UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

         Annual Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 For the fiscal year ended December 31, 1998

                             THE MORGAN GROUP, INC.

                              2746 Old U.S. 20 West
                             Elkhart, Indiana 46514
                                 (219) 295-2200

                         Commission File Number 1-13586

          Delaware                                 22-2902315
 (State of Incorporation)     (I.R.S. Employer Identification Number)

           Securities Registered Pursuant to Section 12(b) of the Act:

                             American Stock Exchange
                     Class A common stock, without par value

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

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 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 Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of March 26, 1999 was  $7,392,000.  The number of shares of the  Registrant's
Class A common  stock $.015 par value and Class B common  stock $.015 par value,
outstanding as of March 26, 1999, was 1,249,207  shares,  and 1,200,000  shares,
respectively.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders  are
incorporated into Part III of this report.



<PAGE>



Part I

Item 1.  BUSINESS

Overview

The Company is the nation's  largest  publicly owned service company in managing
the  delivery  of  manufactured  homes,   commercial  vehicles  and  specialized
equipment in the United States, and through its wholly owned subsidiary,  Morgan
Drive Away, Inc.  ("Morgan") has been operating since 1936. The Company provides
outsourcing  transportation services through a national network of approximately
1,530 Independent  Owner-Operators  and approximately  1,420 other drivers.  The
Company  dispatches  its drivers from 105 locations in 32 states.  The Company's
largest  customers  include Oakwood Homes  Corporation,  Fleetwood  Enterprises,
Inc., Champion  Enterprises,  Inc., Winnebago  Industries,  Inc., Clayton Homes,
Inc., Cavalier Homes, Inc., Palm Harbor Homes, Inc., Four Seasons Housing, Inc.,
Ryder System, Inc., and Fairmont Homes, Inc. The Company's services also include
providing   certain   insurance  and  financing   services  to  the  independent
owner-operators.

As further described below, the Company's  strategy is to grow through expansion
in  the  niche  businesses   already  being  serviced  with  heavy  emphasis  on
outsourcing,  along with pursuing acquisitions of niche transportation  carriers
who are servicing their customer base with unique service and/or  equipment.  In
addition, the Company will look to expand insurance product offerings to drivers
through its subsidiary,  Interstate  Indemnity  Company  ("Interstate"),  and to
broaden its financing activities through Morgan Finance, Inc. ("Finance").

Morgan,  the  Company's  principal  subsidiary,  was founded in 1936 in Elkhart,
Indiana  and  incorporated  in  1942.  The  Morgan  Group,  Inc.  is a  Delaware
corporation   formed  by  Lynch  Corporation  in  1988  to  acquire  Morgan  and
Interstate.  In 1994,  the  Company  formed  Finance for the purpose of offering
financing to  independent  owner-operators.  In 1995,  the Company  acquired the
assets of Transfer Drivers, Inc. ("TDI"), a northern  Indiana-based  outsourcing
company.  TDI participates in the fragmented truck delivery business focusing on
relocation of consumer and commercial  vehicles for customers,  including Budget
One-Way Rental, Ryder System, Inc., and Ford Motor Company.

In December 1996,  the Company  acquired the assets of Transit Homes of America,
Inc.  ("Transit"),  a national  outsourcing  company  located  in Boise,  Idaho.
Transit is a provider  of services  primarily  to the  manufactured  housing and
specialized transport industries.

The Company decided in the fourth quarter of 1996 to discontinue the "Truckaway"
operation of the Specialized Outsourcing Services segment.  Truckaway was a line
of business that transported van conversions, tent campers, and other automotive
products on company-owned equipment.

The  Company's  principal  office is located at 2746 Old U.S. 20 West,  Elkhart,
Indiana 46514-1168.




<PAGE>



Industry Information

Manufactured Housing

The  largest  portion of the  Company's  operating  revenues  are  derived  from
transportation of manufactured  housing,  primarily new manufactured homes. Unit
shipments by the manufactured housing industry (considering double-wide homes as
two shipments) in the U.S. increased by approximately 8% to 602,000 in 1998 from
558,000  in 1997,  after 6% and 9%  increases  in 1997 and  1996,  respectively,
according  to  data  from  the  Manufactured   Housing  Institute   ("MHI").   A
manufactured home is an affordable housing alternative. The Company believes the
manufactured  housing industry production should continue to grow along with the
general economy,  especially while employment statistics and consumer confidence
remain strong. The Company believes that the principal economic consideration of
the typical  manufactured home buyer is the monthly payment required to purchase
a  manufactured  home  and  that  purchasers  are  generally  less  affected  by
incremental  increases  in interest  rates than those  purchasers  of site built
homes. There is no assurance, however, that manufactured housing production will
continue to increase.

Company Services

The  Company  operates  in  these  business  segments:   Manufactured   Housing,
Specialized Outsourcing Services, and Insurance and Finance.

     o    Manufactured  Housing Segment.  Manufactured  Housing,  which includes
          Transit,  provides  specialized   transportation  to  companies  which
          produce new manufactured homes, modular homes, and office trailers. In
          addition,  Manufactured Housing transports used manufactured homes and
          offices for individuals, businesses, and the U.S. Government. Based on
          industry  shipment  data  available  from the MHI,  and the  Company's
          knowledge of the industry and its principal  competitors,  the Company
          is the largest transporter of manufactured homes in the United States.
          Manufactured  Housing  ships  products  through   approximately  1,160
          independent    owner-operators    who   drive    specially    modified
          semi-tractors,  referred to as "toters," used in manufactured  housing
          transportation   to  reduce  combined   vehicle   length.   Makers  of
          manufactured  housing generally ship their products no more than a few
          hundred miles from their production  facilities.  Therefore,  to serve
          the regional  structure of this  industry,  the Company  positions its
          dispatch  offices  close to the  production  facilities it is serving.
          Approximately 30 of the Company's dispatch offices are located in such
          a manner to serve the needs of a single manufactured housing producer.
          Most manufactured housing units, when transported by a toter require a
          special  permit  prescribing  the time and  manner  of  transport  for
          over-dimensional loads. See "Business-Regulation." The Company obtains
          the permits  required for each  shipment from each state through which
          the  shipment  will  pass.  In 1998,  Manufactured  Housing  delivered
          approximately 179,000 units.

     o    Specialized  Outsourcing Services Segment. The Specialized Outsourcing
          Services provides  outsourcing  transportation  services  primarily to
          manufacturers of recreational  vehicles,  commercial trucks, and other
          specialized vehicles and trailers through a network of service centers
          in nine  states.  Driver  outsourcing  (including  TDI),  engages  the
          services  of  approximately  1,420  drivers  which are  outsourced  to
          customers to deliver recreational,  commercial,  and other specialized
          vehicles. In 1998, Driver outsourcing  delivered  approximately 45,000
          units  through the use of these  drivers.  In 1998,  the large trailer
          ("Towaway")  operation moved  approximately  15,000 trailers.  Towaway
          contracts with approximately 209 independent owner-operators who drive
          semi-tractors.  Additionally,  travel  and other  small  trailers  are
          delivered by independent  owner-operators utilizing pickup trucks. The
          Company in 1997,  initiated a new vehicle  transportation and delivery
          service,  called  "decking".  Decking is the  delivery  of two to four
          over-the-road  highway  tractors  by  means  of  mounting  one or more
          tractors on the rear of a preceding tractor.

     o    Insurance  and Finance  Segment.  The  Insurance  and Finance  segment
          provides   insurance  and  financing  to  the  Company's  drivers  and

<PAGE>

          independent  owner-operators.   Interstate,  the  Company's  insurance
          subsidiary,  may accept a limited  portion or all of the  underwriting
          risk,  retaining the  appropriate  proportion  of the  premiums.  This
          segment  administers  the cargo,  bodily  injury and  property  damage
          insurance programs.

Selected Operating and Industry Participation Information

The following tables set forth operating information and industry  participation
in the manufactured housing industry with respect to the aforementioned  Company
trucking operations for each of the five years ended December 31, 1998.

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
Manufactured Housing
   Operating Information:                  1994          1995          1996          1997          1998
                                         --------      --------      --------      --------      --------
<S>                                        <C>          <C>           <C>           <C>           <C>    
New home shipments                         98,181       114,890       121,136       154,389       161,543
Other shipments                            23,423        20,860        23,465        24,144        17,330
                                         --------      --------      --------      --------      --------
Total shipments                           121,604       135,750       144,601       178,533       178,873

Linehaul revenues (in thousands) (1)     $ 53,520      $ 63,353      $ 72,616      $ 93,092      $ 94,158

Manufactured Housing
   Industry Participation:

Industry production (2)                   451,646       505,819       553,133       558,435       601,678
New home shipments                         98,181       114,890       121,136       154,389       161,543
Shares of units shipped                      21.7%         22.7%         21.9%         27.6%         26.8%

Specialized Outsourcing Services
   Operating Information:

Shipments                                  73,994        94,291        99,623        80,314        82,344
Linehaul revenues (in thousands) (1)     $ 43,443      $ 49,336      $ 49,259      $ 39,336      $ 42,994

</TABLE>

(1)  Linehaul revenue is derived by multiplying the miles of a given shipment by
     the stated mileage rate.
-
(2)  Based on reports of Manufactured  Housing Institute  ("MHI").  To calculate
     shares of new homes  shipped,  the Company  assumes two unit  shipments for
     each multi-section home.

Additional  financial  information  about the  business  segments is included in
Management's  Discussion  and  Analysis of Financial  Conditions  and Results of
Operations and in Note 13 of the Notes to the Consolidated  Financial Statements
included in Item 8.


<PAGE>

Growth Strategy

The  Company's  strategy  is to  focus  on the  profitable  core  transportation
services  (Manufactured  Housing and Specialized  Outsourcing  Services) so that
operating  revenues and  profitability  can grow in its area of dominant  market
position. The Company will also look for opportunities to capitalize and/or grow
its market in  manufactured  housing and  outsourcing  through  acquisitions  if
suitable  opportunities  arise.  To enhance  its  profitability,  the Company is
continuing the process of reconstructing  its organization to reduce centralized
overhead and redundant field expense.

     o    Manufactured   Housing.  The  Company  believes  it  can  take  better
          advantage of its position in the manufactured housing industry and its
          relationship   with   manufacturers,    retailers,   and   independent
          owner-operators,  by  expanding  the  service  it  offers  within  its
          specialized business.  The Company proposes to pursue opportunities to
          offer new services,  which may include financial,  insurance, and to a
          lesser degree,  manufactured housing set up services. The Company will
          also consider acquisition  opportunities.  The Company may also pursue
          the purchase of certain  manufacturers'  private  transport fleets. In
          such a case,  the Company  would  typically  purchase  the  customer's
          tractors,  sell the equipment to interested  drivers,  and then engage
          these drivers as independent owner-operators.

     o    Specialized   Outsourcing  Services.   The  Company  believes  it  can
          capitalize  on the growing  trend in the  outsourcing  of  specialized
          vehicle transportation and delivery by manufacturers.  It is estimated
          that  approximately  750,000  vehicles are delivered each year through
          driveaway  services,  a delivery  market  estimated at $500 million or
          more.  The number of vehicles to be outsourced is expected to increase
          substantially  as  companies   calculate  the  cost  benefits  of  not
          maintaining  their own driver  corps,  paying  salaries and  benefits,
          running  dispatch  points,  and maintaining an equipment base.  Unlike
          companies  with drivers on their  payroll,  Morgan's  drivers are paid
          only when  deliveries are made.  Morgan's  growth strategy within this
          market is to expand  its market  position  in this  highly  fragmented
          delivery   transportation  market.  The  future  growth  rate  of  the
          Company's  outsourcing  business is dependent  upon  continuing to add
          major vehicle customers and expanding the Company's driver force.

     o    Insurance and Finance.  The Company has enhanced driver  screening and
          training  procedures  to promote  safe  driver  practices  and enhance
          compliance  with  Department  of   Transportation   regulations.   The
          Company's driver recognition  programs emphasize safety to enhance the
          Company's overall safety record.  In addition to periodic  recognition
          for  safe  operations  and  regulatory  compliance,  the  Company  has
          implemented safe driving bonus programs.  These programs are to reduce
          the Company's  claims and insurance  expense which  historically,  has
          approximated  7.5% of  operating  revenues.  The Company is  currently
          offering   financing   opportunities  to  selected  existing  and  new
          independent  owner-operators,  through Finance, a financial subsidiary
          created in 1994 to support these activities. In 1995, Morgan formed an
          alliance with a financial  institution which is providing financing to
          Morgan  independent   owner-operators  for  tractor  purchases.  These
          equipment  financing  programs are expected to solidify the  Company's
          relationships  with independent  owner-operators,  increase its fleet,
          and further expand the Company's  transportation capacity. The Company
          also offers insurance services to independent owner-operators.

     o    Acquisitions.  The Company is  considering  acquisition  opportunities
          within Manufactured Housing.  Thus, the Company may consider acquiring
          regional or  national  firms which  service the  manufactured  housing
          and/or the outsourcing industry. The Company is continuously reviewing
          potential  acquisitions  and is engaged in  negotiations  from time to
          time. There can be no assurance that any future  acquisitions  will be
          effected,  or, if effected,  can be  successfully  integrated with the
          Company's business.

     o    Expansion of Related Services. The Company believes it can take better
          advantage  of its  position in  Manufactured  Housing and  Specialized
          Outsourcing  Services,   and  its  relationships  with  manufacturers,
          retailers, and independent owner- operators, by expanding the services
          it offers within its specialized business.

The  Company  will  carefully  consider  the  feasibility  of these and  similar
opportunities  over the next year.  If the Company is successful in offering new

<PAGE>

services  such as these,  it expects  to enhance  and  diversify  its  operating
revenues  and may reduce its  vulnerability  to broad  production  cycles in the
industries it serves.  The Company  cannot give any assurance that new services,
if any, will be profitable and such new services may result in operating losses.

Forward-Looking Discussion

In 1999,  the Company could benefit from better  pricing,  reduction of overhead
through  corporate  restructuring,  elimination of redundant field expense,  and
improvement  of  its  safety  record.  Business  expansion,  including  possible
acquisitions,  could augment operating revenue gains.  While the Company remains
optimistic  over the long term,  near term results could be affected by a number
of internal and external economic conditions.

This report  contains a number of  forward-looking  statements,  including those
contained in the  preceding  paragraph  and the  discussion  of growth  strategy
above.  From  time  to  time,  the  Company  may  make  other  oral  or  written
forward-looking  statements  regarding its anticipated sales,  costs,  expenses,
earnings   and  matters   affecting   its   condition   and   operations.   Such
forward-looking  statements  are subject to a number of material  factors  which
could cause the  statements  or  projections  contained  herein or therein to be
materially inaccurate. Such factors include, without limitation, the following:

     o    Dependence on Manufactured Housing.  Shipments of manufactured housing
          have  historically   accounted  for  a  substantial  majority  of  the
          Company's operating revenues.  Therefore,  the Company's prospects are
          substantially  dependent  upon this industry which is subject to broad
          production  cycles.  Shipments by the  manufactured  housing  industry
          could decline in the future relative to historical  levels which could
          have an adverse impact on the Company's operating revenues.

     o    Costs of Accident Claims and Insurance. Traffic accidents occur in the
          ordinary  course of the Company's  business.  Claims arising from such
          accidents can be significant. Although the Company maintains liability
          and  cargo  insurance,  the  number  and  severity  of  the  accidents
          involving the Company's  independent  owner-operators  and drivers can
          have  significant  adverse effect on the  profitability of the Company
          through premium  increases and amounts of loss retained by the Company
          below deductible  limits or above its total coverage.  There can be no
          assurance  that the  Company  can  continue  to  maintain  its present
          insurance  coverage  on  acceptable  terms  nor  that the cost of such
          coverage will not increase significantly.

     o    Customer Contracts and Concentration.  Historically, a majority of the
          Company's  operating  revenues have been derived under  contracts with
          customers.  Such  contracts  generally  have one,  two,  or three year
          terms.  There is no assurance that customers will agree to renew their
          contracts  on  acceptable  terms  or on terms  as  favorable  as those
          currently in force. The Company's top ten customers have  historically
          accounted for a majority of the Company's operating revenues. The loss
          of one or more of these  significant  customers could adversely affect
          the Company's results of operations.

     o    Competition  for  Qualified  Drivers.  Recruitment  and  retention  of
          qualified   drivers   and   independent   owner-operators   is  highly
          competitive.  The Company's contracts with independent owner-operators
          are  terminable  by  either  party on ten  days'  notice.  There is no
          assurance  that the Company's  drivers will continue to maintain their
          contracts  in force  or that the  Company  will be able to  recruit  a
          sufficient  number of new drivers on terms similar to those  presently
          in force. The Company may not be able to engage a sufficient number of
          new  drivers  to meet  customer  shipment  demands  from time to time,
          resulting  in loss of  operating  revenues  that  might  otherwise  be
          available to the Company.


<PAGE>



     o    Independent  Contractors,  Labor  Matters.  From  time  to  time,  tax
          authorities have sought to assert that independent  contractors in the
          transportation service industry are employees, rather than independent
          contractors.  Under existing  interpretations of federal and state tax
          laws, the Company  maintains that its independent  contractors are not
          employees.  There can be no assurance  that tax  authorities  will not
          challenge  this  position,  or that  such tax laws or  interpretations
          thereof  will  not  change.   If  the  independent   contractors  were
          determined  to  be  employees,  such  determination  could  materially
          increase the Company's tax and workers' compensation exposure.

     o    Risks of  Acquisitions.  The Company  has sought and will  continue to
          seek favorable acquisition opportunities. Its strategic plans may also
          include the initiation of new services or products, either directly or
          through  acquisition,  within  its  existing  business  lines or which
          complement  its business.  There is no assurance that the Company will
          be able to identify favorable acquisition opportunities in the future.
          There is no assurance that the Company's future  acquisitions  will be
          successfully integrated into its operations or that they will prove to
          be  profitable  for the Company.  Such  changes  could have a material
          adverse effect on the Company.

     o    Seasonality and General Economic Conditions.  The Company's operations
          have  historically  been  seasonal,  with generally  higher  operating
          revenues  generated in the second and third quarters than in the first
          and fourth quarters.  A smaller percentage of the Company's  operating
          revenues  are  generated in the winter  months in areas where  weather
          conditions  limit  highway  use.  The  seasonality  of  the  Company's
          business may cause a significant  variation in its quarterly operating
          results.  Additionally,  the  Company's  operations  are  affected  by
          fluctuations  in  interest  rates  and the  availability  of credit to
          purchasers of  manufactured  homes and motor homes,  general  economic
          conditions, and the availability and price of motor fuels.

Customers and Marketing

The Company's customers  requiring delivery of manufactured homes,  recreational
vehicles,  commercial  trucks,  and specialized  vehicles are located in various
parts of the United States. The Company's largest manufactured housing customers
include  Oakwood  Homes  Corporation,   Fleetwood  Enterprises,  Inc.,  Champion
Enterprises,  Inc., Clayton Homes, Inc., Cavalier Homes, Inc., Palm Harbor, Four
Seasons  Housing,   Inc.,  and  Skyline   Corporation.   The  Company's  largest
Specialized  Outsourcing Services customers include Winnebago Industries,  Inc.,
Fleetwood  Enterprises,  Inc., Ryder System, Inc.,  Gulfstream Coach, Inc., Xtra
Lease,  Inc., and North American Van Lines, Inc. While most  manufacturers  rely
solely on carriers such as the Company,  other  manufacturers  operate their own
equipment and may employ outside carriers on a limited basis.

The Company's  operating  revenues are comprised  primarily of linehaul revenues
derived by multiplying the miles of a given shipment by the stated mileage rate.
Operating  revenues  also include  charges for permits,  insurance,  escorts and
other  items.  A  substantial  portion of the  Company's  operating  revenues is
generated under one, two, or three year contracts with producers of manufactured
homes,  recreational vehicles,  and the other products. In these contracts,  the
manufacturers   agree  that  a  specific   percentage  (up  to  100%)  of  their
transportation service requirements from a particular location will be performed
by the Company on the basis of a prescribed  rate  schedule,  subject to certain
adjustments  to  accommodate  increases in the Company's  transportation  costs.
Linehaul  revenues  generated under customer  contracts in 1996,  1997, and 1998
were 62%, 68%, and 64% of total linehaul revenues, respectively.

The  Company's  ten  largest  customers  all have been served for at least three
years and accounted for approximately 59%, 66%, and 69% of its linehaul revenues
in 1996,  1997, and 1998,  respectively.  Linehaul  revenues under contract with
Fleetwood  Enterprises,  Inc.  ("Fleetwood"),  accounted for approximately $26.6
million,  $28.1 million,  and $26.0 million of linehaul  revenues in 1996, 1997,
and  1998,  respectively.  Linehaul  revenues  with  Oakwood  Homes  Corporation
("Oakwood")  accounted for approximately $12.9 million,  $21.6 million and $31.8
million  of  linehaul  revenues  in 1996,  1997,  and  1998,  respectively.  The
Fleetwood  manufactured  housing  contract is  continuous  until  canceled.  The
Oakwood manufactured housing contract is renewed annually.  The Company has been
servicing  Oakwood for ten years and  Fleetwood  for over 25 years.  


<PAGE>

The Company  markets and sells its services  through 105 locations in 32 states,
concentrated where manufactured housing and motor home production facilities are
located.  Marketing support personnel are located both at the Company's Elkhart,
Indiana headquarters and regionally. Dispatch offices are supervised by regional
offices.

The Company has 35 dispatch offices each devoted  primarily to a single customer
facility.  This allows the dispatching agent and local personnel to focus on the
needs of each  individual  customer while  remaining  supported by the Company's
nationwide operating  structure.  Sales personnel at regional offices and at the
corporate headquarters meet periodically with manufacturers to review production
schedules, requirements and maintain contact with customers' shipping personnel.
Senior  management  maintains  personal  contact with corporate  officers of the
Company's  largest  customers.  Regional  and  terminal  personnel  also develop
relationships   with   manufactured  home  park  owners,   retailers,   military
installation  officials  and others to promote the  Company's  shipments of used
manufactured  homes.  The Company  also  participates  in  industry  trade shows
throughout  the country  and  advertises  in trade  magazines,  newspapers,  and
telephone directories.

Independent Owner-Operators

The  shipment of product by  Manufactured  Housing and a portion of  Specialized
Outsourcing Services is conducted by contracting for the use of the equipment of
independent owner-operators.

Owner-operators are independent  contractors who own toters, tractors or pick-up
trucks  which they  contract  to, and  operate  for,  the Company on a long-term
basis.  Independent  owner-operators  are not  generally  approved to  transport
commodities  on their own in  interstate or  intrastate  commerce.  The Company,
however,     possesses    such     approvals     and/or     authorities     (see
"Business-Regulation"),   and  provides  marketing,  insurance,   communication,
administrative, and other support required for such transportation.

The  Company   attracts   independent   owner-operators   mainly  through  field
recruiters,  trade magazines,  referrals,  and truck stop brochures. The Company
has in the past been able to attract new independent  owner-operators  primarily
because of its competitive  compensation structure, its ability to provide loads
and its  reputation  in the  industry.  Recruitment  and  retention of qualified
drivers is highly  competitive  and there can be no  assurance  that the Company
will  be  able  to  attract  a  sufficient   number  of  qualified   independent
owner-operators in the future.

The contract  between the Company and each owner  operator can be canceled  upon
ten day's notice by either party. The average length of service of the Company's
current independent owner-operators is approximately 2.5 years, for the past two
years.  At December  31,  1998,  1,530  independent  owner-operators  were under
contract  to the  Company,  including  1,160  operating  toters,  209  operating
semi-tractors, and 161 operating pick-up trucks.

In Manufactured Housing,  independent  owner-operators utilizing toter equipment
tend to exclusively  transport  manufactured  housing,  modular  structures,  or
office  trailers.  Once  modified  from a  semi-tractor,  a  toter  has  limited
applications for hauling general freight. Toter drivers are, therefore, unlikely
to be engaged by transport firms that do not specialize in manufactured housing.
This  gives  the  Company  an   advantage   in   retaining   toter   independent
owner-operators.  The average  tenure with the Company of its toter  independent
owner-operators is 3.3 years, compared to 2.8 years in 1997.

In Specialized Outsourcing Services,  Morgan is competing with national carriers
for  the  recruitment  and  retention  of  independent  owner-operators  who own
tractors.   The  average   length  of  service  of  the  Company's   independent
owner-operators is approximately 2.1 years, compared to 2.8 years in 1997.

Independent  owner-operators  are generally  compensated  for each trip on a per
mile basis. Independent  owner-operators are responsible for operating expenses,
including fuel,  maintenance,  lodging,  meals, and certain insurance coverages.
The Company provides required permits,  cargo and liability  insurance (coverage
while  transporting  goods  for the  Company),  and  communications,  sales  and
administrative  services.  Independent  owner-operators,  except  for  owners of
certain pick-up trucks, are required to possess a commercial drivers license and
to meet and maintain  compliance  with  requirements  of the U.S.  Department of
Transportation and standards established by the Company.

From time to time,  tax  authorities  have  sought to  assert  that  independent
owner-operators in the trucking industry are employees,  rather than independent
contractors.  No such tax claims  have been  successfully  made with  respect to
independent owner-operators of the Company. Under existing industry practice and
interpretations of federal and state tax laws, as well as the Company's current

<PAGE>

method of operation,  the Company believes that its independent  owner-operators
are not employees.  Whether an owner  operator is an  independent  contractor or
employee is, however, generally a fact-sensitive  determination and the laws and
their  interpretations  can vary from state to state.  There can be no assurance
that tax authorities will not successfully challenge this position, or that such
tax  laws  or  interpretations  thereof  will  not  change.  If the  independent
owner-operators  were  determined  to be  employees,  such  determination  could
materially  increase the  Company's  employment  tax and  workers'  compensation
exposure.

Outsourcing

The  Company  utilizes  both  independent   contractors  and  employees  in  its
outsourcing  operations.  The  Company  outsources  its over 1,420  drivers on a
trip-by-trip  basis  for  delivery  to  retailers  and  rental  truck  agencies,
recreational and commercial vehicles,  such as buses,  tractors,  and commercial
vans.  These  individuals  are  recruited  through  driver   recruiters,   trade
magazines, brochures, and referrals. Prospective drivers are required to possess
at least a  chauffeur's  license  and are  encouraged  to  obtain  a  commercial
driver's license.  They must also meet and maintain compliance with requirements
of the U.S.  Department  of  Transportation  and  standards  established  by the
Company.  Outsourcing drivers are utilized as needed, depending on the Company's
transportation volume and driver availability. Outsourcing drivers are paid on a
per mile basis. The driver is responsible for most operating expenses, including
fuel, return travel,  lodging,  and meals. The Company provides licenses,  cargo
and liability insurance, communications, sales, and administrative services.

Agents and Employees

The Company has  approximately  108  terminal  managers and  assistant  terminal
managers who are involved directly with the management of equipment and drivers.
Of these 108 staff,  approximately 95 are full-time  employees and the remainder
are independent  contractors who earn  commissions.  The terminal  personnel are
responsible for the Company's  terminal  operations  including safety,  customer
relations, equipment assignment,  invoicing, and other matters. Because terminal
personnel develop close  relationships with the Company's customers and drivers,
from time to time the  Company  has  suffered  a terminal  personnel  defection,
following  which the former  staff has sought to exploit such  relationships  in
competition  with  the  Company.   The  Company  does  not  expect  that  future
defections,  if any, would have a material affect on its operations. In addition
to the 108 terminal personnel,  the Company employs  approximately 261 full-time
employees.  The Company also has 14 employee drivers in Manufactured housing and
six in Outsourcing.

Seasonality

Shipments of  manufactured  homes tend to decline in the winter  months in areas
where poor weather conditions inhibit transport.  This usually reduces operating
revenues in the first and fourth  quarters of the year. The Company's  operating
revenues, therefore, tend to be stronger in the second and third quarters.

Risk Management, Safety and Insurance

The risk of substantial losses arising from traffic accidents is inherent in any
transportation  business.  The Company carries insurance to cover such losses up
to $25 million per  occurrence  with a  deductible  of $150,000  per  occurrence
beginning on April 1, 1998, and a deductible of $250,000 for prior periods,  for
personal injury and property  damage.  The Company carries cargo insurance of $1
million per occurrence  with a $150,000  deductible,  also. The Company's  cargo
damage  insurance policy for the year ending March 31, 1999 includes a stop-loss
provision,  which  benefited the Company by $767,000 in 1998.  The frequency and
severity of claims under the Company's  liability insurance affects the cost and
potentially the  availability  of such insurance.  If the Company is required to
pay substantially greater insurance premiums, or incurs substantial losses above
$25 million or below its $150,000  deductibles,  its results could be materially
adversely  affected.  The  Company  has been  approved  but has not  activated a
self-insurance authority of up to $1 million. There can be no assurance that the
Company can continue to maintain its present  insurance  coverage on  acceptable
terms.

The  following  table  sets forth  information  with  respect to bodily  injury,
property damage,  cargo claims, and automotive  physical damage reserves for the
years ended December 31, 1996, 1997, and 1998, respectively.
<PAGE>

                             Claims Reserve History
                            Years Ended December 31,
                                 (in thousands)

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

Beginning Reserve Balance     $ 3,683      $ 4,660      $ 5,323
Provision for Claims            6,598        7,204        7,698
Payments, net                  (5,621)      (6,541)      (4,913)
                              -------      -------      -------

Ending Reserve Balance        $ 4,660      $ 5,323      $ 8,108
                              =======      =======      =======

The Company has driver  recognition  programs  emphasizing safety to enhance the
Company's  overall safety record.  In addition to periodic  recognition for safe
operations, the Company has implemented safe driving bonus programs. These plans
generally  reward  drivers  on an  escalating  rate  per  mile  based  upon  the
claim-free miles driven.  Specialized Outsourcing Services payments in 1998 were
$400,000.  Manufactured Housing provides certain toter drivers with a credit for
miles traveled while meeting standards for safety and professional  performance.
The  owner   operator  is  entitled  to  use  the  amount   credited  to  obtain
reimbursement from the Company for equipment purchases,  maintenance, or upgrade
expenses.  This  program paid out  $106,000 in 1998.  The Company,  during 1998,
instituted a field safety  organization  which places a dedicated safety officer
at each regional  center.  These  individuals  work towards  improving safety by
analyzing claims, identifying opportunities to reduce claims costs, implementing
preventative  programs  to reduce the number of  incidents,  and  promoting  the
exchange  of  information  to educate  others.  The  Company  has a Senior  Vice
President  of Risk  Management  and  Safety,  a  Director  of Safety  and D.O.T.
Compliance,  seven  field  safety  managers,  four safety  orientation  trainers
(part-time) and a Manager of Driver Training.

Interstate,  a wholly-owned insurance subsidiary of the Company, makes available
physical   damage   insurance    coverage   for   the   Company's    independent
owner-operators. Interstate also writes performance surety bonds for Morgan. The
Company  may also  utilize  its  wholly-owned  insurance  subsidiary  to  secure
business insurance for Morgan through re-insurance contracts.

Competition

All of the Company's  activities are highly  competitive.  In addition to fleets
operated by  manufacturers,  the Company competes with large national  carriers,
many of whom have substantially  greater resources than the Company and numerous
small regional or local  carriers.  The Company's  principal  competitors in the
Manufactured  Housing and  Specialized  Outsourcing  Services  marketplaces  are
privately  owned.  No  assurance  can be given that the Company  will be able to
maintain its competitive position in the future.

Competition among carriers is based on the rate charged for services, quality of
service, financial strength, and insurance coverage. The availability of tractor
equipment and the possession of appropriate  registration  approvals  permitting
shipments between points required by the customer may also be influential.

Regulation

The  Company's  interstate  operations  (Morgan  and  TDI)  are now  subject  to
regulation by the Federal Highway Administration  ("FHWA") which is an agency of
the United States Department of Transportation ("D.O.T."). This jurisdiction was
transferred  to  the  D.O.T.  with  the  enactment  of the  Interstate  Commerce
Commission  Termination Act. Effective January 1, 1995, the economic  regulation
of certain  intrastate  operations  by various  state  agencies was preempted by
federal law. The states continue to have  jurisdiction  primarily to insure that
carriers  providing   intrastate   transportation   services  maintain  required
insurance coverage,  comply with applicable safety  regulations,  and conform to
regulations  governing  size and weight of  shipments  on state  highways.  Most
states have adopted the D.O.T.  safety  regulations and actively enforce them in
conjunction with D.O.T. personnel.


<PAGE>

Motor carriers  normally are required to obtain approval  and/or  authority from
the FHWA as well as various  state  agencies.  Morgan is approved  and/or  holds
authority to provide interstate and intrastate transportation services from, to,
and between all points in the continental United States.

The Company provides  services to certain specific  customers under contract and
non-contract  services to the shipping  public  pursuant to governing  rates and
charges   maintained  at  its  corporate   and  various   dispatching   offices.
Transportation  services provided pursuant to a written contract are designed to
meet a customer's specific shipping needs or by dedicating equipment exclusively
to a given customer for the movement of a series of shipments during a specified
period of time.

Federal  regulations govern not only operating  authority and registration,  but
also such matters as the content of agreements with independent owner-operators,
required  procedures  for  processing  of cargo  loss  and  damage  claims,  and
financial reporting.  The Company believes that it is in substantial  compliance
with all material regulations applicable to its operations.

The D.O.T. regulates safety matters with respect to the interstate operations of
the  Company.  Among  other  things,  the  D.O.T.  regulates  commercial  driver
qualifications and licensing;  sets minimum levels of financial  responsibility;
requires  carriers  to  enforce   limitations  on  drivers'  hours  of  service;
prescribes parts,  accessories and maintenance  procedures for safe operation of
commercial/motor   vehicles;   establishes   health  and  safety  standards  for
commercial motor vehicle operators;  and utilizes audits,  roadside  inspections
and  other   enforcement   procedures  to  monitor   compliance  with  all  such
regulations.  The D.O.T.  has  established  regulations  which  mandate  random,
periodic,  pre-employment,  post-accident  and reasonable cause drug testing for
commercial  drivers and similar  regulations  for alcohol  testing.  The Company
believes that it is in substantial compliance with all material D.O.T.
requirements applicable to its operations.

In Canada,  provincial  agencies grant both  intraprovincial and extraprovincial
authority;  the latter  permits  transborder  operations  to and from the United
States. The Company has obtained from Canadian  provincial agencies all required
extraprovincial authority to provide transborder  transportation of manufactured
homes and motor homes throughout most of Canada.

Most manufactured  homes, when being transported by a toter,  exceed the maximum
dimensions  allowed on state  highways  without a special  permit.  The  Company
obtains these permits for its independent  owner-operators from each state which
allows the Company to transport their manufactured homes on state highways.  The
states and Canadian  provinces have special  requirements  for  over-dimensional
loads detailing permitted routes,  timing required,  signage,  escorts,  warning
lights and similar matters.

Most states and provinces also require operators to pay fuel taxes,  comply with
a variety of other tax and/or  registration  requirements,  and keep evidence of
such  compliance in their  vehicles  while in transit.  The Company  coordinates
compliance   with   these   requirements   by  its   drivers   and   independent
owner-operators,  and  monitors  their  compliance  with all  applicable  safety
regulations.

Interstate,  the Company's insurance subsidiary,  is a captive insurance company
incorporated under Vermont law. It is required to report annually to the Vermont
Department of Banking, Insurance, Securities, & Health Care Administration,  and
must submit to an examination by this Department on a triennial  basis.  Vermont
regulations  require  Interstate  to be  audited  annually  and to have its loss
reserves certified by an approved actuary. The Company believes Interstate is in
substantial compliance with Vermont insurance regulations.

Finance,  the Company's finance  subsidiary,  is incorporated under Indiana law.
Finance is subject to Indiana's  Equal Credit  Opportunity  Laws and other state
and federal laws relating generally to fair financing practices.

Item 2.  PROPERTIES

The Company owns  approximately  24 acres of land with  improvements in Elkhart,
Indiana.  The improvements  include a 23,000 square foot office building housing
the Company's  principal  office and Manufactured  Housing;  a 7,000 square foot
building housing Specialized  Outsourcing Services; a 9,000 square foot building
used for the  Company's  safety and  driver  service  departments;  and an 8,000

<PAGE>

square foot building  partially used for driver training and licensing.  Most of
the Company's 105  locations are situated on leased  property.  The Company also
owns and  leases  property  for  parking  and  storage of  equipment  at various
locations throughout the United States, usually in proximity to manufacturers of
products moved by the Company.  The property  leases have term  commitments of a
minimum of thirty days and a maximum of three years,  at monthly rentals ranging
from $25 to $6,500.  The following  table  summarizes  the Company's  owned real
property.

       Property                  Property                       Approximate
       Location                  Description                      Acreage
       --------                  -----------                    -----------
Elkhart, Indiana              Corporate and
                              Specialized Outsourcing Services        24
Wakarusa, Indiana             Terminal and storage                     4
Middlebury, Indiana           Terminal and storage                    13
Mocksville, North Carolina    Terminal and storage                     8
Edgerton, Ohio                Terminal and storage                     2
Woodburn, Oregon              Storage                                  4
Woodburn, Oregon              Region and storage                       1
Fort Worth, Texas             Region and storage                       6
Montevideo, Minnesota         Terminal and storage                     3

Item 3.    LEGAL PROCEEDINGS

The Company and its  subsidiaries are party to litigation in the ordinary course
of business,  generally  involving  liability  claims in connection with traffic
accidents  incidental to its transport  business.  From time to time the Company
may become party to litigation  arising outside the ordinary course of business.
The Company does not expect such pending suits to have a material adverse effect
on the Company or its results of operations.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

<PAGE>


PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED  STOCKHOLDER MATTERS

The Company's  common stock is traded on the American  Stock  Exchange under the
symbol MG. As of February 24, 1999, the  approximate  number of  shareholders of
record of the  Company's  Class A common  stock was 141.  This  figure  does not
include shareholders with shares held under beneficial ownership in nominee name
or within  clearinghouse  position  of  brokerage  firms and banks.  The Class B
common stock is held of record by Lynch Corporation.

Market Price of Class A common stock:

                                  1998                        1997
Quarter Ended             High             Low        High             Low
March 31                 $10.25            $8.75    $  8.38            $7.00
June 30                   11.63             9.50      10.25             8.25
September 30              10.19             6.50      10.25             8.38
December 31                7.75             6.88      10.38             8.88

Dividends Declared:
                                  Class A                     Class B
                              Cash Dividends              Cash Dividends
Quarter Ended               1998           1997         1998            1997
March 31                    $.02           $.02         $.01            $.01
June 30                      .02            .02          .01             .01
September 30                 .02            .02          .01             .01
December 31                  .02            .02          .01             .01

The Company  commenced a tender  offer on February  22,  1999,  at which time it
announced  its  intention  to purchase  its shares of Class A Common  Stock at a
price range not greater  than $10.00 nor less than $8.50 per share.  The Company
concluded  on March 19,  1999,  the tender  offer,  whereby it acquired  102,528
shares at $9.00 a share.



<PAGE>



Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

THE MORGAN GROUP, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>


(Dollars in thousands, except share amounts)      1998          1997         1996            1995         1994
--------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>           <C>            <C>     
Operations
  Operating Revenues                            $150,454       $146,154      $132,208      $122,303       $101,880
  Operating Income (Loss) (1)                      2,007          1,015       (3,263)         3,371          3,435
  Pre-tax Income (Loss) (1)                        1,462            296       (3,615)         3,284          3,367
  Net Income (Loss) (1)                              903            196       (2,070)         2,269          2,212


Net Income (Loss) Per Share:
  Basic                                            $0.35          $0.07       ($0.77)         $0.80          $0.75
  Diluted                                           0.35           0.07        (0.77)          0.73           0.74
  Cash Dividends Declared:
      Class A                                       0.08           0.08          0.08          0.08           0.08
      Class B                                       0.04           0.04          0.04          0.04           0.04

Financial Position
  Total Assets                                   $33,387        $33,135       $33,066       $30,795        $28,978
  Working Capital                                  3,806          1,613         1,635         8,293         11,045
  Long-term Debt                                   1,480          2,513         4,206         3,275          1,925
  Shareholders' Equity                            13,221         12,724        13,104        15,578         16,084


Common Shares Outstanding at Year
   End                                         2,552,335      2,637,910     2,685,520     2,649,554      2,566,665
Basic Weighted Average Shares
   Outstanding                                 2,606,237      2,656,690     2,684,242     2,582,548      2,566,665

</TABLE>

(1)  Includes  pre-tax  special  charges of  $624,000  ($412,000  after tax) and
     $3,500,000 ($2,100,000 after tax) in 1997 and 1996, respectively.


<PAGE>



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

Year 1998 Compared with 1997

Consolidated Results

Net income for 1998 was $0.9 million  compared with $0.2 million for 1997.  This
improvement represents the Company's continued progress to improve earnings. The
results for 1997 included a special charge of $0.4 million after-tax.

In 1998 total  operating  revenues  increased to $150.5  million from $146.2 for
1997. 1997 operating  revenues included $3.3 million from a discontinued line of
business.  Excluding the discontinued line of business, total operating revenues
from continued operations increased 5% in 1998.

Operating income before interest,  taxes, depreciation and amortization (EBITDA)
increased from $2.1 million in 1997 to $3.2 million in 1998.  EBITDA for 1997 is
after a special charge of $0.6 million.

Because of the existence of significant non-cash expenses,  such as depreciation
of fixed assets and amortization of intangible assets, the Company believes that
EBITDA contributes to a better understanding of the Company's ability to satisfy
its  obligations  and to utilize cash for other  purposes.  EBITDA should not be
considered in isolation from or as a substitute for operating income,  cash flow
from operating activities,  and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles.

Net interest expense decreased from $0.7 million in 1997 to $0.5 million in 1998
as a result of improved cash flows that allowed the Company to reduce the amount
of debt outstanding under its credit facilities.

For information concerning the provision for income taxes as well as information
regarding  differences between effective tax rates and statutory rates, see Note
5 of the Notes to Consolidated Financial Statements.

Segment Results

The Company  conducts its  operations in three  principal  segments as discussed
below. The following discussion sets forth certain information about the segment
results for the years ended December 31, 1998, 1997, and 1996.

Manufactured Housing

Manufactured   housing   operating   revenues  are  generated   from   providing
transportation and logistical  services to manufacturers of manufactured  homes.
Manufactured housing operating revenue increased $0.8 million to $106.1 million.
This increase was primarily with contract and other large  manufactured  housing
customers that the Company  services.  Partially  offsetting this growth was the
loss  of  accounts  in the  second  half of the  year  primarily  in the  South.
Manufactured  housing EBITDA increased $2.1 million,  or 24%, primarily due to a
reduction in overhead  costs  resulting  from force  reductions and field office
consolidations or eliminations.

Specialized Outsourcing Services

Specialized  outsourcing  services  operating  revenues  increased  18% to $42.8
million in 1998 after excluding the 1997 discontinued line of business operating
revenues. Specialized Outsourcing Services consists of driver outsourcing, large
trailer and other  specialized  transport  services.  The large trailer delivery
service  operating  revenues grew 32% in 1998 to $20.8 million.  This growth was
primarily due to the  reconstruction of this business,  improved  owner-operator
utilization  and an  approximate  50% increase in  independent  owner-operators.
Additionally,  the  delivery of Class  Eight  vehicles  or  "decking"  operating
revenues  grew four times to $2.3  million in 1998.  Partially  offsetting  this
growth  was a  decrease  in  operating  revenues  from the  delivery  of  travel
trailers.   Specialized  outsourcing  services  EBITDA  decreased  $0.1  million
primarily due to increased recruiting, dispatch, and other administrative costs.


<PAGE>

Insurance/Finance

The  Company's   Insurance/Finance  segment  provides  insurance  and  financing
services to the Company's drivers and independent owner-operators.  This segment
also acts as a cost center whereby all bodily injury,  property damage and cargo
loss costs are captured.

The Company in 1998 continued to be penalized by increasing  claim costs.  Claim
costs in 1998, as a percent of operating revenue, increased to 5.1% from 4.9% in
1997.  This  continuing  negative trend offsets the benefits of lower  insurance
expense and the transfer of more losses to the insurers in 1998.

The increase in claims costs was primarily responsible for the increased loss of
the Insurance/Finance segment.

Year 1997 Compared with 1996

Consolidated Results

Operating results for the year ended December 31, 1997, compared with 1996, were
significantly   impacted  by  the   acquisition  of  Transit  Homes  of  America
("Transit") in December 1996 and the discontinued line of business, "Truckaway",
in May 1997.  Transit is a provider  of  Manufactured  Housing  and  Specialized
Outsourcing Services.

Operating  revenues  increased 11% from $132.2 million in 1996 to $146.2 million
in 1997. Transit contributed $21.2 million to 1997 operating revenues.  Revenues
from  continued  operations,  including  Transit  and  excluding  the  Truckaway
operating revenues of $3.3 million, increased 13% in 1997 over 1996.

EBITDA  increased  to $2.1  million in 1997 from a loss of $1.8 million in 1996.
The EBITDA  loss in 1996  included  a special  charge of $3.5  million  taken in
connection with the closing of unprofitable  operations.  1996 EBITDA before the
special charge was $1.7 million.  1997 EBITDA included two special items,  for a
net  charge to income of $0.6  million.  The first  item  related to a change in
accounting  that amounted to $1.0 million,  the second item was a special credit
of $0.4 million.  The change in accounting was to account for certain components
of driver pay on an accrual rather than a cash basis. The special credit related
primarily  to the gain on the sale of  Truckaway  assets in  excess of  reserves
established  in the prior year.  1997 EBITDA  before the net special  charge was
$2.7 million.

The decrease in depreciation  and  amortization  expenses in 1997 related to the
discontinuance  of the Truckaway  operation  was  partially  offset by increased
amortization from the Transit acquisition.

Net interest expense  increased from $0.4 million to $0.7 million  primarily due
to increases in debt related to the Transit  acquisition and increased borrowing
on the credit facility.

For information concerning the provision for income taxes as well as information
regarding  differences between effective tax rates and statutory rates, see Note
5 of the Notes to Consolidated Financial Statements.

Segment Results

Manufactured Housing

Manufactured  housing  operating  revenues  increased 28.5% to $105.4 million in
1997 primarily due to the Transit  acquisition.  EBITDA  increased 17.1% to $8.7
million primarily because of the higher volume.

Specialized Outsourcing Services

The  discontinuance of the Truckaway  operation in May of 1997 and a decrease in
driver outsourcing operating revenues resulted in the decline of $9.5 million in
Specialized   Outsourcing   Services  operating  revenues  in  1997.   Partially

<PAGE>

offsetting  was an increase in trailer  operating  revenues.  This  increase was
attributed  to a renewed focus on the large  trailer  delivery  business and the
Transit acquisition, which brought new travel trailer operating revenues.

Decreases  in  relocation  of rental  trucks,  principally  due to  management's
decision to de-emphasize  participation  in this cyclical  industry  segment and
competitive pressures, was a significant factor,  contributing to the decline in
Specialized   Outsourcing   Services  driver  outsourcing   operating  revenues.
Additionally,  recreational  vehicles  operating  revenues  decreased  through a
combination of reduced  production  from a major customer and other  competitive
issues. Operating revenues from the delivery of new commercial vehicles declined
slightly in 1997 primarily due to the  realignment of our customer base in order
to better position this product line for greater profitability.

Specialized  Outsourcing Services EBITDA improved to $1.2 million in 1997 from a
loss of $.8 million in 1996.

EBITDA in 1997 was aided by the Transit  acquisition and the  discontinuance  of
the Truckaway  operation,  which had an operating  loss of $1.8 million in 1996.
EBITDA was negatively  impacted by reduced  profits from the driver  outsourcing
business.  Additionally,  operating  costs and expenses  increased due to safety
training  for all Morgan  employees  and  drivers,  and higher  employee-related
health benefit costs.

Insurance/Finance

In 1997,  the loss for  Insurance/Finance  increased  because of the increase in
Manufactured Housing and Specialized Outsourcing Services operating revenues.

Liquidity and Capital Resources

Operating  activities generated $5.5 million of cash in 1998 compared with a use
of cash of $0.4 million in 1997. Net income plus  depreciation and amortization,
a decrease in trade accounts  receivable  and an increase in claims  liabilities
were partially  offset by a decrease in deferred income taxes and an increase in
other accounts receivables. Trade accounts receivable decreased $1.2 million due
to accelerated  collections.  Days sales  outstanding  decreased from 31 days at
December 31, 1997,  to 28 days at December 31, 1998.  As  previously  discussed,
bodily injury, property damage and cargo claims experience continued to penalize
operations  in 1998.  The  increase in other  accounts  receivable  is primarily
refund amounts due from the primary insurance provider.  The increase in accrued
claims  payable of $2.8 million  represents  the  self-insured  portion of these
claims.  The Company accrues its  self-insurance  liability using a case reserve
method based upon claims  incurred and  estimates of  unasserted  and  unsettled
claims.  These liabilities have not been discounted.  The Company in April 1998,
renegotiated its insurance for these events reducing the deductibles to $150,000
and including a stop-loss provision for cargo losses.

Capital  expenditures  and  business  acquisitions  were $0.8  million  in 1998.
Similarly,  the 1999 capital  expenditure plan approximates $0.8 million,  which
will be primarily funded through internally generated funds.

Net cash used in financing  activities  increased to $3.7 million in 1998.  Cash
was used for payments on term and promissory  notes, pay off of revolving credit
notes, dividends, and the purchase of company stock.

The Company had no outstanding  balance under its revolving  credit  facility at
December 31, 1998, and borrowing available for revolving credit of $8.7 million.

On January 28,  1999,  the Company  entered into a new $20.0  million  revolving
credit  facility ("New Credit  Facility")  with the  Transportation  Division of
BankBoston.  This New Credit Facility is for two years,  subject to renewal, and
better  sized to the  Company's  requirements.  

It is the  current  policy of the  Company  to pay annual  Class A common  stock
dividends  totaling $.08 per share and Class B common stock  dividends  totaling
$.04 per share.  Payment of any future  dividends will be dependent upon,  among
other things,  earnings,  financing  agreement  covenants,  future growth plans,
legal restrictions, and the financial condition of the Company.


<PAGE>

The Company  commenced a tender  offer on February  22,  1999,  at which time it
announced  its  intention  to purchase  shares of its Class A Common  Stock at a
price range not greater  than $10.00 nor less than $8.50 per share.  The Company
concluded  on March 19,  1999,  the tender  offer,  whereby it acquired  102,528
shares  at $9.00 a  share.  The  Company,  given  its  businesses,  assets,  and
prospects,  believes  that  purchasing  its  Class  A  stock  is  an  attractive
investment that will benefit the Company and its remaining  shareholders  and is
consistent  with its long-term goals of maximizing  shareholder  return and with
its recent purchases of outstanding shares.

The Company had minimal  exposure to interest  rates as of December 31, 1998, as
substantially  all of its  outstanding  long-term  debt bears  fixed  rates.  As
previously discussed,  the New Credit Facility will bear variable interest rates
based on either a Federal Funds rate or the Eurodollar rate. Accordingly, future
borrowings  under the New  Credit  Facility  will have  exposure  to  changes in
interest rates.  Under its current  policies,  the Company does not use interest
rate derivative  instruments to manage exposure to interest rate changes.  Also,
the Company, currently, is not using any fuel hedging instruments.

It is the management's  opinion that the Company's  foreseeable cash requirement
will be met through a combination of internally  generated  funds and the credit
available from the New Credit Facility.

Long-Lived Assets

The Company  periodically  assesses the net  realizable  value of its long-lived
assets and evaluates  such assets for impairment  whenever  events or changes in
circumstances  indicate the carrying  amount of an asset may not be recoverable.
The Company continues to assess the  recoverability  of the goodwill  associated
with two recent acquisitions. The total amount under review is $6.0 million. The
Company does not believe there is an impairment of long-lived assets,  including
goodwill.

Impact of Seasonality

Shipments of  manufactured  homes tend to decline in the winter  months in areas
where poor weather conditions inhibit transport.  This usually reduces operating
revenues in the first and fourth  quarters of the year. The Company's  operating
revenues, therefore, tend to be stronger in the second and third quarters.

Year 2000 Compliance

The Company  recognizes the need to ensure its operations  will not be adversely
affected by Year 2000  software  failures and has  established a project team to
address  the Year 2000 issue.  The  Company  has a program in place  designed to
bring the systems into Year 2000  compliance in time to minimize any significant
detrimental  effects  on  operations.  Our  goal is to have our  remediated  and
replaced  systems  operational  by July  1999 to  allow  time  for  testing  and
verification. In addition, executive management regularly monitors the status of
the Company's Year 2000 remediation plans.

The Company has completed the assessment of Year 2000 issues. The first phase of
the compliance  plan has been completed  with  installation  and conversion to a
mainframe computer.  This computer provides adequate computing power to complete
application software conversion and application remediation. The second phase of
the compliance plan was conversion to Year 2000 compliant  financial software in
February, 1999.

The third phase of the Year 2000  compliance  program  involves the  remediation
and/or  replacement of operating systems.  Rather than remediate,  a significant
portion of the  operating  software  is being  replaced by  compliant  purchased
software.  Implementation is scheduled to be completed by July 1999. The Company
is using both internal and external  resources to complete  this phase.  Systems
ranked  highest in priority  are  scheduled  first for  replacement,  with final
testing and certification for Year 2000 readiness  scheduled for September 1999.
The Company has performed an evaluation of its non-information  systems, such as
communication  voice-mail  systems  and  telephone  switches.  The cost of these
modifications  or upgrades is expected to be less than $31,000.  This compliance
plan should be completed by July 1999.

The Company also faces risk to the extent that services and systems purchased by
the Company and others  with whom the Company  transacts  business do not comply
with  Year  2000  requirements.  As part of the Year  2000  compliance  program,

<PAGE>

significant service providers, vendors, customers and governmental entities that
are believed to be critical to business  operations  after January 1, 2000, have
been  identified  and steps are being  undertaken  in an attempt  to  reasonably
determine their stage of Year 2000 readiness.

External and internal costs specifically  associated with modifying internal use
software for Year 2000  compliance  are  expensed as incurred.  The total amount
expended on the project  through  December 31, 1998,  was $115,000.  Costs to be
incurred  in 1999 to fix Year  2000  problems  are  estimated  at  approximately
$308,000. These estimated costs do not include normal ongoing costs for computer
hardware  and software  that would be replaced  even without the presence of the
Year 2000  issue.  The Company  does not expect the costs  relating to Year 2000
remediation to have a material  effect on its results of operations or financial
condition.

Based on the  progress the Company has made in  addressing  its Year 2000 issues
and the  Company's  plan and timeline to complete its  compliance  program,  the
Company  does not  foresee  significant  risks  associated  with  its Year  2000
compliance  at this time. As the  Company's  plan is to address its  significant
Year  2000  issues  prior to being  affected  by them,  it has not  developed  a
comprehensive contingency plan.

However,  if the Company  identifies  significant risks related to its Year 2000
compliance or its progress deviates from the anticipated  timeline,  the Company
will develop contingency plans as deemed necessary at that time.

The Company believes today that the most likely worst case scenario will involve
temporary  disruptions in payments from  customers and temporary  disruptions in
the delivery of services and products to the Company.  The Company  would expect
that if these events were to occur, increased expense would result and adversely
affect the Company's cash flow.

The estimates and conclusions herein contain forward-looking  statements and are
based on management's best estimates of future events.  However, there can be no
assurance  that the Company will timely  identify and remediate all  significant
Year 2000 problems,  that remedial efforts will not involve significant time and
expense,  or that such problems will not have a material  adverse  effect on the
Company's business, results of operations or financial position.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The  information  required  by Item 7A of Form  10-K  appears  in Item 7 of this
report under the heading  "Liquidity and Capital  Resources" and is incorporated
herein by this reference.

<PAGE>



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     The Morgan Group, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                  (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                    December 31
                                                                1998          1997
ASSETS
Current assets:
<S>                                                           <C>           <C>     
   Cash and cash equivalents                                  $  1,490      $    380
   Trade accounts receivable, less allowance for doubtful
      accounts of $208 in 1998 and $183 in 1997                 12,188        13,362
   Accounts receivable, other                                    1,214           126
   Prepaid expenses and other current assets                     2,467         2,617
   Deferred income taxes                                         1,230         1,137
                                                              --------      --------
Total current assets                                            18,589        17,622
                                                              --------      --------

Property and equipment, net                                      4,117         4,221
Intangible assets, net                                           8,030         8,451
Deferred income taxes                                            1,997         1,377
Other assets                                                       654         1,464
                                                              --------      --------
Total assets                                                  $ 33,387      $ 33,135
                                                              ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Revolving credit agreement                                 $     --      $  2,250
   Trade accounts payable                                        4,304         4,092
   Accrued liabilities                                           3,566         4,178
   Income taxes payable                                            878           389
   Accrued claims payable                                        3,553         2,281
   Refundable deposits                                           1,830         1,666
   Current portion of long-term debt                               652         1,153
                                                              --------      --------
Total current liabilities                                       14,783        16,009
                                                              --------      --------

Long-term debt, less current portion                               828         1,360
Long-term accrued claims payable                                 4,555         3,042
Commitments and contingencies                                       --            --

Shareholders' equity:
   Common stock, $.015 par value
      Class A: Authorized shares - 7,500,000
      Issued shares - 1,605,553                                     23            23

      Class B: Authorized shares - 2,500,000
      Issued and outstanding shares - 1,200,000                     18            18
   Additional paid-in capital                                   12,459        12,453
   Retained earnings                                             2,898         2,160
                                                              --------      --------
Total capital and retained earnings                             15,398        14,654

Less - treasury stock at cost (253,218 in 1998 and
  167,643 in 1997 Class A shares)                               (2,177)       (1,426)
  Loan to officer for stock purchase                                --          (504)
                                                              --------      --------

Total shareholders' equity                                      13,221        12,724
                                                              --------      --------
Total liabilities and shareholders' equity                    $ 33,387      $ 33,135
                                                              ========      ========
</TABLE>
See accompanying notes.


<PAGE>



                     The Morgan Group, Inc. and Subsidiaries
                      Consolidated Statements of Operations
                  (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                          For the year ended December 31
                                                      1998            1997            1996

<S>                                               <C>             <C>             <C>        
Operating revenues                                $   150,454     $   146,154     $   132,208

Costs and expenses:
   Operating costs                                    136,963         133,732         122,238
   Selling, general and administration                 10,254           9,708           8,235
   Depreciation and amortization                        1,230           1,075           1,498
   Special charges                                         --             624           3,500
                                                  -----------     -----------     -----------
                                                      148,447         145,139         135,471
                                                  -----------     -----------     -----------

Operating income (loss)                                 2,007           1,015          (3,263)
Interest expense, net                                     545             719             352
                                                  -----------     -----------     -----------
Income (loss) before income taxes                       1,462             296          (3,615)

Income tax expense (benefit)                              559             100          (1,545)
                                                  -----------     -----------     -----------

Net income (loss)                                 $       903     $       196     $    (2,070)
                                                  ===========     ===========     ===========

Net income (loss) per basic and diluted share     $      0.35     $      0.07     $     (0.77)
                                                  ===========     ===========     ===========


Basic weighted average shares outstanding           2,606,237       2,656,690       2,684,242
</TABLE>

See accompanying notes.


<PAGE>

                     The Morgan Group, Inc. and Subsidiaries

           Consolidated Statements of Changes in Shareholders' Equity
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                              Class A      Class B    Additional
                                               Common      Common       Paid-in      Officer     Treasury    Retained
                                               Stock        Stock       Capital       Loan        Stock      Earnings      Total
                                               -----        -----       -------       ----        -----      --------      -----

<S>                                             <C>          <C>        <C>           <C>         <C>         <C>        <C>     
Balance at December 31, 1995                    $ 23         $18        $12,441       $ --        $(1,274)    $4,370     $ 15,578
                                                                                    
   Net (loss)                                     --          --             --         --             --     (2,070)      (2,070)
   Sale of treasury stock, net                    --          --             --       (504)           274         --
                                                                                                                             (230)
   Common stock dividends:
      Class A ($.08 per share)                    --          --             --         --             --       (126)        (126)
      Class B ($.04 per share)                    --          --             --         --             --        (48)         (48)
                                              -------      -------     --------      -------     -------      -------     --------
Balance at December 31, 1996                      23          18         12,441       (504)        (1,000)      2,126       13,104
   Net income                                     --          --             --         --             --         196          196
   Purchase of treasury stock                     --          --             --         --           (426)         --         (426)
   Common stock dividends:
      Class A ($.08 per share)                    --          --             --         --             --        (114)       (114)
      Class B ($.04 per share)                    --          --             --         --             --         (48)        (48)
   Issuance of a director's stock options         --          --             12         --             --        --            12
                                              -------      -------     --------      -------     --------      ------     --------
Balance at December 31, 1997                      23          18         12,453       (504)        (1,426)      2,160       12,724
   Net income                                     --          --             --         --             --         903          903
   Purchase of treasury stock                     --          --             --        504           (813)         --         (309)
   Common stock dividends:
      Class A ($.08 per share)                    --          --             --         --             --        (117)       (117)
      Class B ($.04 per share)                    --          --             --         --             --         (48)        (48)
   Options exercised                              --          --              6         --             62          --          68
                                              -------      -------     --------      -------     --------     -------     --------
Balance at December 31, 1998                    $ 23         $18        $12,459      $  --       $ (2,177)     $2,898      $13,221
                                               ======      ======       =======      =======     ========      =======     =======
</TABLE>

See accompanying notes.

<PAGE>

                     The Morgan Group, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

<TABLE>
<CAPTION>



                                                                                 For the year ended December 31
                                                                          1998         1997         1996
Operating activities:
<S>                                                                    <C>          <C>          <C>     
Net income (loss)                                                      $   903      $   196      $(2,070)
Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
        Depreciation and amortization                                    1,246        1,108        1,533
        Deferred income taxes                                             (713)        (179)      (1,813)
        Special charges                                                     --          624        3,500
        Non-cash compensation expense for stock options                     --           12           --
        (Gain) loss on disposal of property and equipment                   20          (37)          37

Changes in operating assets and liabilities:
        Trade accounts receivable                                        1,174       (2,050)         (27)
        Other accounts receivable                                       (1,088)         148          240
        Refundable taxes                                                    --          321         (490)
        Prepaid expenses and other current assets                          139          795         (431)
        Other assets                                                       810       (1,053)        (374)
        Trade accounts payable                                             207        1,770       (1,683)
        Accrued liabilities                                               (612)      (2,486)         894
        Income taxes payable                                               489           --           --
        Accrued claims payable                                           2,785          663          437
        Refundable deposits                                                164         (242)         363
                                                                       -------      -------      -------
        Net cash provided by (used in) operating activities              5,524         (410)         116

Investing activities:
        Purchases of property and equipment                               (585)        (825)        (780)
        Proceeds from sale of property and equipment                        88          159           94
        Proceeds from disposal of assets held                               --        1,656           --
        Business acquisitions                                             (228)        (227)        (895)
                                                                       -------      -------      -------
Net cash (used in) provided by investing activities                       (725)         763       (1,581)

Financing activities:
        Net (payment) proceeds from revolving credit agreement          (2,250)       1,000        1,250
        Principle payments on long-term debt                            (1,168)      (2,366)        (924)
        Proceeds from long-term debt                                       135          673           --
        Purchase of treasury stock, 
          net of officer loan of $504 in 1998                             (309)        (426)        (286)
        Proceeds from exercise of stock options                             68           --           56
        Common stock dividends paid                                       (165)        (162)        (174)
                                                                       -------      -------      -------
        Net cash used in financing activities                           (3,689)      (1,281)         (78)
                                                                       -------      -------      -------

Net increase (decrease) in cash and cash equivalents                     1,110         (928)      (1,543)

Cash and cash equivalents at beginning of period                           380        1,308        2,851
                                                                       -------      -------      -------

Cash and cash equivalents at end of period                             $ 1,490      $   380      $ 1,308
                                                                       =======      =======      =======
</TABLE>

See accompanying notes.






<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Morgan  Group,  Inc.  ("Company"),  through its wholly  owned  subsidiaries,
Morgan Drive Away, Inc.  ("Morgan") and TDI, Inc. ("TDI"),  provides  outsourced
transportation  and  logistical   services  to  the  manufactured   housing  and
recreational  vehicle  industries and is a leading provider of delivery services
to the  commercial  truck and trailer  industries  in the United  States.  Lynch
Corporation  ("Lynch") owns all of the 1,200,000 shares of the Company's Class B
common stock and 155,900 shares of the Company's Class A common stock,  which in
the  aggregate  represents  68% of the  combined  voting  power of the  combined
classes of the Company's common stock.

The  Company's  other  significant  wholly  owned  subsidiaries  are  Interstate
Indemnity Company  ("Interstate") and Morgan Finance,  Inc.  ("Finance"),  which
provide insurance and financial services to its owner operators.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries, Morgan, TDI, Interstate, and Finance. Significant intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

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  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported  amounts of operating  revenues and expenses  during the  reporting
period. Actual results could materially differ from those estimates.

Operating Revenues and Expense Recognition

Operating  revenues and related driver pay are  recognized  when movement of the
product is completed. Other operating expenses are recognized when incurred.

Cash Equivalents

All  highly  liquid  investments  with a maturity  of three  months or less when
purchased are considered to be cash equivalents.

Property and Equipment

Property and  equipment is stated at cost.  Depreciation  is computed  using the
straight-line  method  over  the  estimated  useful  lives of the  property  and
equipment.

Intangible Assets

Goodwill  is stated at the excess of  purchase  price  over net asset  acquired.
Other  intangible  assets  are  stated  at cost.  Intangible  assets,  including
goodwill,  are being amortized by the straight-line  method over their estimated
useful lives.

Impairment of Assets

The Company  periodically  assesses the net  realizable  value of its long-lived
assets and evaluates  such assets for impairment  whenever  events or changes in
circumstances  indicate the carrying  amount of an asset may not be recoverable.
For assets to be held and used,  impairment  is determined to exist if estimated
undiscounted  future cash flows are less than the carrying amount. For assets to
be  disposed  of,  impairment  is  determined  to  exist  if the  estimated  net
realizable value is less than the carrying amount.


<PAGE>

Insurance and Claim Reserves

The Company  maintains  personal injury and property  damage  insurance of up to
$25,000,000  per  occurrence;  with a deductible of $150,000  beginning April 1,
1998,  and  $250,000  for prior  periods.  The Company  maintains  cargo  damage
insurance of $1,000,000 per occurrence  with a deductible of $150,000  beginning
April 1, 1998,  and  $250,000  for prior  periods.  The  Company's  cargo damage
insurance  policy  includes a stop-loss  provision,  under which the Company has
recorded a  receivable  of $767,000 at December 31,  1998.  The Company  carries
statutory  insurance  limits  on  workers'  compensation  with a  deductible  of
$50,000.  Claims and insurance  accruals reflect the estimated  ultimate cost of
claims for cargo  loss and  damage,  personal  injury  and  property  damage not
covered by insurance.  The Company accrues its self-insurance  liability using a
case reserve  method based upon claims  incurred and estimates of unasserted and
unsettled claims. These liabilities have not been discounted.

Stock-Based Compensation

The Company accounts for stock-based  compensation  under Accounting  Principles
Board Opinion No. 25  "Accounting  for Stock Issued to  Employees".  Because the
exercise  price of the Company's  employee stock options equals the market price
of the  underlying  stock on the  date of  grant,  no  compensation  expense  is
recognized. Pro forma information regarding net income and earnings per share as
if the Company had accounted for its employee stock options  granted  subsequent
to December 31, 1994 under the fair value method, which is required by Statement
of Financial  Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation," is immaterial.

Net Income (Loss) Per Common Share

Net income  (loss) per common  share  ("EPS")  is  computed  using the  weighted
average number of common shares outstanding during the period.  Since each share
of Class B common stock is freely  convertible  into one share of Class A common
stock,  the total of the  weighted  average  number of  common  shares  for both
classes of common stock is considered in the  computation  of EPS. The effect of
dilutive  stock options is immaterial to the  calculation of diluted EPS for all
the years presented.

Fair Values of Financial Instruments

The carrying value of financial  instruments such as cash and cash  equivalents,
trade and other receivables, trade payables and long-term debt approximate their
fair  values.  Fair value is  determined  based on  expected  future cash flows,
discounted  at  market  interest   rates,   and  other   appropriate   valuation
methodologies.

Comprehensive Income

There were no items of comprehensive income for the years presented,  as defined
under SFAS No. 130, "Reporting Comprehensive Income". Accordingly, comprehensive
income is equal to net income (loss).

Reclassifications

Certain  amounts in prior  years  have been  reclassified  to  conform  with the
current year presentation.


<PAGE>



2.  PROPERTY AND EQUIPMENT

The components of property and equipment and their estimated useful lives are as
follows (in thousands):

                                      Estimated             December 31
                                     Useful Life         1998            1997
                                     -----------         ----            ----
                                       (Years)

Land                                    --                $873            $925
Buildings                                    25          2,052           1,763
Transportation equipment                 3 to 5            478             526
Office and service equipment             3 to 8          3,535           3,293
                                                         -----           -----
                                                         6,938           6,507
Less accumulated depreciation                            2,821           2,286
                                                         -----           -----

Property and equipment, net                             $4,117          $4,221
                                                        ======          ======

3.  INTANGIBLE ASSETS

The  components of  intangible  assets and their  estimated  useful lives are as
follows (in thousands):

                                        Estimated             December 31
                                        Useful Life      1998             1997
                                        -----------      ----             ----
                                           (Years)

Trained work force                               12       $880             $880
Covenants not to compete                    3 to 15      1,217            1,183
Trade name and goodwill - original               40      1,660            1,660
Trade name and goodwill - purchased         3 to 20      7,116            6,917
                                                         -----            -----
                                                        10,873           10,640
Less accumulated amortization                            2,843            2,189
                                                         -----            -----

Intangible assets, net                                  $8,030           $8,451
                                                        ======           ======


4.  INDEBTEDNESS

At December 31, 1998,  the Company had no  outstanding  debt under its revolving
credit facility.  The Company had $6,587,000 of letters of credit outstanding on
December 31,  1998.  On January 28, 1999,  a new  $20,000,000  revolving  credit
facility ("Credit  Facility") was executed replacing these facilities.  The term
of  the  Credit  Facility  is  for  two  years,  subject  to  renewal  annually,
thereafter.  If not renewed,  the Credit  Facility shall convert to a three-year
term loan. The interest rate will be  calculated,  at the Company's  option,  on
either the lender's base rate, or Eurodollar  rate, all of which are adjusted on
a  quarterly  basis and  include  a margin  based  upon  performance  ratios.  A
commitment fee of .375% is required on the unused portion.  Total borrowings are
limited to qualified trade accounts receivable,  qualified owner-operator loans,
cash investments,  and outstanding  letters of credit.  The Credit Facility also
provides  for  excess  short-term  borrowings  of up to  $5,000,000  based  on a
leverage test. The Company is required to maintain certain minimum levels of net
worth and other financial ratios.  This facility provides  financing for working
capital and general  corporate  needs.  Letters of credit are  required for self
insurance retention reserves and other corporate needs.


<PAGE>

Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>


                                                                                            December 31
                                                                                       1998            1997
<S>                                                                                    <C>             <C>   
Term note with principal and interest payable monthly at 8.25% through
   July 31, 2000                                                                       $123            $  232
Promissory note with imputed interest at 7.81%, principal and interest
   payments due annually through August 11, 2000                                        657               914
Promissory note with imputed interest at 6.31%, principal and interest
   payments due quarterly through December 31, 2001                                     411               747
Promissory note with imputed interest at 8.5%, principal and interest
   payments due quarterly through September 30, 2002                                    120               --
Promissory note with imputed interest at 7.0%, principal and interest
   payments due annually through October 31, 2002                                       169               205
Term note with imputed interest at 6.509%, principal and interest payments
   due monthly through April 1, 1998                                                      --              303
Promissory note with imputed interest at 8.0%, principal and interest
   payments due annually through September 1, 1998                                        --              112
                                                                                      -----            ------
                                                                                      1,480             2,513
Less current portion                                                                    652             1,153
                                                                                      -----            ------
Long-term debt, net                                                                   $ 828            $1,360
                                                                                      =====            ======
</TABLE>


Maturities on long-term debt are $652,000 in 1999, $585,000 in 2000, $176,000 in
2001, and $67,000 in 2002.

Cash payments for interest were $566,000 in 1998, $717,000 in 1997, and $482,000
in 1996.


<PAGE>

5.  INCOME TAXES

Deferred tax assets and liabilities are determined based on differences  between
financial  reporting  and tax bases of assets and  liabilities  and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

The income tax provisions (benefits) are summarized as follows (in thousands):

                  For the Year Ended December 31
                  1998         1997         1996
Current:
   State       $   201      $    --      $    28
   Federal       1,071          279          240
               -------      -------      -------
                 1,272          279          268

Deferred:
   State          (203)          45         (267)
   Federal        (510)        (224)      (1,546)
               -------      -------      -------
                  (713)        (179)      (1,813)
               -------      -------      -------
               $   559      $   100      $(1,545)
               =======      =======      =======



Deferred tax assets (liabilities) are comprised of the following (in thousands):

                                                December 31
                                             1998         1997
Deferred tax assets:
   Accrued insurance claims                 $ 3,029      $ 2,080
   Special charges and accrued expenses         379          538
   Depreciation                                 146          115
   Other                                         62           67
                                            -------      -------
                                              3,616        2,800
Deferred tax liabilities:
   Prepaid expenses                            (389)        (266)
   Other                                         --          (20)
                                            -------      -------
                                               (389)        (286)
                                            -------      -------
                                            $ 3,227      $ 2,514
                                            =======      =======


<PAGE>



A  reconciliation  of the income tax  provisions  and the  amounts  computed  by
applying the  statutory  federal  income tax rate to income  before income taxes
follows (in thousands):

                                    For the Year Ended December 31
                                    1998         1997         1996
                                   -------      -------      -------
Income tax provision
   (benefit) at federal
   statutory rate                  $   497      $   101      $(1,229)
State income tax, net of
   federal tax benefit                  48            3         (155)
Reduction attributable to
   special election by captive          --         (155)        (216)
   insurance company
Changes in estimated
   state
   tax rates on beginning              (70)          --           --
   temporary differences
Permanent differences                   84           94           50
Other                                   --           57            5
                                   -------      -------      -------
                                   $   559      $   100      $(1,545)
                                   =======      =======      =======

Cash payments for income taxes were $810,000, $54,000 and $934,000 in 1998, 1997
and 1996 respectively.

6.   SHAREHOLDERS' EQUITY

The Company has two classes of common  stock  outstanding,  Class A and Class B.
Under the bylaws of the  Company:  (i) each share of Class A is  entitled to one
vote  and  each  share  of  Class  B is  entitled  to two  votes;  (ii)  Class A
shareholders  are  entitled  to a  dividend  ranging  from one to two  times the
dividend declared on Class B stock; (iii) any stock  distributions will maintain
the same  relative  percentages  outstanding  of Class A and  Class B;  (iv) any
liquidation  of the  Company  will  be  ratably  made  to  Class  A and  Class B
shareholders  after  satisfaction  of the Company's other  obligations;  and (v)
Class B stock is convertible into Class A stock at the discretion of the holder;
Class A stock is not convertible into Class B stock.

In February of 1996, the Company adopted a Special  Employee Stock Purchase Plan
("Plan") under which an officer  purchased 70,000 shares of Class A common stock
from treasury  stock at the then current  market value price of $560,000.  Under
the terms of the Plan,  $56,000 was  delivered  to the Company and a  promissory
note was  executed  in the  amount of  $504,000.  This  officer  terminated  his
employment on July 17, 1998. The Company  purchased his 70,000 shares of Class A
common stock at the market price of $637,000.

The  Company's  Board of  Directors  has  approved the purchase of up to 250,000
shares of Class A common  stock for its  Treasury  at  various  dates and market
prices.  As of December 31, 1998,  183,218 shares had been repurchased at prices
between $6.875 and $11.375 per share for a total of $1,540,000 under this plan.

7.  SUBSEQUENT EVENT

The Company  commenced a tender  offer on February  22,  1999,  at which time it
announced  its  intention  to purchase  shares at a price range not greater than
$10.00 nor less than $8.50 per share.  The Company  concluded on March 19, 1999,
the tender offer, whereby it acquired 102,528 shares at $9.00 a share.


<PAGE>



8.  STOCK OPTION PLAN

The Company has a stock option plan which provides for the granting of incentive
or  non-qualified  stock  options to  purchase  up to 200,000  shares of Class A
common stock to directors,  officers, and other key employees. No options may be
granted  under this plan for less than the fair market value of the common stock
at the date of the grant, except for certain  non-employee  directors.  Although
the exercise period is determined when options are actually  granted,  an option
shall not be  exercised  later  than ten years and one day after it is  granted.
Stock  options  granted will  terminate if the grantee's  employment  terminates
prior to exercise for reasons other than retirement, death, or disability. Stock
options vest over a four year period  pursuant to the terms of the plan,  except
for stock options  granted to a  non-employee  director,  which are  immediately
vested.  Employees and  non-employee  directors have been granted  non-qualified
stock options to purchase  113,375 and 57,000 shares,  respectively,  of Class A
common stock, net of cancellations and shares exercised.

A summary  of the  Company's  stock  option  activity  and  related  information
follows:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31

                                                 1998                               1997                               1996
                                                 ----                               ----                               ----
                                                    Weighted                           Weighted                           Weighted
                                                    Average                            Average                            Average
                                       Options      Exercise              Options      Exercise              Options      Exercise
                                       (000)        Price                 (000)        Price                 (000)        Price
                                       -----        -----                 -----        -----                 -----        -----

<S>                                     <C>         <C>                     <C>        <C>                    <C>         <C>  
Outstanding at beginning of year        167         $ 8.32                  176        $8.40                  139         $8.55
Granted                                  23           8.11                   25         8.13                   49          7.99
Exercised                                (7)          8.25                  (26)        8.73                   --           --
Canceled                                (13)          8.59                   (8)        8.07                   (12)        8.57
                                        ---                                ----                               ----

Outstanding at end of year              170          $8.28                  167        $8.32                   176        $8.40
                                        ===                                 ===                                ===

Exercisable at end of year              124          $8.42                  109        $8.35                    92        $8.64
                                        ===                                 ===                                ====
</TABLE>


Exercise  prices for options  outstanding  as of December 31, 1998,  ranged from
$6.20  to  $10.19.  The  weighted-average  remaining  contractual  life of those
options is 6.6 years. The weighted-average  fair value of options granted during
each year was immaterial.

9.  BENEFIT PLAN

The Company has a 401(k)  Savings Plan  covering  substantially  all  employees,
which matches 25% of the employee  contributions up to a designated  amount. The
Company's  contributions  to the Plan for  1998,  1997  and 1996  were  $29,000,
$38,000 and $27,000, respectively.

10.  TRANSACTIONS WITH LYNCH

The  Company  pays  Lynch an  annual  service  fee of  $100,000  for  executive,
financial  and  accounting,  planning,  budgeting,  tax,  legal,  and  insurance
services.  Additionally,  Lynch charged the Company for officers' and directors'
liability  insurance for 1998,  1997 and 1996 in the amount of $16,000,  $16,000
and $15,000, respectively.

The  Company's  Class A and Class B common  stock  owned by Lynch is  pledged to
secure a Lynch Corporation line of credit.

11.  ACQUISITIONS

Effective  December 30, 1996, the Company  purchased the assets of Transit Homes
of America, Inc., a provider of outsourcing services to the manufactured housing
and  specialized  transport   industries.   The  aggregate  purchase  price  was
$4,417,000,  which  includes  the cost of the  acquisition  and certain  limited
liabilities  assumed as part of the  acquisition.  The  acquisition was financed

<PAGE>

through available cash resources and issuance of a promissory note. In addition,
the Company entered into an employment  agreement with the seller which provides
for incentive payments up to $200,000 in 1999, and $100,000 in each of the years
2000 and 2001. The incentive  payments are based upon  achieving  certain profit
levels in Manufactured  housing and will be treated as  compensation  expense if
earned.  The  excess  purchase  price over  assets  acquired  was  approximately
$4,091,000  and is being  amortized  over twenty years.  In connection  with the
acquisition, liabilities assumed were as follows (in thousands):

         Fair value of assets acquired                        $   326
         Goodwill acquired                                      4,091
         Cash paid                                               (940)
         Notes issued                                          (1,855)
                                                              -------
         Liabilities assumed                                  $ 1,622
                                                              =======

12.  SPECIAL CHARGES

In the  fourth  quarter  of  1996,  the  Company  recorded  special  charges  of
$2,675,000   ($1,605,000  after  tax)  associated  with  exiting  the  truckaway
operation. The special charges, comprised principally of the anticipated loss on
sales of  revenue  equipment,  projected  losses  through  April 30,  1997,  and
write-downs of accounts receivable and other assets.  Additionally,  the Company
recognized an adjustment  to the carrying  value of four  properties of $825,000
($495,000 after tax).

A pretax special charge for 1997 of $624,000  ($412,000  after tax) is comprised
of gains in excess of the estimated net realizable value associated with exiting
the truckaway operation  discussed above of $361,000,  offset by charges related
to driver pay.  During 1997,  management  concluded  that certain  components of
driver pay were being  accounted for on a cash basis.  Accordingly,  the Company
recorded total charges of $1.2 million ($985,000 in special charges and $215,000
as operating  costs) in the fourth quarter of 1997 to account for all components
of driver pay on an accrual  basis.  It is the  opinion of  management  that the
effects of this change in accounting are immaterial to the results of operations
of the previous years presented.

13.  SEGMENT REPORTING

The Company has adopted FASB Statement No. 131  "Disclosure  about Segments of a
Business Enterprise and Related Information".

Description of Services by Segment

The  Company  operates  in  three  business  segments:   manufactured   housing,
specialized  outsourcing  services,  and insurance and finance. The manufactured
housing segment provides  outsourced  transportation and logistical  services to
manufacturers of manufactured  housing through a network of terminals located in
thirty  one  states.  The  specialized  outsourcing  services  segment  provides
outsourced  transportation  services  primarily to manufacturers of recreational
vehicles, commercial trucks and trailers through a network of service centers in
eight states. The third segment,  insurance and finance,  provides insurance and
financing to the Company's drivers and independent owner-operators. This segment
also acts as a cost center  whereby all  property  damage and bodily  injury and
cargo costs are captured.  The Company's  segments are strategic  business units
that  offer  different   services  and  are  managed  separately  based  on  the
differences in these services.




Measurement of Segment (Loss) and Segment Assets

The Company  evaluates  performance  and  allocates  resources  based on several
factors,  of which the primary  financial  measure is business segment operating
income,   defined  as  earnings  before   interest,   taxes,   depreciation  and
amortization  (EBITDA).  The accounting policies of the segments are the same as
those described in the summary of significant  accounting policies (See Note 1).
There are no significant intersegment revenues.


<PAGE>

The  following  table  presents  the  financial  information  for the  Company's
reportable segments for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>


                                                        1998           1997           1996
                                                      ---------      ---------      ---------
Operating revenues
<S>                                                   <C>            <C>            <C>      
     Manufactured Housing                             $ 106,145      $ 105,383      $  82,005
     Specialized Outsourcing Services                    42,774         39,236         48,707
     Insurance and Finance                                4,072          4,085          3,802
     All Other                                               48              9             --
                                                      ---------      ---------      ---------
                                                        153,039        148,713        134,514
Total intersegment insurance revenues                    (2,585)        (2,559)        (2,306)
                                                      ---------      ---------      ---------
Total operating revenues                              $ 150,454      $ 146,154      $ 132,208
                                                      =========      =========      =========

Segment profit (loss) - EBITDA
     Manufactured Housing                             $  10,836      $   8,715      $   7,444
     Specialized Outsourcing Services                     1,126          1,245           (812)
     Insurance and Finance                               (8,358)        (7,825)        (7,564)
     All Other                                             (367)           (45)          (833)
                                                      ---------      ---------      ---------
                                                          3,237          2,090         (1,765)
Depreciation and amortization                            (1,230)        (1,075)        (1,498)
Interest expense                                           (545)          (719)          (352)
                                                      ---------      ---------      ---------
Income before taxes                                   $   1,462      $     296      $  (3,615)
                                                      =========      =========      =========

Identifiable assets
     Manufactured Housing                             $  18,764      $  17,741      $  14,986
     Specialized Outsourcing Services                     9,070          7,655          6,810
     Insurance and Finance                                1,864          1,949          1,637
     All Other                                            3,689          5,790          9,633
                                                      ---------      ---------      ---------
     Total                                            $  33,387      $  33,135      $  33,066
                                                      =========      =========      =========

Special charges included in segment profit (loss)
     Manufactured Housing                             $      --      $     571      $      --
     Specialized Outsourcing Services                        --             53          2,675
     Insurance and Finance                                   --             --             --
     All Other                                               --             --            825
                                                      ---------      ---------      ---------
     Total                                            $      --      $     624      $   3,500
                                                      =========      =========      =========

</TABLE>
A majority of the Company's  accounts  receivable  are due from companies in the
manufactured  housing,  recreational  vehicle,  and commercial truck and trailer
industries  located  throughout the United States.  Services provided to Oakwood
Homes Corporation  accounted for approximately $31.8 million,  $21.6 million and
$12.9 million of revenues in 1998,  1997 and 1996,  respectively.  The Company's
gross accounts receivables from Oakwood were 20% and 10% of total receivables at
December 31, 1998 and 1997,  respectively.  In addition,  Fleetwood Enterprises,
Inc., accounted for approximately $26.0 million, $28.1 million and $26.6 million
of  revenues in 1998,  1997 and 1996,  respectively,  and 15% of gross  accounts
receivables at December 31, 1998 and 1997.



<PAGE>

14.  OPERATING COSTS AND EXPENSES (in thousands)

                                      1998         1997         1996
                                    --------     --------     --------
Purchased transportation costs      $103,820     $100,453     $ 92,037
Operating supplies and expenses       14,092       15,267       13,300
Claims                                 7,698        7,204        6,598
Insurance                              3,375        3,524        3,843
Operating taxes and licenses           7,978        7,284        6,460
                                    --------     --------     --------
                                    $136,963     $133,732     $122,238
                                    ========     ========     ========

15.  COMMITMENTS AND CONTINGENCIES

The Company is involved in various legal proceedings and claims that have arisen
in the normal  course of  business  for which the  Company  maintains  liability
insurance covering amounts in excess of its self-insured  retention.  Management
believes that adequate reserves have been established on its self-insured claims
and that their ultimate  resolution  will not have a material  adverse effect on
the consolidated  financial  position,  liquidity,  or operating  results of the
Company.

The  Company  leases  certain  land,  buildings,  computer  equipment,  computer
software, and motor equipment under non-cancelable  operating leases that expire
in various years through 2001.  Several land and building leases contain monthly
renewal  options.   Total  rental  expenses  were  $2,352,000,   $2,531,000  and
$2,087,000 in 1998, 1997 and 1996, respectively.

Future  payments at December 31, 1998 under  non-cancelable  leases with initial
terms of one year or more are $999,000 in 1999,  $787,000 in 2000,  and $377,000
in 2001.

16.  QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The  following  is  a  summary  of  unaudited   quarterly  results  of
operations  for the  years  ended  December  31,  1998  and  1997  (in
thousands, except share data):
<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                  March 31      June 30      Sept. 30     Dec. 31
                                                  --------      --------     --------     --------
1998
<S>                                               <C>           <C>          <C>          <C>     
Operating revenues                                $ 33,971      $ 41,523     $ 39,135     $ 35,825
Operating income (loss)                               (347)        1,239          699          416
Net income (loss)                                     (231)          617          321          196
Net income (loss) per basic and diluted share     $  (0.09)     $   0.23     $   0.12     $   0.08

1997
Operating revenues                                $ 33,633      $ 39,211     $ 38,290     $ 35,020
Operating income (loss)                                431         1,286        1,251       (1,953)
Net income (loss)                                      266           699          705       (1,474)
Net income (loss) per basic and diluted share     $   0.10      $   0.26     $   0.27     $  (0.56)
</TABLE>



In the fourth quarter of 1997, the Company  recorded special charges of $624,000
($412,000 after tax, or $0.16 per share).


<PAGE>



Report of Independent Auditors

The Board of Directors and Shareholders
The Morgan Group, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of The Morgan
Group,  Inc. and  subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended  December  31,  1998.  Our
audits also included the financial  statement schedule of The Morgan Group, Inc.
and subsidiaries  listed in Item 14(a). These financial  statements and schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion  on these  financial  statements  and  schedule  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 consolidated financial position of The Morgan Group,
Inc. and  subsidiaries  as of December 31, 1998 and 1997,  and the  consolidated
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.  Also, in our opinion, the financial statement schedule,
when considered in relation to the basic financial  statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                             /s/ Ernst & Young LLP



Greensboro,  North  Carolina  
February 12, 1999,  except Note 7, 
as to which the date is March 19, 1999



<PAGE>

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

None.

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by this item is  incorporated  by  reference  to the
section  entitled  "Proposal One - Election of Directors" of the Company's Proxy
Statement for its 1999 Annual Meeting of Stockholders  expected to be filed with
the Commission on or about April 28, 1999 (the "1999 Proxy Statement").

Item 11.  EXECUTIVE COMPENSATION

The information required by this item with respect to executive  compensation is
incorporated by reference to the section entitled  "Management  Remuneration" of
the 1999 Proxy Statement.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The  information  required  by this item is  incorporated  by  reference  to the
sections entitled "Voting Securities and Principal Holders Thereof" and entitled
"Proposal One - Election of Directors" of the 1999 Proxy Statement.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this item is  incorporated  by  reference  to the
section entitled  "Certain  Transactions with Related Persons" of the 1999 Proxy
Statement.



<PAGE>



PART IV

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

(a)(1)   Financial Statements

          The following  consolidated  financial statements are included in Item
          8:

          Consolidated Balance Sheets

          Consolidated Statements of Operations

          Consolidated  Statements  of Changes  in  Shareholders' Equity

          Consolidated Statements of Cash Flows

          Notes to Consolidated Financial Statements

          Report of Independent Auditors

(a)(2)    Financial Statement Schedules Schedule II - Valuation  and  Qualifying
          Accounts

          All other  schedules  for which  provision  is made in the  applicable
          accounting  regulations of the Securities  and Exchange Commission are
          not required under the instructions or are inapplicable and therefore,
          have been omitted.

(a)(3)    Exhibits Filed.

          The exhibits filed herewith or  incorporated  by reference  herein are
          set  forth  on the  Exhibit  Index.  Included  in those  exhibits  are
          management contracts and compensatory plans and arrangements which are
          identified as Exhibits 10.1 through 10.10.

(b)       Reports on Form 8-K

          Registrant  filed no reports on Form 8-K  during  the  quarter  ending
          December 31, 1998.

(c)       The exhibits filed herewith or  incorporated  by reference  herein are
          set forth on the Exhibit Index.




<PAGE>



                                   Schedule II

                     The Morgan Group Inc. and Subsidiaries
                        Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
                                                         Allowance for Doubtful Accounts

                                                            Additions            Amounts
                                            Beginning    Charged to Costs      Written Off            Ending
             Description                     Balance      and Expenses       Net of Recoveries        Balance
             -----------                     -------      ------------       -----------------        -------
<S>                                         <C>            <C>                   <C>                  <C>     
Year ended December 31, 1998                $183,000       $301,000              $276,000             $208,000

Year ended December 31, 1997                $ 59,000       $336,000              $212,000             $183,000

Year ended December 31, 1996                $102,000       $244,000              $287,000             $ 59,000
</TABLE>



<PAGE>



                                   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 behalf of the undersigned, thereto duly authorized.

                                          THE MORGAN GROUP, INC.

Date:    March 30, 1999              By:  /s/ Charles C.  Baum
                                          --------------------
                                          Charles C. Baum
                                          Chairman and Chief 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  Registrant  and in the  capacities  indicated on this 29th day of March,
1999.

1)         Chief Executive Officer:

           By:  /s/ Charles C.  Baum
                -----------------------------
                Charles C.  Baum


2)         Chief Financial Officer and
           Chief Accounting Officer

           By:        /s/ Dennis R.  Duerksen
                -----------------------------
                      Dennis R.  Duerksen


3)      A Majority of the Board of Directors:

                /s/ Charles C.  Baum                             Director
                -----------------------------
                Charles C.  Baum


                /s/ Bradley J.  Bell                             Director
                -----------------------------
                Bradley J.  Bell


                /s/ Richard B. Black                             Director
                -----------------------------
                Richard B.  Black


                /s/ Frank E.  Grzelecki                          Director
                -----------------------------
                Frank E.  Grzelecki


                /s/ Robert S. Prather, Jr.                       Director
                -----------------------------
                Robert S.  Prather, Jr.




<PAGE>



                                  EXHIBIT INDEX

Exhibit No.            Description                                       Page

     3.1       Registrant's Restated Certificate of Incorporation,  as
               amended, is incorporated by reference to Exhibit 3.1 to
               the  Registrant's  Registration  Statement on Form S-1,
               File No. 33-641-22, effective July 22, 1993.

     3.2       Registrant's Code of By-Laws,  as restated and amended,
               is  incorporated  by  reference  to Exhibit  3.2 of the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     4.1       Form of Class A Stock  Certificate is  incorporated  by
               reference   to   Exhibit   3.3  of   the   Registrant's
               Registration Statement on Form S-1, File No. 33-641-22,
               effective July 22, 1993.

     4.2       Fourth  Article  - "Common  Stock" of the  Registrant's
               Certificate  of   Incorporation,   is  incorporated  by
               reference   to   the   Registrant's    Certificate   of
               Incorporation,  as amended, filed as Exhibit 3.1 to the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     4.3       Article II - "Meeting  of  Stockholders,"  Article VI -
               "Certificate  for  Shares"  and  Article VII - "General
               Provisions"  of  the  Registrant's   Code  of  By-Laws,
               incorporated by reference to the  Registrant's  Code of
               By-Laws,  as  amended,  filed  as  Exhibit  3.2  to the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     4.4       Loan Agreements,  dated September 13, 1994, between the
               Registrant and  Subsidiaries and Society National Bank,
               are  incorporated  by  reference  to Exhibit 4.4 to the
               Registrant's  Quarterly  Report  on Form  10-Q  for the
               period ended  September  30, 1994,  filed  November 15,
               1994.

     4.5       Amended and  Restated  Credit and  Security  Agreement,
               effective March 25, 1998, among the Registrant,  Morgan
               Drive  Away,  Inc.,  TDI,  Inc.,  Interstate  Indemnity
               Company   and   KeyBank    National    Association   is
               incorporated   by  reference  to  Exhibit  4.5  to  the
               Registrant's  Annual  Report  on Form 10-K for the year
               ended December 31, 1997, filed March 31, 1998.

     4.6       Revolving  Credit Facility  Agreement,  effective March
               27, 1997,  among Morgan Drive Away,  Inc.,  TDI,  Inc.,
               Interstate   Indemnity  Company  and  KeyBank  National
               Association  is  incorporated  by  reference to Exhibit
               4.5(a) to the  Registrant's  Annual Report on Form 10-K
               for the year ended  December 31, 1996,  filed March 31,
               1997.

     4.7       Master  Revolving  Note,  dated March 27,  1997,  among
               Morgan Drive Away,  Inc.,  TDI,  Inc.,  and  Interstate
               Indemnity  Company to KeyBank  National  Association is
               incorporated  by  reference  to  Exhibit  4.5(b) to the
               Registrant's  Annual  Report  on Form 10-K for the year
               ended December 31, 1996, filed March 31, 1997.

     4.8       Amended and Restated Revolving Credit Note, dated March
               31, 1998,  among Morgan Drive Away,  Inc.,  TDI,  Inc.,
               Interstate   Indemnity   Company  to  KeyBank  National
               Association is  incorporated  by reference to Exhibit A
               to  the  Amended  and  Restated   Credit  and  Security
               Agreement,   effective   March  25,  1998,   among  the
               Registrant,   Morgan  Drive  Away,   Inc.,  TDI,  Inc.,
               Interstate   Indemnity  Company  and  KeyBank  National
               Association,  is  incorporated  by reference to Exhibit
               4.8 to the Registrant's  Annual Report on Form 10-K for
               the year ended December 31, 1997, filed March 31, 1998.


<PAGE>

     4.9       Security  Agreement,  effective  as of March 27,  1997,
               between  Morgan Drive Away,  Inc. and KeyBank  National
               Association  is  incorporated  by  reference to Exhibit
               4.5(c) to the  Registrant's  Annual Report on Form 10-K
               for the year ended  December 31, 1996,  filed March 31,
               1997.

     4.10      Absolute,   Unconditional   and  Continuing   Guaranty,
               effective as of March 27, 1997,  by the  Registrant  to
               Key  Bank  National   Association  is  incorporated  by
               reference to Exhibit 4.5(d) to the Registrant's  Annual
               Report on Form  10-K for the year  ended  December  31,
               1996, filed March 31, 1997.

     4.11      Amended and Restated Continuing Guaranty,  effective as
               of  March  31,  1998,  by  the  Registrant  to  KeyBank
               National  Association is  incorporated  by reference to
               Exhibit  D to  the  Amended  and  Restated  Credit  and
               Security Agreement, effective March 25, 1998, among the
               Registrant,   Morgan  Drive  Away,   Inc.,  TDI,  Inc.,
               Interstate   Indemnity  Company  and  KeyBank  National
               Association,  is  incorporated  by reference to Exhibit
               4.11 to the Registrant's Annual Report on Form 10-K for
               the year ended December 31, 1997, filed March 31, 1998.

     4.12      Revolving Credit and Term Loan Agreement, dated January
               28, 1999,  among the  Registrant and  Subsidiaries  and
               Bank  Boston,  N.A.,  is  incorporated  by reference to
               Exhibit 4(1) to the Registrant's Current Report on Form
               8-K filed February 12, 1999.

     4.13      Guaranty,  dated January 28, 1999, among the Registrant
               and Subsidiaries  and BankBoston,  N.A. is incorporated
               by  reference  to  Exhibit  4(2)  to  the  Registrant's
               Current Report on Form 8-K filed February 12, 1999.

     4.14      Security  Agreement,  dated January 28, 1999, among the
               Registrant and  Subsidiaries  and  BankBoston,  N.A. is
               incorporated  by  reference  to  Exhibit  4(3)  to  the
               Registrant's  Current Report on Form 8-K filed February
               12, 1999.

     4.15      Stock Pledge  Agreement,  dated January 28, 1999, among
               the Registrant and Subsidiaries and BankBoston, N.A. is
               incorporated  by  reference  to  Exhibit  4(4)  to  the
               Registrant's  Current Report on Form 8-K filed February
               12, 1999.

     4.16      Revolving  Credit Note,  dated January 28, 1999,  among
               the Registrant and Subsidiaries and BankBoston, N.A. is
               incorporated  by  reference  to  Exhibit  4(5)  to  the
               Registrant's  Current Report on Form 8-K filed February
               12, 1999.

     10.1      The  Morgan  Group,   Inc.   Incentive  Stock  Plan  is
               incorporated  by  reference  to  Exhibit  10.1  to  the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     10.2      First  Amendment to the Morgan  Group,  Inc.  Incentive
               Stock Plan is incorporated by reference to Exhibit 10.1
               to the  Registrant's  Quarterly Report on Form 10-Q for
               the period ended September 30, 1997, filed November 14,
               1997.


<PAGE>

     10.3      Memorandum  to Charles Baum and Philip Ringo from Lynch
               Corporation,  dated December 8, 1992,  respecting Bonus
               Pool, is  incorporated  by reference to Exhibit 10.2 to
               the  Registrant's  Registration  Statement on Form S-1,
               File No. 33-641-22, effective July 22, 1993.

     10.4      Term  Life   Policy  from   Northwestern   Mutual  Life
               Insurance  Company insuring Paul D.  Borghesani,  dated
               August 1, 1991, is incorporated by reference to Exhibit
               10.4 to the Registrant's Registration Statement on Form
               S-1, File No. 33-641-22, effective July 22, 1993.

     10.5      Long Term Disability Insurance Policy from Northwestern
               Mutual Life Insurance Company,  dated March 1, 1990, is
               incorporated   by   reference   to   the   Registrant's
               Registration Statement on Form S-1, File No. 33-641-22,
               effective July 22, 1993.

     10.6      Long  Term   Disability   Insurance   Policy  from  CNA
               Insurance  Companies,  effective  January  1,  1998  is
               incorporated  by  reference  to  Exhibit  10.6  to  the
               Registrant's  Annual  Report  on Form 10-K for the year
               ended December 31, 1997, filed March 31, 1998.

     10.7      The Morgan Group, Inc. Employee Stock Purchase Plan, as
               amended,  is incorporated by reference to Exhibit 10.16
               to the Registrant's  Annual Report on Form 10-K for the
               year ended December 31, 1994, filed on March 30, 1995.

     10.8      Consulting  Agreement  between Morgan Drive Away,  Inc.
               and Paul D. Borghesani,  effective as of April 1, 1996,
               is  incorporated  by  reference  to  Exhibit  10.19 the
               Registrant's  Annual  Report  on Form 10-K for the year
               ended December 31, 1995, filed on April 1, 1996.

     10.9      Employment  Agreement  between Morgan Drive Away,  Inc.
               and Terence L. Russell is  incorporated by reference to
               Exhibit 10.20 to the Registrant's Annual Report on Form
               10-K for the year ended  December  31,  1995,  filed on
               April 1, 1996.

     10.10     Stock  Purchase  Agreement  between  Morgan Drive Away,
               Inc.  and  Terence  L.  Russell  is   incorporated   by
               reference to Exhibit 10.21 to the  Registrant's  Annual
               Report on Form  10-K for the year  ended  December  31,
               1995, filed on April 1, 1996.

     10.11     Asset Purchase  Agreement,  dated May 21, 1993, between
               Registrant,  Transamerican  Carriers,  Inc.,  Ruby  and
               Billy   Davis  and  Morgan   Drive   Away,   Inc.,   is
               incorporated  by  reference  to  Exhibit  10.10  to the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     10.12     Management Agreement between Skandia  International and
               Risk   Management   (Vermont),   Inc.  and   Interstate
               Indemnity   Company,   dated   December  15,  1992,  is
               incorporated  by  reference  to  Exhibit  10.12  to the
               Registrant's  Registration  Statement on Form S-1, File
               No. 33-641-22, effective July 22, 1993.

     10.13     Agreement  for the  Allocation  of Income Tax Liability
               between   Lynch   Corporation   and  its   Consolidated
               Subsidiaries,  including the Registrant (formerly Lynch
               Services  Corporation),  dated  December 13,  1988,  as
               amended,  is incorporated by reference to Exhibit 10.13
               the  Registrant's  Registration  Statement on Form S-1,
               File No. 33-641-22, effective July 22, 1993.


<PAGE>

     10.14     MCI Corporate  Service  Agreement,  dated  December 12,
               1994,  between MCI  Telecommunications  Corporation and
               Morgan Drive Away,  Inc., is  incorporated by reference
               to Exhibit 10.17 to the  Registrant's  Annual Report on
               Form 10-K for the year ended  December 31, 1994,  filed
               on March 30, 1995.

     10.15     First Amendment to MCI Corporate Service Plan and other
               service  agreements dated May 7, 1996 and September 30,
               1997 is  incorporated  by reference to Exhibit 10.15 to
               the  Registrant's  Annual  Report  on Form 10-K for the
               year ended December 31, 1997, filed March 31, 1998.

     10.16     Certain  Services  Agreement,  dated  January  1, 1995,
               between  Lynch   Corporation   and  the  Registrant  is
               incorporated  by  reference  to  Exhibit  10.18  to the
               Registrant's  Annual  Report  on Form 10-K for the year
               ended December 31, 1994, filed on March 30, 1995.

     10.17     Asset Purchase  Agreement for Transfer Drivers Inc. and
               List of  Schedules  is  incorporated  by  reference  to
               Exhibit 10.22 to the Registrant's Annual Report on Form
               10-K for the year ended  December  31,  1995,  filed on
               April 1, 1996.

     10.18     Asset Purchase Agreement between Registrant and Transit
               Homes of America,  Inc., dated as of November 19, 1996,
               as amended as of December 30, 1996, is  incorporated by
               reference to Exhibit (2)-1 to the Registrant's Form 8-K
               filed January 14, 1997.

     10.19     Amendment   to   Asset   Purchase   Agreement   between
               Registrant and Transit,  Inc., dated as of December 29,
               1996 is  incorporated  by reference to Exhibit (2)-2 to
               the Registrant's Form 8-K filed January 14, 1997.

     21        Subsidiaries of the Registrant                              _____

     23        Consent of Ernst & Young LLP                                _____

     27.1      Financial  Data Schedule  (year ended December 31, 1998)    _____

     27.2      Restated  Financial  Data Schedule (year ended December
               31, 1997)                                                   _____

     27.3      Restated  Financial  Data Schedule (year ended December
               31, 1996)                                                   _____