net
loss of $4.4 million was primarily responsible for the negative cash flow. An
increase in inventories was substantially offset by a decrease in accounts
receivable and an increase in accounts payable and accrued expenses. The
increase in inventory resulted from an increase in finished goods, which
includes inventory related to Irizar sales and production, an increase in work
in process, an increase in used coach inventory related to 1997 lease defaults
and litigation settlements, and an increase in Legacy LJ by Metrotrans
demonstrator units. The Company has initiated steps to reduce its investment in
inventory.

In the first half of November 1998, the Company took positive steps to
immediately reduce overhead which included the termination of the Chief
Operating Officer and several mid-level management employees and the sale of the
corporate airplane.

Anticipated capital expenditures and increases in working capital are
expected to be financed primarily through internally generated funds and through
the Company's revolving credit facility. During 1998, the Company had a
three-year unsecured credit facility that matured on December 31, 2000. The
Company had both prime rate and LIBOR rate options that varied based on
leverage. At December 31, 1998, the Company had approximately $14.5 million of
borrowings outstanding under that facility. At March 31, 1999, the Company had
approximately, $18.0 million of borrowings outstanding. Additionally, in
accordance with the Mayflower Agreement and the Loan Agreement with Mayflower.
Mayflower agreed to loan up to $15 million to the Company for a term of five
years, of which $1.9 million was outstanding at December 31, 1998. Mayflower has
refused to advance additional amounts and the Company does not expect to receive
additional advances under the Mayflower facility in the near term.

As a result of a loss in the third and fourth quarters of 1998, the Company
was not in compliance with certain financial covenants contained in its
unsecured revolving credit facility. However, effective April 12, 1999, the
Company has entered into an amended secured revolving credit facility ("the
Amended Facility"). Under the Amended Facility, the Company has obtained a
waiver of all defaults which existed under the unsecured credit facility. In
addition, the Amended Facility provides a commitment of up to $23 million, an
increase of $3 million. Interest under the Amended Facility is at prime (7.75%
at April 12, 1999). In connection with the Amended Facility, the Company has
pledged a security interest in substantially all of its assets. The $23 million
commitment is subject to certain automatic reductions, including reductions
related to decreases in the Company's level of inventory and an automatic
reduction on December 31, 1999 to $20 million. Finally, under the Amended
Facility, the Company is subject to certain financial covenants including a
restriction on total capital expenditures of $500,000 in any calendar year, a
prohibition on the payment of any cash dividends, as well as restrictions on
maximum inventory levels and other covenants related to net income and tangible
net worth.

In connection with the Amended Facility, including the increased credit
limit, the Company was required to grant to the lender a security interest in
the assets of the Company. Notwithstanding the Company's position that Mayflower
has breached the terms of the Loan Agreement, the Company repeatedly attempted
to obtain Mayflower's consent to the grant of the security interest in
accordance with the Loan Agreement. Mayflower refused to grant its consent.
Accordingly, Mayflower may take the position that the Company's grant of the
security interest violates the terms of the Loan Agreement. See "Item 3. Legal
Proceedings."

Year 2000 Issues.

Like many other companies, the year 2000 computer issue creates risks for
the Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. There are two other related issues which could also lead
to incorrect calculations or failures; (i) some systems' programming assigns
special meaning to certain dates, such as 9/9/99, and (ii) the fact that the
year 2000 is a leap year. The Company's manufacturing and distribution
operations are not critically dependent on any mainframe, mini-computer or
personal computer-based systems or software applications. The Company has
developed a plan to modify its information technology for the year 2000. During
the past two years, the Company has implemented a program designed to update its
information systems. Although the implementation of the program primarily is
intended to provide better operating systems and accounting, inventory and
production controls, the Company has been aware of the year 2000 issues in its
selection of hardware and software. The third party vendors that have supplied
new hardware and software have informed the Company that the new systems and
software are year 2000 compliant. The Company has experienced delays in the
implementation and integration of the new systems; however, the Company
anticipates that the new systems will be operational prior to December 31, 1999.
The Company also is conducting a review of other systems, which will be
substantially completed by March 31, 1999, at a cost not material to its
business, financial condition, or results of operations. As of March 31, 1999,
the Company has incurred $15,500 and anticipates it will incur up to $50,000
in replacing and converting the Company's data processing and management
information systems. The amount may increase as additional information is
obtained to complete the replacement and conversion process.

The Company believes that its most reasonably likely worst case year 2000
scenarios would relate to problems with the systems of third parties rather than
with the Company's internal systems or its products. It is clear that the
Company has the least ability to assess and remediate the year 2000 problems of
third parties and the Company believes the risks are greatest with
infrastructure (e. g. electricity supply, water and sewer service),
telecommunications, transportation supply chains and suppliers of materials.
While the Company is taking steps that it believes to be reasonable and prudent
to assess the year 2000 readiness of third parties with whom the Company does
business, the failure of any of these third parties to correct a material year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third party suppliers and customers, the Company is unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on the Company's results of operations, liquidity, or
financial condition. Readers are cautioned that forward-looking statements
contained in this year 2000 update should be read in conjunction with the
Company's disclosures regarding forward-looking statements.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting Derivative Instruments
and Hedging Activities," which established accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value, and changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company plans to adopt SFAS No. 133 in
the first quarter of fiscal 2000. Management does not believe the adoption of
this statement will have a material effect on the consolidated financial
statements of the Company.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk Management

A third party foreign vendor located in Spain manufactures the full-size
Irizar Century motorcoach. Fluctuations in the value of the Spanish Peseta
create exposure which can adversely affect the cost of the bus. The Company
attempts to manage its foreign exchange exposure by entering into forward
exchange contracts to hedge firm purchase commitments denominated in Pesetas.
These contracts are for periods consistent with the exposure being hedged and
have maturities of one year or less. Gains and losses on foreign exchange
forward contracts are deferred and recognized in income in the same period as
the hedged transaction. The Company's foreign exchange forward contracts do not
subject the Company's results of operations to risk from exchange rate
fluctuations because gains and losses on these contracts generally offset gains
and losses on the exposure being hedged. The Company does not enter into any
foreign exchange forward contracts for speculative trading purposes. At
December 31, 1998 and 1997, the Company had foreign exchange forward contracts
with gross notional amounts of $2,471,000 and $0, respectively. The deferred
gains or losses from these contracts were not material at December 31, 1998 and
1997.

The notional amounts of foreign exchange forward contracts do not represent
amounts exchanged by the parties and therefore are not a measure of the
Company's risk. The amounts exchanged are calculated on the basis of the
notional amounts and other terms of the foreign exchange hedging contracts. The
credit and market risks under these contracts are not considered to be
significant.

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

The following financial statements of the Company and the related report of
independent public accountants thereon are set forth beginning on page F-1
immediately following the signature page of this Report.

Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements

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 1999 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, 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, 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 1998, all
filing requirements applicable to its directors and officers were complied with
in a timely manner.

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 1999 Annual Meeting of Stockholders
of the Company. Such information is incorporated herein by reference.

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 1999
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 1999 Annual
Meeting of Stockholders of the Company. Such information is incorporated herein
by reference.

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 beginning on
page F-1 immediately following the signature page of this Report.

Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
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 Terri B. Hobbs, 777 Greenbelt Parkway, Griffin,
Georgia 30223. There is a charge of $.50 per page to cover expense for
copying and mailing.

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).

(b) Second Amendment to Loan Agreement dated as of August 21, 1998, by and
between the Company and NationsBank N.A. (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended October
4, 1998).

(c) Third Amendment to Loan Agreement dated as of September 15, 1998, by
and between Metrotrans Corporation and NationsBank N.A. (Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the Quarter Ended
October 4, 1998).

(d) Fourth Amendment to Loan Agreement dated as of April 9, 1999, by and
between Metrotrans Corporation and NationsBank, N.A. *

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**(a) 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).

(b) Amended Employment Agreement dated as of April 1, 1998, between D.
Michael Walden and the Company.*

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).

10.8 Agreement dated August 21, 1998, among The Mayflower Corporation plc,
Mayflower (U.S. Holdings), Inc., the Company, D. Michael Walden, Terri B.
Hobbs, Randolph B. Stanley and M. Earl Meck (Exhibit 10 to the Company's
Current Report on Form 8-K dated August 21, 1998).

10.9 Loan Agreement dated August 21, 1998, between The Mayflower Corporation plc
and the Company (Exhibit 10.2 to the Company's Current Report on Form 8-K
dated September 15, 1998).

10.10** Employment Agreement dated as of August 31, 1998, between Terri B.
Hobbs and the Company.*

11 Computation of Earnings Per Share. *

21 Subsidiaries of the Company. *

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 Company during
the quarter ended December 31, 1998.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized as of the 15th day
of April, 1999.

METROTRANS CORPORATION
(Company)

By/s/ Henry J. Murphy
------------------------------------
Henry J. Murphy
Interim Chief Executive Officer
Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities indicated on April 15, 1999.

Chairman of the Board
- -----------------------------
D. Michael Walden

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

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

/s/ Terri B. Hobbs Acting President
- ----------------------------- (Principal Financial and Accounting Officer)
Terri B. Hobbs

Index of Financial Statements

PAGE
----

Report of Independent Public Accountants...................... F-2
Consolidated Balance Sheets as of
December 31, 1998 and 1997................................. F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996............... F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998,
1997 and 1996.............................................. F-5
Consolidated Statements of Cash Flows for the................. F-6
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements.................... F-7

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metrotrans Corporation and Subsidiary:

We have audited the accompanying consolidated balance sheets of METROTRANS
CORPORATION (a Georgia corporation) AND SUBSIDIARY as of December 31, 1998 and
1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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
subsidiary as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

Atlanta, Georgia
April 14, 1999

F-2

Metrotrans Corporation and Subsidiary

Consolidated Balance Sheets

December 31, 1998 and 1997

(In Thousands, Except Share Amounts)

ASSETS 1998 1997
- -------------------------------------------------------- --------- ---------

CURRENT ASSETS:
Cash $ 0 $ 50
Accounts receivable, net of allowance for doubtful
accounts of $134 and $77 in 1998 and 1997,
respectively 6,047 9,151
Current portion of net investment in sales-type leases 256 877
Inventories 39,628 20,932
Refundable income taxes 2,229 0
Prepaid expenses and other 1,192 1,333
--------- ---------
Total current assets 49,352 32,343
--------- ---------

PROPERTY, PLANT, AND EQUIPMENT, net 8,902 6,922
--------- ---------
OTHER ASSETS:
Net investment in sales-type leases 130 405
Intangibles, net 502 536
Deposits and other 415 302
--------- ---------
Total other assets 1,047 1,243
--------- ---------
$59,301 $40,508
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -------------------------------------------------------- --------- ---------

current liabilities:
Accounts payable and accrued expenses $24,587 $7,726
Current portion of long-term debt 2,236 1,087
Customer deposits 1,211 238
--------- ---------
Total current liabilities 28,034 9,051
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 16,076 11,945
--------- ---------
OTHER NONCURRENT LIABILITIES 300 300
--------- ---------
DEFERRED INCOME TAXES 0 183
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000 shares 0 0
authorized
Common stock, $.01 par value; 20,000,000 shares
authorized, 4,098,244 and 4,084,294 shares issued and
outstanding in 1998 and 1997, respectively 41 41
Additional paid-in capital 10,673 10,577
Deferred compensation (105) (210)
Retained earnings 4,282 8,621
--------- ---------
14,891 19,029
--------- ---------
$59,301 $40,508
========= =========

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

F-3

Metrotrans Corporation and Subsidiary

Consolidated Statements Of Operations

For The Years Ended December 31, 1998, 1997, and 1996

(In Thousands, Except Per Share Data)

1998 1997 1996
-------- -------- --------

NET REVENUE $ 76,114 $ 80,132 $ 77,482

COST OF SALES 69,026 66,153 62,814
-------- -------- --------
Gross profit 7,088 13,979 14,668

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
13,568 9,823 8,477
-------- -------- --------
Operating (loss) income (6,480) 4,156 6,191

OTHER INCOME 803 0 0
INTEREST EXPENSE, NET 1,237 1,330 736
-------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES (6,914) 2,826 5,455

INCOME TAX (BENEFIT) PROVISION (2,575) 1,109 2,136
-------- -------- --------
NET (LOSS) INCOME $ (4,339) $ 1,717 $ 3,319
======== ======== ========
(LOSS) EARNINGS PER SHARE:
Basic $ (1.06) $ 0.43 $ 0.83
======== ======== ========

Diluted $ (1.06) $ 0.42 $ 0.81
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,087 4,040 4,015
======== ======== ========

Diluted 4,087 4,112 4,107
======== ======== ========

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

F-4

Metrotrans Corporation and Subsidiary

Consolidated Statements Of Stockholders' Equity

For The Years Ended December 31, 1998, 1997, and 1996

(In Thousands, Except Share Data)

Common Stock Additional
------------------ Paid-In Deferred Retained
Shares Amount Capital Compensation Earnings Total
--------- ------- ---------- ------------ -------- --------

BALANCE, December 31, 1995 4,076,275 $41 $10,457 $(420) $3,585 $13,663

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

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

Net loss 0 0 0 0 (4,339) (4,339)
Compensation under restricted stock award
and related tax benefit 0 0 0 105 0 105
Exercise of stock options and related tax benefit 13,950 0 96 0 0 96
--------- --- ------- ----- ------ -------
BALANCE, December 31, 1998 4,098,244 $41 $10,673 $(105) $4,282 $14,891
========= === ======= ===== ====== =======

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

F-5

Metrotrans Corporation and Subsidiary

Consolidated Statements Of Cash Flows

For The Years Ended December 31, 1998, 1997, and 1996

(In Thousands)

1998 1997 1996
--------- --------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,339) $ 1,717 $3,319
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 793 708 575
Deferred taxes (183) (446) 532
Bad debt expense 57 (205) 22
Compensation under restricted stock award 105 105 105
Changes in assets and liabilities, net of acquired business:
Accounts receivable 3,047 1,163 1,253
Inventories (18,696) (2,716) (5,132)
Refundable income taxes (2,229) 0 0
Other assets 8 (460) (108)
Accounts payable and accrued expenses 16,860 500 1,053
Customer deposits 973 (314) (52)
-------- -------- -------
Total adjustments 735 (1,665) (4,258)
-------- -------- -------
Net cash (used in) provided by operating activities (3,604) 52 (939)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,718) (2,197) (1,908)
Purchase of Magnum Transportation 0 (449) 0
Net decrease (increase) in property held for lease 0 64 (56)
Net decrease in investment in sales-type leases 896 626 728
-------- -------- -------
Net cash used in investing activities (1,822) (1,956) (1,236)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit (410) (7,297) 3,128
Proceeds from refinancing of debt 4,000 10,000 0
Net (decrease) increase in collateralized borrowings (80) (45) 45
Proceeds from Mayflower note payable 1,900 0 0
Payments of long-term debt (130) (774) (1,008)
Net proceeds from issuance of common stock 96 48 9
Net cash provided by financing activities 5,376 1,932 2,174
-------- -------- -------
Net (decrease) increase in cash (50) 28 (1)
CASH AT BEGINNING OF YEAR 50 22 23
-------- -------- -------
CASH AT END OF YEAR $ 0 $ 50 $ 22
======== ======== =======
CASH PAID FOR INTEREST $ 1,196 $ 1,323 $ 749
======== ======== =======
CASH PAID FOR INCOME TAXES $ 75 $ 515 $ 2,670
======== ======== =======

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

F-6

Metrotrans Corporation and Subsidiary

Notes To Consolidated Financial Statements

December 31, 1998, 1997, and 1996

1. ORGANIZATION AND BASIS OF PRESENTATION

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

The Company manufactures and sells shuttle and midsize touring buses and
distributes buses constructed by a foreign vendor. The Company markets its
products in the United States, primarily through Company-operated sales
centers and accepts trade-in vehicles of its own and other brands.
Production of vehicles is generally not commenced until such time the
customer has signed a sales contract and made a deposit, or agreed to the
value of a trade-in vehicle.

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 warranty (excluding the
chassis, engine, drivetrain, tires and certain other items covered by the
manufacturer's standard 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.

F-7

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
basis.

Inventories as of December 31, 1998 and 1997 consist of the following (in
thousands):

1998 1997
--------- --------

Chassis awaiting conversion $ 3,958 $ 3,437
Raw materials 6,061 4,549
Work in process 2,937 1,524
Finished goods 19,888 6,287
Used vehicles 6,784 5,135
--------- ----------
$ 39,628 $ 20,932
========= ==========

During the fourth quarter of 1998, the Company increased its reserve
against the carrying value of its used vehicles by $1,429,000. This
adjustment was required due to a number of factors including market
conditions, a substantial increase in buses purchased under the Company's
lease guarantees (Note 7), and the Company's desire to substantially reduce
its investment in used vehicles.

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, 1998 and
1997 is as follows (in thousands):

1998 1997
--------- --------

Land $ 1,283 $ 1,031
Buildings 3,910 3,891
Property held for lease 357 569
Machinery and equipment 2,894 1,958
Furniture and fixtures 437 581
Construction in progress 1,854 506
--------- ----------
10,735 8,536
Less accumulated depreciation (1,833) (1,614)
--------- ----------
$ 8,902 $ 6,922
========= ==========

F-8

Intangibles

Intangibles consist of goodwill and a noncompete agreement related to the
Company's acquisition of Magnum Transportation. Intangibles are being
amortized over periods ranging from 10 to 40 years.

Accounts Payable

Accounts payable include book overdrafts created by outstanding checks. At
December 31, 1998 and 1997, the book overdrafts totaled $2,790,000 and
$382,000, respectively.

(Loss) Earnings Per Share

The Company calculates and presents earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Basic earnings per share is based on the weighted average number of
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 the year ended
December 31, 1998, outstanding options of 327,000 have been excluded from
diluted weighted average shares outstanding, as their impact was
antidilutive. For the years ended December 31, 1997 and 1996, outstanding
options of 96,500, and 15,000, 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, 1998, the Company does
not consider itself to have any significant concentrations of credit risk.

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, 1998.

The Company enters into foreign exchange forward contracts to hedge the
foreign currency exposure of certain payables and purchases. These
contracts are for periods consistent with the exposure being hedged and
have maturities of one year or less. Gains and losses on foreign exchange
forward contracts are deferred and recognized in income in the same period
as the hedged transaction. The Company's foreign exchange forward contracts
do not subject the Company's results of operations to risk from exchange
rate fluctuations because gains and losses

F-9

on these contracts generally offset gains and losses on the exposure being
hedged. The Company does not enter into any foreign exchange forward
contracts for speculative trading purposes. At December 31, 1998 and 1997,
the Company had foreign exchange forward contracts with gross notional
amounts of $2,471,000 and $0, respectively. The deferred gains or losses
from these contracts were not material at December 31, 1998 and 1997.

The notional amounts of foreign exchange forward contracts do not represent
amounts exchanged by the parties and therefore are not a measure of the
Company's risk. The amounts exchanged are calculated on the basis of the
notional amounts and other terms of the foreign exchange hedging contracts.
The credit and market risks under these contracts are not considered to be
significant.

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.

Comprehensive Income

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
30, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. The Company has adopted the new pronouncement,
which establishes new rules for the reporting and display of comprehensive
income and its components; however, the Company has no other comprehensive
income items as defined in SFAS No. 130.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting Derivative
Instruments and Hedging Activities," which established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value, and changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company
plans to adopt SFAS No. 133 in the first quarter of fiscal 2000. Management
does not believe the adoption of this statement will have a material effect
on the consolidated financial statements of the Company.

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 1998, 1997, and
1996 were $459,000, $330,000, and $232,000, respectively. For sales-type
leases, the discounted present value of lease revenues is

F-10

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 1998, 1997, and 1996 were $0, $1,479,000, and $343,000,
respectively.

The components of the investment in sales-type leases as of December 31,
1998 and 1997 are as follows (in thousands):

1998 1997
------ ------

Total minimum lease payments receivable $395 $1,335
Less unearned income 9 53
---- ------
Net investment 386 1,282
Less current portion 256 877
---- ------
$130 $ 405
==== ======

Minimum lease payments receivable as of December 31, 1998 are as follows:

Sales-Type
Leases
----------
1999 $262
2000 77
2001 11
2002 45
----
$395
====
4. MAYFLOWER INVESTMENT

In September 1998, the Mayflower Corporation ("Mayflower") purchased a
total of 1,650,000 shares of the Company's common stock at a price of $15
per share from two nonmanagement directors of the Company. As a result of
this transaction, Mayflower acquired 40.4% of the Company's outstanding
common stock.

In connection therewith, Mayflower agreed to loan up to $15,000,000 to the
Company for a term of five years (Note 5) and to provide technical services
to the Company. During 1998, the Company was invoiced approximately
$114,000 related to technical services provided by Mayflower.

In March 1999, the Company filed a lawsuit against Mayflower. The suit
seeks compensatory damages in excess of $4,682,000, punitive damages, and
specific performance under two agreements entered into in connection with
the investment. The Company's complaint is based in part on the contention
that Mayflower has refused to fund additional loans to the Company under
the $15,000,000 loan agreement (Note 5) or to pay a fee related to certain
performance by the Company. Mayflower has not yet answered the complaint.

F-11

5. LONG-TERM DEBT

The Company's long-term debt as of December 31, 1998 and 1997 consists of
the following (in thousands):

1998 1997
------- -------

Revolving credit facility, payable December 2000; interest payable monthly
at prime (7.75% at December 31, 1998) or LIBOR plus a margin of .75% to
1.25%, depending on the Company's leverage ratio, as defined (7.1% at
December 31, 1998), unsecured $14,486 $10,000

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 real estate 1,540 1,620

Note payable to Mayflower, interest payable monthly at the rate of the
revolving credit facility plus .50% (7.6% at December 31, 1998), principal
due in full August 2003, unsecured 1,900 0

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 63 349

Notes payable to leasing companies 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% 323 933

Note payable to a bank, bearing interest at prime plus 1% (9.5% at
December 31, 1997), payable monthly, unpaid interest and principal, secured
by property located in Orlando, Florida, paid in full August 1998 0 130
--------- --------
18,312 13,032

Less amount due within one year 2,236 1,087
--------- --------
$16,076 $11,945
========= ========

During May 1998, the Company restructured its revolving credit facility.
The new facility provides for maximum borrowings of $20,000,000, of which
$14,486,000 was outstanding

F-12

at December 31, 1998 and $5,514,000 was available for future borrowings.
The facility requires the Company to maintain certain financial ratio
covenants, as defined.

At December 31, 1998, the Company was not in compliance with certain
financial covenants contained in its unsecured credit facility. However, in
April 1999, the lender waived all defaults, amended the financial ratio
covenants, increased the aggregate commitment, through December 31, 1999,
to $23 million, and obtained a security interest in substantially all the
Company's assets. The amended agreement matures May 31, 2000 and requires
the Company to maintain certain financial covenants related to inventory
levels, tangible net worth and net income (loss). The Company expects to
comply with the revised covenants throughout fiscal 1999. Under the amended
agreement, the Company has agreed that it will not make any payments on or
with respect to the Mayflower debt agreement (see below).

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 3.8% in 1998) 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.

In connection with the Mayflower investment, Mayflower agreed to loan up to
$15,000,000 to the Company for a term of five years, of which $1,900,000
was outstanding as of December 31, 1998. The agreement contains similar
default provisions as those contained in the revolving credit facility.
Accordingly, at December 31, 1998, the Company was in default of the
agreement and all amounts outstanding have been classified as current
liabilities in the accompanying balance sheet. Upon the occurrence of
certain events, as defined (none of which had occurred at December 31,
1998), Mayflower may convert amounts outstanding under the agreement into
shares of common stock.

Future maturities of long-term debt as of December 31, 1998 are as follows
(in thousands):

1999 $ 2,236
2000 14,646
2001 111
2002 144
2003 and thereafter 1,175
-------
$18,312
=======

F-13

6. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

1998 1997 1996
-------- ------- --------

Current taxes:
Federal $(2,285) $1,509 $1,417
State (269) 199 187
Deferred (21) (599) 532
------- ------ ------
$(2,575) $1,109 $2,136
======= ====== ======

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

1998 1997 1996
-------- -------- --------

Federal statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of federal tax benefit (4.0) 4.5 4.5
Other, net 0.6 0.7 0.7
----- ---- ----
(37.2)% 39.2% 39.2%
===== ==== ====

Components of the net deferred tax asset (liability) as of December 31,
1998 and 1997 are as follows (in thousands):

1998 1997
------ -------

Deferred tax liabilities:
Revenue recognition $(145) $(443)
Leasing activities (119) 0
----- -----
Total deferred tax liabilities (264) (443)
----- -----
Deferred tax assets:
Inventories 369 234
Leasing activities 0 260
Liabilities not currently deductible 289 406
Allowance for doubtful accounts 129 45
----- -----
Total deferred tax assets 787 945
----- -----
Net deferred tax asset (liability) $ 523 $ 502
===== =====

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

F-14

chassis to the date the chassis is placed in production by the Company.
During the 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,
1998, chassis on hand accounted for as consigned inventory was
approximately $4,259,000. Interest paid on consigned chassis amounted to
$88,000, $531,000, and $339,000 in 1998, 1997, and 1996, 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 1998 and 1997, the Company purchased buses totaling $4,714,000 and
$1,900,000, respectively related to the above guarantees and in 1996
purchased an insignificant amount of buses. As of December 31, 1998,
approximately $2,444,000 of the repossessed buses remained in used vehicle
inventory. Due to the significant increase in the amount of repossessed
used vehicles, the Company may be required to sell the vehicles below their
repurchase price. As noted in Note 2, during the fourth quarter of 1998 the
Company recorded a reduction in the carrying value of used vehicles, of
which $642,000 related to repossessed vehicles.

As of December 31, 1998, the Company's aggregate potential liability under
the above arrangements was $15,033,000. 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 and equipment under operating
leases. Future minimum lease payments under these agreements as of
December31, 1998 are as follows (in thousands):

F-15

1999 $ 402
2000 278
2001 196
2002 153
2003 24
------
$1,053
======

Rental expense for 1998, 1997, and 1996 totaled $740,000, $710,000, and
$287,000, respectively.

In November 1998 the Company sold its operating lease obligation associated
with an airplane. In connection therewith, the Company recorded a gain of
$803,000, which has been classified as other income in the accompanying
statement of operations.

Litigation

In November 1998, the Company gave notice of termination of employment of
its President and Chief Operating Officer. In December 1998, the former
officer filed a complaint against the Company seeking damages of $375,000
for wrongful termination.

The Company is involved in certain other 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.

Employee Benefit Plan

The Company has a 401(k) profit-sharing plan (the "Plan") available to all
employees of the Company who have completed six months of service and have
attained age 21. The Plan includes a salary deferral arrangement pursuant
to which employees may contribute a maximum of 15% of their salary on a
pretax basis. The Company may make both matching and additional
contributions at the discretion of the Company's board of directors. During
1998, 1997, and 1996 the Company made contributions of $187,000, $130,000,
and $129,000, respectively to the Plan.

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

F-16

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, 1998, 254,675 shares were reserved for future grants under the
incentive plans.

During 1998 and 1997, the Company issued 0 and 5,000, 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,
1998 is summarized as follows:

Weighted
Number Average
of Exercise
Shares Price
---------- ----------

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
Granted 0 0.00
Exercised (13,950) 6.88
Canceled (45,050) 10.16
----------
Outstanding at December 31, 1998 327,000 8.51
==========

Exercisable at December 31, 1998 161,375 9.43
==========

The weighted average remaining life of the options outstanding at
December 31, 1998 was 7.7 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. SFAS No. 123 "Accounting for Stock-Based Compensation," 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 SFAS No. 123.

F-17

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 1997 and 1996:

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

Risk-free interest rate 5.8% 6.4%
Expected dividend yield 0.0% 0.0%
Expected lives Six years Six years
Expected volatility 51.0% 45.0%

The total values of the options granted during the years ended December 31,
1998, 1997, and 1996 were computed as approximately $0, $661,000, and
$808,000, 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 (loss) income and net (loss) income
per share would have been reduced to the following pro forma amounts:

1998 1997 1996
---------- --------- --------

Net (loss) income:
As reported $(4,339) $1,717 $3,319
Pro forma (4,658) 1,478 3,167
Basic (loss) earnings per share:
As reported $ (1.06) $ 0.43 $ 0.83
Pro forma (1.14) 0.37 0.79
Diluted (loss) earnings per share:
As reported $ (1.06) $ 0.42 $ 0.81
Pro forma (1.14) 0.36 0.77

9. ACQUISTION

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 was payable in
cash. The second and third payments are payable in the form of common stock
in January 1999 and January 2000, respectively, and have been included in
other noncurrent liabilities in the accompanying consolidated 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.

10. BUSINESS SEGMENT INFORMATION

The Company operates in one business segment, the manufacturing and selling
of shuttle and midsize touring buses. The Company accepts trade-in vehicles
of its own and other brands. The Company distributes new vehicles through
Company owned dealers. Used

F-18

buses are sold through the Company's wholly owned subsidiary, Bus Pro. The
Company has no significant long-lived assets located outside the United
States.

Revenues by product grouping are as follows:

1998 1997 1996
------- ------- -------

New vehicles $61,196 $67,698 $70,082
Used vehicles 10,242 8,939 6,015
Parts and other 4,676 3,495 1,385
-------- ------- -------
Total $76,114 $80,132 $77,482
======== ======= =======

F-19

INDEX OF EXHIBITS

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).

(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).

(d) Fourth Amendment to Loan Agreement dated as of April 9, 1999, by and
between Metrotrans Corporation and NationsBank, N.A. *

(c) 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).

10.4** (a) 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).

(b) Amended Employment Agreement dated as of April 1, 1998, between D.
Michael Walden and the Company.*

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).

10.9 Loan Agreement dated August 21, 1998, between The Mayflower Corporation
plc and the Company (Exhibit 10.2 to the Company's Current Report on Form
8-K dated September 15, 1998).

10.10** Employment Agreement dated as of August 31, 1998, between Terri B.
Hobbs and the Company.*

11 Computation of Earnings Per Share. *

21 Subsidiaries of the Company. *

23 Consent of Arthur Andersen LLP.*

27 Financial Data Schedule.*

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