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

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


(Mark One)

   [X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Quarterly Period Ended July 5, 1997

                                       OR

   []           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission File Number 1-9843

                              MORGAN PRODUCTS LTD.
             (Exact name of registrant as specified in its charter)


              DELAWARE                                  06-1095650
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)


                 469 McLaws Circle, Williamsburg, Virginia 23185
          (Address of principal executive offices, including zip code)

                                 (757) 564-1700
              (Registrant's telephone number, including area code)

                               -------------------

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

The number of shares  outstanding of registrant's  Common Stock,  par value $.10
per share, at August 1, 1997 was 10,351,694 ; 2,386 shares are held in treasury.


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<PAGE>


<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                              MORGAN PRODUCTS LTD.
                           Consolidated Balance Sheets
                        ($000 Except Shares Outstanding)


                                                                      July  5,        June  29,       December  31,
                                                                        1997            1996              1996
                                                                   --------------- --------------- ------------------
                                                                    (Unaudited)     (Unaudited)

                 ASSETS

<S>                                                                  <C>              <C>                  <C>
CURRENT ASSETS:

  Cash and cash equivalents                                          $      1,512     $     2,105          $   1,467
  Accounts receivable, net                                                 40,582          32,906             32,559
  Inventories                                                              69,765          52,924             73,683
  Other current assets                                                      1,378             804                632
                                                                          -------         -------            -------

    Total current assets                                                  113,237          88,739            108,341
                                                                          -------         -------            -------

OTHER ASSETS                                                               11,020           4,211             10,638

PROPERTY, PLANT & EQUIPMENT, net                                           23,566          19,490             23,137
                                                                          -------         -------            -------

  TOTAL  ASSETS                                                          $147,823        $112,440           $142,116
                                                                          -------         -------            -------


  LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term debt                                                       $     247       $     221         $        0
  Current maturities of long-term debt                                      1,296             928              1,136
  Accounts payable                                                         15,138          16,060             19,449
  Accrued compensation and employee benefits                                4,373           6,231              6,219
  Income tax payable                                                            0             123                  0
  Other current liabilities                                                 3,652           3,857              4,449
                                                                          -------         -------            -------

    Total current liabilities                                              24,706          27,420             31,253
                                                                          -------         -------            -------

LONG-TERM DEBT                                                             63,720          32,057             48,880

STOCKHOLDERS' EQUITY:

  Common Stock, $.10 par value, 10,351,508,  8,648,822,                     1,035             865              1,015
  and 10,149,816 shares outstanding, respectively
  Paid-in capital                                                          43,376          33,779             42,237
  Retained earnings                                                        15,066          18,632             18,927
                                                                          -------         -------            -------

                                                                           59,477          53,276             62,179

  Treasury stock, 2,386 shares, at cost                                      (48)            (48)               (48)
  Unamortized value of restricted stock                                      (32)           (265)              (148)
                                                                          -------         -------            -------

  TOTAL  STOCKHOLDERS'  EQUITY                                             59,397          52,963             61,983
                                                                          -------          ------            -------

     TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                            $147,823        $112,440           $142,116
                                                                          =======         =======            =======

                        The accompanying notes are an integral part of the financial statements.
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                              MORGAN PRODUCTS LTD.
                         Consolidated Income Statements
                    ($000, except earnings per share amounts
                    and weighted average shares outstanding)


                                                   For the Three Months Ended          For the Six Months Ended
                                                 ------------------------------      ----------------------------
                                                     July 5         June 29,            July 5,        June 29,
                                                      1997            1996               1997            1996
                                                 --------------  --------------      --------------   ----------
                                                   (Unaudited)    (Unaudited)          (Unaudited)    (Unaudited)

<S>                                              <C>             <C>                 <C>             <C>
Net sales                                        $    106,801    $   95,208          $   202,606     $  169,744

Cost of goods sold                                     91,759        80,829              170,140        144,867
                                                 ------------    ----------          -----------     ----------

   Gross profit                                        15,042        14,379               32,466         24,877
                                                 ------------    ----------          -----------     ----------

Operating expenses:
   Sales & marketing                                   10,364         8,553               20,999         16,641
   General & administrative                             3,065         3,634                6,959          6,071
   Restructuring                                        2,203           881                4,713            881
   Reorganization                                          17             0                1,117              0
                                                 ------------    ----------          -----------     ----------

         Total                                         15,649        13,068               33,788         23,593
                                                 ------------    ----------          -----------     ----------

Operating income (loss)                                 (607)         1,311               (1,322)         1,284
                                                 ------------    ----------          -----------     ----------

Other income (expense):
   Interest                                           (1,335)         (776)               (2,571)        (1,369)
   Other                                                  43            57                    92            137
                                                 ------------    ----------          -----------     ----------

         Total                                        (1,292)         (719)               (2,479)        (1,232)
                                                 ------------    ----------          -----------     ----------

Income (loss) before income taxes                     (1,899)          592                (3,801)            52

Provision for income taxes                                30            30                    60             49
                                                 ------------    ----------          -----------     ----------

Net income (loss)                                $    (1,929)          562           $    (3,861)    $        3
                                                 ============    ==========          ===========     ==========

Income (loss) per share                          $     (0.19)         0.06           $     (0.38)    $     0.00
                                                 ============    ==========          ===========     ==========


Weighted average common and
  common equivalent shares outstanding            10,267,367     8,697,176            10,208,501      8,684,274
                                                 ============    ==========          ===========     ==========



                          The accompanying notes are an integral part of the financial statements.
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                              MORGAN PRODUCTS LTD.
                      Consolidated Statements of Cash Flows
                                  ( $ 000 ' s )


                                                                                  For the Six Months Ended
                                                                                  ------------------------
                                                                                  July 5,        June  29,
                                                                                   1997            1996
                                                                               ------------- -------------
                                                                                (Unaudited)   (Unaudited)

<S>                                                                              <C>               <C>
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
  Net income (loss)                                                              $   (3,861)       $     3
  Add noncash items included in income:
     Depreciation and amortization                                                    2,108          1,842
     Provision  for  doubtful  accounts                                                  71             57
     (Gain) loss on sale of property, plant, & equipment                                  7            (17)
     Provision for restructuring                                                          0            881
     Other                                                                              116            117
  Cash (used)  generated by changes in  components  of working  capital,  net of
     effects of acquisition of business:
     Accounts receivable                                                             (8,094)       (12,162)
     Inventories                                                                      3,918            431
     Accounts payable                                                                (2,407)         4,939
     Other working capital                                                           (3,389)           869
                                                                                  ---------         ------

NET CASH GENERATED (USED) BY OPERATING ACTIVITIES                                   (11,531)        (3,040)
                                                                                  ---------         ------

CASH GENERATED (USED) BY INVESTING ACTIVITIES:
  Acquisition of property, plant, & equipment                                        (2,233)        (1,518)
  Acquisition of Tennessee  Building  Products                                       (2,160)             0
  Proceeds from disposal of property, plant, & equipment                                  4          4,127
  Other                                                                                (441)           715
                                                                                  ---------         ------

NET CASH GENERATED (USED) BY INVESTING ACTIVITIES                                    (4,830)         3,324
                                                                                  ---------         ------

CASH GENERATED (USED) BY FINANCING ACTIVITIES:
  Net change in short-term debt                                                         247            221
  Proceeds from long-term  debt                                                      15,598             27
  Repayments of long-term  debt                                                        (598)        (3,540)
  Common stock issued for cash                                                        1,159              8
  Other                                                                                   0            (30)
                                                                                  ---------         ------

NET CASH GENERATED  BY FINANCING ACTIVITIES                                          16,406         (3,314)
                                                                                  ---------         ------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                45         (3,030)

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                 1,467          5,135
                                                                                  ---------         ------

  End of period                                                                  $    1,512        $ 2,105
                                                                                 ==========        =======

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the year for:
     Interest                                                                    $    2,852        $ 1,702
     Income taxes                                                                        96             37

                          The accompanying notes are an integral part of the financial statements.
</TABLE>


<PAGE>



                              MORGAN PRODUCTS LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        FOR THE PERIOD ENDED JULY 5, 1997


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------

DESCRIPTION OF BUSINESS - Morgan Products Ltd. (the "Company")  manufactures and
distributes  products  (virtually  all of which are  considered  to be millwork)
which  are sold to the  residential  and  light  commercial  building  materials
industry and are used for both new  construction and  improvements,  maintenance
and  repairs.  In  view  of the  nature  of  its  products  and  the  method  of
distribution,  management  believes  that the Company's  business  constitutes a
single industry segment.

DISCLOSURES  ABOUT  SEGMENTS  OF AN  ENTERPRISE  AND RELATED  INFORMATION  - The
Financial  Accounting  Standards  Board ("FASB")  issued  statement of Financial
Accounting  Standards ("SFAS")  No.  131,  "Disclosures  about  Segments  of  an
Enterprise and Related  Information," which establishes  standards for reporting
information about operating segments in annual financial  statements and interim
financial reports.  It also establishes  standards for related disclosures about
products  and  services,  geographic  areas  and  major  customers.  SFAS 131 is
effective  for fiscal  years  beginning  after  December  15, 1997 and  requires
presentation of prior period financial  statements for  comparability  purposes.
The Company is currently  evaluating its required disclosures under SFAS No. 131
and expects to adopt this standard during the year ended December 31, 1998.

CONSOLIDATION - The consolidated  financial  statements  include the accounts of
all  business  units of Morgan  Products  Ltd.  All  intercompany  transactions,
profits and balances are eliminated.

BASIS OF  PRESENTATION  - The financial  statements at July 5, 1997 and June 29,
1996, and for the three and six months then ended,  are unaudited;  however,  in
the opinion of management,  all adjustments (consisting only of normal recurring
accruals)  necessary for a fair presentation of the financial  position at these
dates and the results of  operations  and cash flows for these periods have been
included.  The results  for the three and six months  ended July 5, 1997 are not
necessarily  indicative of the results that may be expected for the full year or
any other interim period.

EARNINGS PER SHARE - The FASB has issued SFAS No.128, "Earnings per Share." SFAS
128 replaces  primary EPS with basic EPS, which  excludes  dilution and requires
presentation of both basic and diluted EPS on the face of the income  statement.
Diluted EPS is computed  similarly to the current fully diluted EPS. SFAS 128 is
effective for financial  statements issued for periods ending after December 15,
1997,  and requires  restatement of all  prior-period  EPS data  presented.  The
adoption of this statement is not expected to materially affect either future or
prior-period EPS.

REPORTING  COMPREHENSIVE  INCOME - The FASB  issued  SFAS  No.  130,  "Reporting
Comprehensive  Income," which will require the Company to disclose, in financial
statement  format,  all  non-owner  changes  in  equity.  Such  changes  include
cumulative foreign currency translation  adjustments and certain minimum pension
liabilities. SFAS 130 is effective for fiscal years beginning after December 15,
1997  and  requires  presentation  of  prior  period  financial  statements  for
comparability  purposes.  The Company is currently  evaluating  its  disclosures
under SFAS No. 131 and  expects  to adopt  this  standard  during the year ended
December 31, 1998.



<PAGE>



NOTE 2 - INVENTORIES
--------------------

Inventories consisted of the following at (in thousands of dollars):


<TABLE>
<CAPTION>
                                          July 5, 1997              June 29, 1996              December 31, 1996
                                          ------------              -------------              -----------------
                                           (unaudited)               (unaudited)

<S>                                           <C>                       <C>                             <C>
Raw material                                  $ 12,096                  $   8,756                       $ 14,139

Work-in-process                                  9,196                      7,222                          9,899

Finished goods                                  48,473                     36,946                         49,645
                                                ------                     ------                         ------
                                              $ 69,765                   $ 52,924                       $ 73,683
                                              ========                   ========                       ========

Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out (FIFO) method.
</TABLE>


NOTE 3 - PROVISION FOR RESTRUCTURING AND REORGANIZATION
-------------------------------------------------------

In  conjunction  with the  closing of two  plants and to provide  for other cost
reductions and consolidations  within the Company an $11.3 million restructuring
charge was recorded in 1994. At such time, a multi-year plan involving necessary
management  structure changes, a new management  information  system, and future
facility requirements was developed.

In the second quarter of 1996,  the Company sold its  Lexington,  North Carolina
door  manufacturing  facility and  consolidated  it with the Company's  Oshkosh,
Wisconsin  door  manufacturing  facility.  The Company  recorded  an  additional
restructuring  charge  in the  second  quarter  of 1996 of  $881,000,  of  which
$356,000, related to the sale of the Lexington facility and the consolidation of
door  manufacturing  operations  into the Oshkosh  facility,  and the balance of
which was used to cover  incremental  costs related to the  Springfield and Weed
plant  closings and the  reorganization  of the  management  structure at Morgan
Manufacturing.  Additional aggregate restructuring expenses of $3.8 million were
recorded in the third and fourth quarters of 1996. These restructuring expenses,
which  included  Lexington  operating  costs after  cessation of production  and
incremental hiring,  training, and relocation costs associated with the transfer
of Lexington production to Oshkosh were expensed as incurred.

In  the  first  six  months  of  1997,   the  Company   recorded  an  additional
restructuring  charge  of  $4.7  million  for  excessive  costs  incurred  as  a
consequence of the consolidation of manufacturing  operations and a delay in the
start-up of the new  high-speed  door  assembly  line.  The  equipment  has been
installed  and  management  believes  that the line should be  functioning  at a
normal  capacity by September 1997. At July 5, 1997, the  restructuring  reserve
balance was $.6 million as compared to $1.1 million at December 31, 1996.

Additionally,  the Company recorded a $1.1 million  reorganization charge in the
first quarter of 1997 in connection  with the  termination  of the employment of
the Chief  Financial  Officer  and Senior  Vice  President-Human  Resources  and
Administration  of the  Company.  At July 5, 1997,  the  reorganization  reserve
balance was $.4 million.


NOTE 4 - CREDIT AGREEMENT
-------------------------

The Company  maintains a credit agreement with a group of banks,  which provides
for a revolving  credit  facility of up to $75 million  through  July 14,  2000,
including a letter of credit facility of up to $9 million. On July 25, 1997, the
Company  and the  bank  group  entered  into an  amendment,  which  altered  the
restrictive covenants,  increased the credit line to the current $75 million and
extended the line for an additional two years. The amendments have terms similar
to those  previously in effect or more  favorable to the Company.  The amendment
also put into place an  acquisition  line of up to $15 million  through July 14,
2000.  The  acquisition  line consists of a term loan of up to $10 million and a
revolving credit facility of up to $5 million.  At July 5, 1997, the Company had
borrowings  of $55.9 million under the  revolving  credit  facility.  The credit
agreement requires the Company, among other things, to maintain minimum interest
coverage and fixed charge coverage ratios,  minimum levels of tangible net worth
and a maximum leverage ratio.


NOTE 5 - SUBSEQUENT EVENTS
--------------------------

On July 25, 1997,  pursuant to an asset purchase  agreement dated July 15, 1997,
the  Company   acquired  certain  assets  of  Wahlfeld   Manufacturing   Company
(`Wahlfeld") for approximately  $4.6 million,  subject to certain purchase price
adjustments. The Wahlfeld Acquisition,  which was financed through borrowings on
the Company's  revolving credit agreement,  will be accounted for as a purchase.
Wahlfeld,  which had annual sales of  approximately  $22.7  million for the year
ended December 31, 1996, is a distributor of windows,  doors, and other millwork
products to residential builders and other customers.



<PAGE>



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

Forward Looking Statements

Various  statements  made within this  Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations  and elsewhere in this  Quarterly
Report on Form 10-Q constitute  "forward looking statements" for purposes of the
Securities and Exchange  Commission's "safe harbor" provisions under the Private
Securities  Litigation  Reform  Act of 1995 and Rule 3b-6  under the  Securities
Exchange  Act of 1934,  as amended.  Investors  are  cautioned  that all forward
looking statements involve risks and uncertainties,  including those detailed in
the Company's filings with the Securities and Exchange Commission.  There can be
no  assurance   that  actual   results  will  not  differ  from  the   Company's
expectations.  Factors which could cause materially  different  results include,
among others, the success of consolidation of manufacturing operations;  changes
in  relationships  with  important  suppliers  and key  customers;  the  pace of
acquisitions;  fluctuations  in the price of raw materials;  and competitive and
general economic conditions, such as housing starts.

Results of Operations

Three Months Ended July 5, 1997 vs.
Three Months Ended June 29, 1996

The  Company's  net sales for the second  quarter of 1997 were  $106.8  million,
representing  a 12.2%  increase  over the same  period in 1996,  when sales were
$95.2  million.  The increase is  attributable  to the  acquisition of Tennessee
Building  Products  ("TBP") and a 3.9%  quarter-over-quarter  improvement in the
sales of distributed products, which management believes is primarily the result
of an  increase in  marketing  efforts of the  Company in  partnership  with key
suppliers.  External  sales of  manufactured  products for the second quarter of
1997 were lower  compared  to the same  period in 1996 by 21.2% or $4.6  million
primarily as a consequence of the disruption  caused by the consolidation of the
Lexington,  North  Carolina  facility  and  the  delay  in  start-up  of the new
high-speed door assembly line.

For the  second  quarter  of  1997,  the  Company  reported  net  income  before
restructuring and reorganization charges of $291,000 or $0.03 per share compared
to net income before restructuring and reorganization charges of $1.4 million or
$0.17 per share for the same period in 1996, on average  shares  outstanding  of
10,267,367 and 8,697,176, respectively.  Including restructuring charges of $2.2
million, the Company reported a net loss of $1.9 million or $0.19 per share. The
lower income,  exclusive of the restructuring  charges, was primarily the result
of lower  volume of  manufactured  product,  higher  cost of raw  material,  and
interest costs.

The gross profit  increase of $.7 million from the second quarter of 1996 to the
corresponding  period of 1997 was  primarily  the result of the TBP  acquisition
offset  by  Manufacturing  losses,  which  were  due  to  the  restructuring  of
manufacturing operations and the higher costs of raw materials.

Operating  expenses for the second quarter of 1997,  excluding the restructuring
charges,  were  $13.4  million or 12.6% of net sales,  compared  to 1996  second
quarter operating expenses of $12.2 million, or 12.8% of net sales.

The provision for income taxes in both second  quarters 1997 and 1996 relates to
the recording of state taxes.  The  provisions  for federal taxes in each period
are offset by the Company's net operating loss position.


Six Months Ended July 5, 1997 vs.
Six Months Ended June 29, 1996

The  Company's  net sales for the 1997  six-month  period were  $202.6  million,
representing  a 19.4%  increase  over the same  period in 1996,  when sales were
$169.7  million.  The increase is  attributable  to the acquisition of TBP and a
10.1%


<PAGE>



year-to-date  improvement in the sales of distributed products, which management
believes is  primarily  the result of an increase  in  marketing  efforts of the
Company  in  partnership  with key  suppliers.  External  sales of  manufactured
products for the 1997 six-month period were down from the same period in 1996 by
14.0% or $6 million  primarily as a consequence of the disruption  caused by the
consolidation  of the  Lexington,  North Carolina  operations  into the Oshkosh,
Wisconsin facility and the delay in start-up of the new high-speed door assembly
line.

The  Company  reported   year-to-date  net  income  before   restructuring   and
reorganization charges of $2.0 million or $0.19 per share compared to net income
before  restructuring and reorganization  charges of $884,000 or $0.10 per share
for the same period in 1996, on average  shares  outstanding  of 10,208,501  and
8,684,274,  respectively.  Including restructuring and reorganization charges of
$5.8 million,  the Company  reported a year-to-date  net loss of $3.9 million or
$0.38  per  share  versus  net  income  of $3,000 or $0.0 per share for the same
period in 1996.  The  increase in income,  exclusive  of the  restructuring  and
reorganization  charges, was primarily the result of the acquisition of TBP, the
higher sales volume of distributed products,  and a volume incentive reward from
a supplier partnership program.

The gross  profit  increase of $7.6  million  from the first half of 1996 to the
corresponding period of 1997 was primarily the result of the TBP acquisition and
the sales volume gains in distributed products. Manufacturing losses, which were
due to the restructuring of manufacturing operations and the rising costs of raw
materials, offset these gains.

Operating expenses for the first six months of 1997, excluding the restructuring
and reorganization  charges,  were $28.0 million or 13.8% of net sales, compared
to the similar period in 1996 with operating expenses of $22.7 million, or 13.4%
of net sales. The increases in operating  expenses were primarily related to the
TBP acquisition.

Year-to-date  interest expense was $1.2 million higher.  This Increase is due to
average  debt  rising  from $36 million in the first six months of 1996 to $61.5
million  in the  similar  period in 1997  which was  needed to  maintain  higher
working capital levels due to operating  inefficiencies in manufacturing and the
TBP acquisition.

The  provision  for income taxes in both years relates to the recording of state
taxes.  The  provisions  for  federal  taxes in each  period  are  offset by the
Company's net operating loss position

Significant Business Trends/Uncertainties

Management  believes  that housing  starts have a  significant  influence on the
Company's level of business activity. "Housing Economics" reported that sales of
new homes for the first five  months of 1997 were 9.4% above  those for the same
period in 1996. No assurances can be given, however, that for 1997 there will be
any continued  improvement in the level of housing starts, or that single family
housing starts will not decline in the future.

Management also believes that the Company's ability to continue to penetrate the
residential  repair and remodeling  markets  through sales to home center chains
may have a significant  influence on the Company's  level of business  activity.
Management  believes  this market will  continue  to grow in  importance  to the
Company. Management further believes that in certain areas of the United States,
sales by  distributors  directly to the end-user may over time  replace,  as the
primary  channel  of  distribution,  the  distribution  method of selling to the
retail dealer,  who then sells to the end user.  The Company  intends to respond
aggressively  to  such  changes  in  distribution  methods,   including,   where
opportunities  permit,  through the acquisition of distribution  businesses that
sell directly to the end-user.

In the past, raw material prices have fluctuated  substantially for pine and fir
lumber.  Fir prices  reached a high in the first  quarter  of 1995 and  remained
within 5% of that  level  until the fourth  quarter  of 1996.  For the first six
months of 1997,  average  fir and oak prices were at their  highest  levels in a
year  and  increased  from  the  fourth  quarter  of  1996  by  5.2%  and  1.0%,
respectively. In the second quarter, pine prices did not experience their normal
historical  decline as expected.  Such  increases in the price of raw  materials
have resulted in reduced profit margins.  As a result, the Company continues its
efforts to expand the utilization, where appropriate, of engineered materials in
wood door components and to switch to alternate wood species.  In addition,  the
Company  has  established  new  offshore  sources  of raw  material.  Management
believes that these actions,  together with  aggressive  price  increases  where
competitive  factors allow, will partially offset the impact of the high cost of
raw material.



<PAGE>



In order to expand its capacity,  meet anticipated demand and reduce its cost of
production, the Company has installed a new high-speed door assembly line at its
Oshkosh facility. Delivery and installation of the new line was completed during
the first quarter of 1997. The new high-speed door assembly line is operational;
however,  the new  line is not yet  operating  at  normal  capacity.  Management
currently  believes that the line should be functioning at a normal  capacity by
September 1997. A performance shortfall could have a detrimental impact, both on
the  short-term  profitability  of the Company and on its  long-term  ability to
service  and  retain  key  customers.  Management  believes  that the  efficient
operation  of the new  high-speed  door  assembly  line is  critical to reducing
lead-times to acceptable levels and satisfying customers.

An important part of the Company's  strategic plan is to expand its distribution
capabilities,  particularly  in the  Southeast and  Southwest,  as well as other
areas, if attractive  opportunities  are presented.  In August 1996, the Company
acquired  substantially  all of the business  and assets of  Tennessee  Building
Products,  a regional millwork and specialty  building products  distributor and
light  manufacturer   headquartered  in  Nashville,   Tennessee.  With  the  TBP
acquisition,  the Company  expanded  its  operations  to include  Nashville  and
Chattanooga,  Tennessee;  Charlotte, North Carolina; Greenville, South Carolina;
and Huntsville, Alabama. On July 25, 1997 the Company acquired certain assets of
Wahlfeld Manufacturing Company ("Wahlfeld"). Wahlfeld, which had annual sales of
approximately  $22.7  million  for  the  year  ended  December  31,  1996,  is a
distributor of windows, doors, and other millwork products. The Company plans to
consolidate Wahlfeld's operations into the Company's existing facilities in West
Chicago and Decatur, Illinois.

Recently, Andersen Corporation ("Andersen") determined to market and to sell its
FibrexO  replacement window systems through retail stores which are aimed at the
replacement  window  buyer.  These retail  stores,  called  Renewal by AndersenO
stores,  will be devoted exclusively to the promotion and sale of FibrexO window
systems,  with the stores being  established in various areas of the country and
principally owned and operated by independent distributors. Andersen has entered
into an  agreement  with the  Company  to open one of the first  such  stores in
Overland Park, Kansas. Such store is owned and operated by the Company.  FibrexO
is a proprietary  material  developed by Andersen that is made of a composite of
wood   fibers  and  vinyl  and  is   considered   to  be   superior  in  certain
characteristics to pure vinyl core window systems.  In the event that the Kansas
location is  successful,  the Company and  Andersen  may  consider  establishing
additional stores.

As the  final  major  element  of its  strategic  initiatives,  the  Company  is
committed to improving its management  information  systems.  A new Company-wide
integrated management information system has been selected and is in the process
of implementation.  The Company has approved a total capital expenditure of $3.4
million  for  the new  management  information  system  project,  which  will be
financed  through a  combination  of  capital  leases and  borrowings  under the
Company's revolving line of credit. Upon completion of this project, the Company
will  have  achieved  significant  progress  in  meeting  its goal of being  the
industry leader in customer-friendly order processing and fulfillment systems.

Liquidity and Capital Resources

The  Company's  working  capital  requirements  are related to its sales  level,
which, because of its dependency on housing starts and the repair and remodeling
market,  are seasonal  and, to a degree,  weather  dependent.  This  seasonality
affects the need for working capital inasmuch as it is necessary to carry larger
inventories and receivables during certain months of the year.

Working  capital  at July 5, 1997 was  $88.5  million,  with a ratio of  current
assets to current  liabilities of 4.6 to 1.0, while at December 31, 1996 working
capital was $77.1 million with a ratio of current assets to current  liabilities
of 3.5 to 1.0.  The  increase  in working  capital  reflects  seasonality,  with
accounts receivable increasing $8.0 million.  Accounts payable and other working
capital  decreased  in the  first  half of 1997 by an  aggregate  $5.8  million,
primarily as a consequence of the payment of accrued bonuses and commissions and
a large  decrease in the amount of checks issued and  outstanding.  Increases in
working capital were offset by a $3.9 million decrease in inventories.



<PAGE>



Long-term  debt, net of cash,  increased to $62.2 million at July 5, 1997,  from
$47.4 million at December 31, 1996. The Company's  ratio of long-term  debt, net
of cash, to total  capitalization  increased  from 43.3% at December 31, 1996 to
51.2% at July 5,  1997.  The  $14.8  million  increase  is  attributable  to the
aforementioned  $9.9 million change in working capital,  a final payment of $2.2
million related to the acquisition of TBP, and $2.2 million of capital spending.

Cash used by operating activities totaled $11.5 million for the six months ended
July 5, 1997, as compared to a $3.0 million cash  generation  for the six months
ended June 29, 1996. The difference  between  periods is due to lower  operating
results and higher working capital as discussed above.  Investing  activities in
the first six months of 1997 used $4.8  million,  compared to the  corresponding
period  in  1996,  when  investing  activities  generated  $3.3  million.   1997
activities  included $2.2 million  expended to acquire new equipment,  the final
payment for the  purchase of TBP of $2.2  million and $.4 million  used in other
investing  activities,  while 1996 activities consisted of $1.5 million used for
asset  acquisitions,  $4.1  million  generated by asset  disposals,  $.9 million
provided by the surrender of life  insurance  policies,  and $.2 million used in
other investing activities. Financing activities generated $16.4 million through
July 5, 1997, with $14.7 million provided by net increases in the revolving line
of credit,  $1.2 million  generated  by stock  option being  exercised by former
employees  and $.2 million by  short-term  financing.  During the same period in
1996,  financing  activities  used $3.3 million to repay debt. The $19.7 million
difference in the financing  requirements  for the six months ended July 5, 1997
and the comparable period in 1996 reflects the need to finance the $11.5 million
cash used by operating activities and the aforementioned investing activities.

The Company  maintains a credit agreement with a group of banks,  which provides
for a revolving  credit  facility of up to $75 million  through  July 14,  2000,
including a letter of credit facility of up to $9 million. On July 25, 1997, the
Company  and the  bank  group  entered  into an  amendment,  which  altered  the
restrictive covenants,  increased the credit line to the current $75 million and
extended the line for an  additional  two years.  The covenant  alterations  are
generally  favorable  to the  Company.  The  amendment  also put  into  place an
acquisition  line of up to $15 million  through July 14, 2000.  The  acquisition
line  consists  of a term  loan of up to $ 10  million  and a  revolving  credit
facility of up to $5 million.  At July 5, 1997,  the Company had  borrowings  of
$55.9 million under the revolving credit facility. The credit agreement requires
the Company, among other things, to maintain minimum interest coverage and fixed
charge  coverage  ratios,  minimum  levels of  tangible  net worth and a maximum
leverage ratio. The Company is in compliance with the financial  covenants under
the credit agreement.

The  Company  believes  that  it may  require  additional  financing  to  pursue
attractive acquisition candidates, depending upon the size of the acquisitions.

Restructuring of Operations

Since 1994 the  Company has adopted a  comprehensive  strategic  plan to restore
profitability and regain industry leadership by providing customers with quality
products and optimum service at the best price/value  relationship.  The Company
has taken a series of major  initiatives  to implement  this plan and respond to
continuing challenges in the industry. At Morgan Manufacturing,  the Company has
consolidated all of its door manufacturing  operations into its Oshkosh facility
and has committed  approximately  $6 million in capital  expenditures  for a new
high-speed  door  assembly  line.  In  addition,   management  is  committed  to
controlling   manufacturing  costs,  achieving  a  substantial  savings  through
innovative raw material purchasing and manufacturing practices, and developing a
more  customer-focused   business  approach.   The  Company  believes  that  its
relationship with Andersen has improved in recent years. At Morgan Distribution,
the Company has  strengthened  its business  through a broad series of operating
initiatives  and plans to achieve  additional  growth both  through its existing
operations and by acquisition,  as opportunities permit. Primarily as the result
of  the   implementation  of  its  strategic  plan,  the  Company  has  incurred
substantial  restructuring charges. In 1994 and 1995, the Company incurred $11.3
million and $51,000 in restructuring charges,  respectively,  to cover the costs
of closing the Company's  Springfield,  Oregon door and Weed,  California veneer
plants,  the  downsizing  of  Morgan  Manufacturing,   Company-wide   management
structure  changes  (including  terminations  and  the  elimination  of  certain
positions),  the  restructuring  of  the  Morgan  Distribution  operations,  the
relocation of the Company's corporate headquarters, and other cost reduction and
consolidation actions.

In the second quarter of 1996,  the Company sold its  Lexington,  North Carolina
door manufacturing facility. The entire line of doors previously manufactured in
Lexington was shifted to the Company's  Oshkosh,  Wisconsin  door  manufacturing
facility.  The Company recorded  restructuring  charges in 1996 of $4.7 million,
primarily  related to the sale of the  Lexington and the  consolidation  of door
manufacturing operations into the Oshkosh facility.



<PAGE>



Management  believes  that  with  the  installation  and  start-up  of  the  new
high-speed  door assembly line at the Oshkosh  facility,  which  occurred in the
first  quarter  of  1997,  lead  time  increases  experienced  due to  increased
production  requirements  and  related  inefficiencies  encountered  during  the
consolidation  process may be reversed and, in fact, may be reduced by up to two
weeks.  The new  high-speed  door  assembly  line is not yet operating at normal
capacity;  however, management believes that the line should be functioning at a
normal capacity by September 1997. When the new high-speed door assembly line is
fully  operational,  management  believes  that  the  Oshkosh  facility  will be
operating  at  approximately  70% of  capacity,  based upon  current  production
levels.  It is  believed  that  the  consolidation  of  all  door  manufacturing
facilities at a single facility will offer the Company  significant cost savings
as well as provide  customers with the advantage of purchasing the full range of
solid wood door products and wood species from a single manufacturing facility.

In  the  first  six  months  of  1997,   the  Company   recorded  an  additional
restructuring  charge  of  $4.7  million  for  excessive  costs  incurred  as  a
consequence of the  consolidation  of  manufacturing  operations and the delayed
start-up  of the new  high-speed  door  assembly  line.  The  Company  does  not
currently expect to incur any additional restructuring charges for the remainder
of 1997. At July 5, 1997, the  restructuring  reserve balance was $.6 million as
compared to $1.1 million at December 31, 1996,  primarily due to costs  incurred
in connection with severance and other employee benefit related payments.

Additionally,  the Company recorded a $1.1 million  reorganization charge in the
first quarter of 1997 in connection  with the  termination  of the employment of
the Chief  Financial  Officer  and Senior  Vice  President-Human  Resources  and
Administration of the Company.  Such provision is to cover severance and related
payments to such officers.  At July 5, 1997, the reorganization  reserve balance
was $.4 million.



<PAGE>



                           PART II. OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

At the  Company's  Annual  Meeting of  Stockholders  on May 14, 1997, a vote was
taken for the election of directors  for a one-year  term.  All  directors  were
re-elected by the following common stock vote:

                                       For               Withhold Authority
                                       ---               ------------------

         F.J. Hawley, Jr.           8,777,069                 136,495
         L.R. Robinette             8,777,168                 136,396
         J.S. Crowley               8,775,766                 137,798
         H.G. Haas                  8,775,767                 137,797
         W.R. Holland               8,770,968                 142,596
         E.T. Tokar                 8,777,168                 136,396
         P.J. McDonough, Jr.        8,777,170                 136,394

The second item on the ballot was the  ratification  of the  selection  of Price
Waterhouse  LLP as independent  accountants  for the Company for the 1997 fiscal
year.  The  ratification  passed  by a  common  stock  vote as  follows:  For --
8,830,368; Against -- 68,070; Abstain -- 15,126.

The  third  item  on the  ballot  was the  ratification  of the  1997  Incentive
Compensation  Plan. The  ratification  passed by a common stock vote as follows:
For -- 7,080,872; Against -- 1,809,065; Abstain -- 23,627.



<PAGE>



 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits

       10.1   Employment  agreement  between the  Company  and  Mitchell J. Lahr
              dated March 11, 1997.
       10.2   Employment  agreement  between  the  Company  and Darrell J. Olson
              dated March 21, 1997.
       10.3   Form of  Indemnification  Agreement,  dated April 7, 1997, between
              the Company and Mitchell J. Lahr.
       10.4   Form of Indemnification  Agreement,  dated April 14, 1997, between
              the Company and Darrell J. Olson.
       10.5   Employment termination agreement between the Company and Dennis C.
              Hood dated March 31, 1997.
       10.6   Employment  termination  agreement between the Company and Douglas
              H. MacMillan dated March 31, 1997.
       10.7   Lease,  dated  May 7,  1997,  between  the  Company  and BR/NO LA.
              Properties,  LLC for  warehousing  for a five  year  term in Baton
              Rouge, Louisiana.
       27     Financial Data Schedule

(b)    A Current Report on Form 8-K was filed by the  Company  on August 8, 1997
       with  respect to the  acquisition  by the  Company  of certain  assets of
       Wahlfeld Manufacturing Company.



<PAGE>



                                   Signatures


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            MORGAN PRODUCTS LTD.





Date:  August 19, 1997                      By: /s/ Mitchell J. Lahr
                                               -----------------------
                                               Mitchell J. Lahr
                                               Vice President, Secretary and
                                               Chief Financial Officer
                                               (For the Registrant and as
                                               Principal Financial Officer)



<PAGE>

                               INDEX OF EXHIBITS

10.1   Employment  agreement  between the  Company  and  Mitchell J. Lahr
       dated March 11, 1997.

10.2   Employment  agreement  between  the  Company  and Darrell J. Olson
       dated March 21, 1997.

10.3   Form of  Indemnification  Agreement,  dated April 7, 1997, between
       the Company and Mitchell J. Lahr.

10.4   Form of Indemnification  Agreement,  dated April 14, 1997, between
       the Company and Darrell J. Olson.

10.5   Employment termination agreement between the Company and Dennis C.
       Hood dated March 31, 1997.

10.6   Employment  termination  agreement between the Company and Douglas
       H. MacMillan dated March 31, 1997.

10.7   Lease,  dated  May 7,  1997,  between  the  Company  and BR/NO LA.
       Properties,  LLC for  warehousing  for a five  year  term in Baton
       Rouge, Louisiana.

27     Financial Data Schedule

<PAGE>
                                                                     Exhibit 10
                                                                     05/14/97-1
<PAGE>