OVERVIEW

The Company was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. The Company began development of its first product that same year and shipped its first fire truck chassis in October 1975.

The Company is known as a world leading, niche market engineer and manufacturer in the heavy duty, custom vehicles marketplace. The Company has four wholly owned subsidiaries: Spartan Motors Chassis, Inc., located at the corporate headquarters in Charlotte, Michigan ("Spartan Chassis"); Crimson Fire, Inc., headquartered in Brandon, South Dakota ("Crimson"); Crimson Fire Aerials, Inc., located in Lancaster, Pennsylvania ("Crimson Aerials"); and Road Rescue, Inc., located in Marion, South Carolina ("Road Rescue"). Crimson, Crimson Aerials and Road Rescue make up the Company's EVTeam. The Company's brand names, Spartan™, Crimson Fire™ and Road Rescue™, are known for quality, value, service and innovation.

Spartan Chassis is a leading designer, engineer and manufacturer of custom heavy-duty chassis. The chassis consist of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for fire trucks and some specialty chassis applications, a cab. Chassis customers are original equipment manufacturers ("OEMs") who complete their heavy-duty vehicle product by mounting the body or apparatus on the Company's chassis except military vehicles where chassis components are attached to the armored shell. Crimson and Road Rescue engineer and manufacture emergency vehicles built on chassis platforms purchased from either Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks.

The Company's business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of custom vehicle products in the North American marketplace. Spartan Chassis sells its custom diesel chassis to three principal markets: fire truck, motorhome and specialty vehicles. Spartan Chassis believes that opportunities for growth remain strong for custom-built chassis and vehicles in each market.

The Company employs an innovative team focused on building lasting relationships with its customers. This is accomplished by striving to deliver premium custom vehicles and services that inspire customer loyalty. The Company believes that it can best carry out its long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under the Company's credit facilities, as well as equity capital, as sources of expansion capital. A key metric in measuring our success is our Return on Invested Capital (ROIC). We define ROIC as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.

The Company recognizes that annual unit sales of motorhome chassis have historically been substantially greater than that of the Company's other two principal chassis markets. Thus, in the past few years, management has placed special emphasis on further market penetration in the fire truck market and diversification into the specialty chassis market.

The Company expects future growth and earnings to come from:

		lifting and elevated lighting capabilities in addition to the necessary connections to operate vehicle extraction tools.
	•	The Company believes the major strength of its business model is market diversity and customization, with a growing foundation in emergency rescue. Geo-political events affect the recreational vehicle market more directly than the emergency rescue market, and it is in emergency rescue where the Company expects solid growth in the future.

The following is a discussion of the major elements impacting the Company's financial and operating results for the three- and six-month periods ended June 30, 2007 compared to the three- and six-month periods ended June 30, 2006. The comments that follow should be read in conjunction with the Company's condensed consolidated financial statements and related notes contained in this Form 10-Q and in conjunction with the Company's annual report on Form 10-K filed with the Securities and exchange Commission on March 16, 2007.

Six months ended:

Quarter Ended June 30, 2007, Compared to the Quarter Ended June 30, 2006

For the three months ended June 30, 2007, consolidated sales increased $43.4 million (39.7%) to $152.6 million, from $109.2 million in the second quarter of 2006. Chassis Group sales for this period increased by $41.6 million (43.4%) to $137.4 million, from $95.8 million in the second quarter of 2006. The increased sales reflect higher unit sales in all Spartan Chassis product lines. Compared to the same period in 2006, fire truck chassis sales increased $2.1 million (7.9%), other sales which include specialty chassis sales increased $38.3 million (387.7%) and motorhome chassis sales increased $1.2 million (2.0%). Fire truck orders were strong in 2006, resulting in higher production run rates in the later half of 2006 which have continued into 2007. The fourth quarter of 2006 also saw increased specialty orders which drove a strong first half in 2007.

EVTeam sales increased by $1.0 million (5.1%) to $20.8 million during the second quarter of 2007 compared with the prior year's second quarter. Road Rescue sales decreased while both Crimson Fire and Crimson Aerials sales increased.

Gross margin decreased from 17.1% for the quarter ended June 30, 2006 to 15.7% for the same period of 2007. This decrease is due primarily to a shift in product mix and margin pressures on specialty vehicle units due to increased competition. The average price of specialty vehicle units declined as expected due to changes in product mix as more and lower priced variations are being manufactured. This drop in average price continues to be more than offset by increased volume. Other factors contributing to the improved dollar gross profit are improved labor efficiencies and leveraged overhead due to higher volumes.

Operating expenses as a percentage of sales decreased from 9.7% in the second quarter of 2006 to 8.7% in the second quarter of 2007. Research and development expenses increased $0.7 million while selling and administrative expenses increased $2.0 million compared to the same period in 2006. R&D expenses increased to support higher sales volumes and also included higher compensation accruals for incentive plans reflecting the improved results year to date. The SG&A expense increase is also primarily due to higher incentive plan compensation accruals.

The effective income tax rate was 37.4% in the second quarter of 2007 and 39.2% in the second quarter of 2006. The 2006 rate reflected an increase in state taxes due. The effective tax rates for 2007 and 2006 are consistent with the applicable federal and state statutory tax rates.

Net earnings increased to $6.5 million ($0.20 per diluted share) in the second quarter of 2007 from $5.0 million ($0.17 per diluted share) in the second quarter of 2006 as a result of the factors discussed above.

Total chassis orders received during the second quarter of 2007 increased 23.6% compared to the same period in 2006. This reflects increases in specialty chassis orders partially offset by a 77.3% decrease in fire truck chassis orders. Motorhome orders were down 8.4%.

At June 30, 2007, the Company had $290.4 million in backlog, compared with a backlog of $241.8 million at June 30, 2006. This reflects an increase in Chassis Group backlog of $54.0 million, or 31.1%, partially offset by a decrease in EVTeam backlog of $5.5 million, or 8.0%. The Company anticipates filling its current backlog orders by April 2008.

While orders in the backlog are subject to modification, cancellation or rescheduling by customers, the Company has not experienced this in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period to period is not necessarily indicative of eventual actual shipments.

Six Months Ended June 30, 2007, Compared to the Six Months Ended June 30, 2006

For the six months ended June 30, 2007, consolidated sales increased $82.6 million (38.8%) to $295.5 million, from $212.9 million in the first quarter of 2006. Chassis Group sales for this period increased by $81.0 million (43.9%) to $265.4 million, from $184.4 million in the first six months of 2006. The increased sales reflect higher unit sales in all Spartan Chassis product lines. Compared to the same period in 2006, fire truck chassis sales increased $10.8 million (22.1%), other sales which include specialty chassis sales increased $66.5 million (290.1%) and motorhome chassis sales increased $3.8 million (3.3%). Fire truck orders were strong in 2006, resulting in higher production run rates in the later half of 2006 which have continued into 2007. The fourth quarter of 2006 also saw increased specialty orders which drove a strong first half in 2007.

EVTeam sales increased by $2.7 million (6.9%) to $42.2 million during the first six months of 2007 compared with the prior year's first six months. Road Rescue sales decreased by $0.8 million (8.7%); Crimson Fire's sales increased by $3.0 million (11.1%) and Crimson Aerials sales increased by $0.5 million (23.8%).

The gross margin for the first six months of 2007 was 16.5% compared to 16.6% for the same period of 2006. The slight decline was as expected due to a shift in product mix and margin pressures on specialty vehicle units due to increased competition. This drop in margin percentage continues to be more than offset by increased volume. The increased volume also contributed to the improved dollar gross profit generating improved labor efficiencies and better overhead utilization.

Operating expenses as a percentage of sales were 9.0% in the first six months of 2007 compared to 9.6% in the same period of 2006. Research and development expenses increased $1.7 million while selling and administrative expenses increased $4.4 million compared to the same period in 2006. R&D expenses increased to support higher sales volumes and also included higher compensation accruals for incentive plans reflecting the improved results year to date. The SG&A expense increase is also primarily due to higher incentive plan compensation accruals.

The effective income tax rate was 36.8% in the first six months of 2007 and 38.2% in the same period of 2006. The 2006 rate reflected an increase in state taxes due. The effective tax rates for 2007 and 2006 are consistent with the applicable federal and state statutory tax rates.

Net earnings increased to $13.7 million ($0.42 per diluted share) in the first six months of 2007 from $9.5 million ($0.32 per diluted share) in the same period of 2006.

Total chassis orders received during the first six months of 2007 increased 47.2% compared to the same period in 2006. This reflects increases in specialty chassis orders partially offset by a 59.6% decrease in fire truck chassis orders which had increased substantially in the first half of 2006. Motorhome orders were down 1.8%.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated an ROIC of 22.5% in the first six months of 2007, compared to the ROIC of 22.2% for the same period in 2006. (The Company defines return on invested capital as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.)

For the six months ended June 30, 2007, cash used in operating activities was $1.4 million, which was a $5.2 million decrease from the $6.6 million of cash used in operating activities for the six months ended June 30, 2006. Accounts receivable and inventories increased as a result of increased business levels. These uses of cash were partially offset by decreased engine deposits and increased payables. Additions to manufacturing facilities resulted in increased investments in property, plant and equipment totaling $14.5 million. Financing activities generated $3.6 million in cash as net repayments on long term debt of $0.3 million were more than offset by proceeds generated through the exercise of stock options and cash retained on taxes due to stock incentive plan transactions. The foregoing activities resulted in a net decrease of $12.3 million in cash leaving the Company with $1.6 million in cash as of June 30, 2007.

The Company's working capital increased $5.4 million from $96.1 million at December 31, 2006 to $101.5 million at June 30, 2007.

Shareholders' equity increased $17.6 million in the six months ended June 30, 2007 to $120.8 million from $103.2 million at December 31, 2006. Shareholders' equity increases of $13.7 million in net income and $5.9 million from the exercise of stock options and stock incentive compensation were partially offset by $1.7 million paid out in dividends. Shareholder's equity decreased by another $0.3 million due to an adjustment related to the Company's adoption of FIN 48 "Accounting for Uncertain Income Tax Positions", as of January 1, 2007.

On April 25, 2006, the Board of Directors authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 500,000 shares of its common stock in open market transactions. That authorization expired on April 24, 2007 with no shares being repurchased. On July 24, 2007, the Board of Directors authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 1,000,000 shares of its common stock in open market transactions. That authorization will expire on July 24, 2008.

At its March 12, 2007 meeting, the Board of Directors approved a $10.0 million increase in the Company's primary line of credit (revolving note payable) with JP Morgan Chase Bank, increasing the total line available to $35 million. The line of credit includes three one-year automatic extensions unless the bank provides notice of non-renewal 14 months in advance of the expiration date. The Company had borrowings of $17.5 million under this line at June 30, 2007.

The Company also has an unsecured fixed rate long term note which bears interest at 4.99%. At June 30, 2007 the total outstanding amount on this note was $6.2 million.

The Company also has a secured line of credit for $0.2 million, which expired on July 5, 2007. This line of credit is secured by accounts receivable, inventory and equipment. There were no borrowings under this line at June 30, 2007. The line of credit is being renewed and as of June 30, 2007, the Company was in compliance with all debt covenants.

The Company also has secured mortgage notes of which $1.2 million and $0.1 million are outstanding as of June 30, 2007. The mortgage notes carry an interest rate of 3.00% payable in monthly installments (for principal and interest) of $6,933 and $834, respectively, with balances due July 1, 2010 and March 1, 2009, respectively. These mortgage notes are secured by real estate and buildings.

At meetings on February 13, 2007 and March 12, 2007, the Board of Directors approved capital expenditure requests totaling $9.1 million to acquire and improve additional specialty vehicle manufacturing capacity and acquire a facility to house research and development activities. Both facilities are located in Charlotte, Michigan, close to existing Spartan facilities. At its April 26, 2007 meeting, the Board approved an additional $1.6 million in improvements to the recently acquired specialty chassis facilities. The Company will be financing these expenditures from working capital.

On April 26 2007, the Board of Directors approved 2007 regular dividends of $0.10 per share payable in the amount of $0.05 per share on June 15, 2007 and $0.05 per share on December 14, to shareholders of record on May 15, 2007 and November 14, 2007 respectively.

At June 30, 2007, the Company had outstanding commitments to purchase engines from its suppliers of which $2.7 million has been paid by the Company and recorded in current assets as Deposits on engines.  This commitment was made to ensure an adequate supply of 2006 emission standard engines during the transition to engines meeting the new 2007 emission requirements.

The Company believes it has sufficient resources from cash flows from operating activities and, if necessary, from borrowings under its existing lines of credit or expansions of those lines, if required, to satisfy ongoing cash requirements for the next 12 months.

CRITICAL ACCOUNTING POLICIES

The following discussion of accounting policies is intended to supplement Note 1, General and Summary of Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2007. These policies were selected because they are broadly applicable within the Company's operating units, and they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts.

Revenue Recognition - The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition". Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. This occurs when the unit has been completed in accordance with purchase order specifications and has been tendered for delivery to the customer. Sales are shown net of returns, discounts and sales incentives, which historically have not been significant. The collectibility of any related receivable is reasonably assured before revenue is recognized.

Inventory - Estimated inventory allowances for slow-moving and obsolete inventory are based upon current assessments about future demands and market conditions. If market conditions are

less favorable than those projected by management, additional inventory allowances may be required.

Warranties - The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. The Company's estimates are based on historical experience, the number of units involved and the extent of features and components included in product models. See also Note 3 to the condensed consolidated financial statements included in Item 1 of this Form 10-Q.

Equity Compensation - SFAS 123(R), "Share-Based Payment", addresses the accounting for share-based employee compensation and was adopted by the Company on January 1, 2006 utilizing the modified prospective approach. The effect of applying SFAS 123(R) and further information on the Company's equity compensation plans, including inputs used to determine fair value of options is disclosed in the 2006 Form 10-K. SFAS 123(R) requires that share options awarded to employees are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company's stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model using assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs we use are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. We have not run the model with alternative inputs to quantify their effects on the fair value of the options.

To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct one. The model we apply is able to handle some of the specific features included in the options we grant, which is the reason for its use. If we were to use a different model, the option values would differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the ones produced by the model we apply and the inputs we used.

NEW AND PENDING ACCOUNTING POLICIES

See note 8 to the condensed consolidated financial statements included in Item 1 of this Form 10-Q.

EFFECT OF INFLATION

Inflation affects the Company in two principal ways. First, the Company's debt is tied to the prime and LIBOR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, the Company attempts to cover increased costs of production and capital by adjusting the prices of its products. However, the Company generally does not attempt to negotiate inflation-based price adjustment provisions into its contracts. Since order lead times can be as much as six months, the Company has limited ability to pass on cost increases to its customers on a short-term basis. In addition, the markets the Company serves are competitive in

nature, and competition limits the Company's ability to pass through cost increases in many cases. The Company strives to minimize the effects of inflation through cost reductions and improved productivity.