SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
(Mark One)

(X)  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 

                  For the fiscal year ended December 31, 1996

                                       or

( )  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934 

              For the transition period from ________ to ________

                         Commission File Number 1-13586

                             THE MORGAN GROUP, INC.
             (Exact name of registrant as specified in its charter)

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

           2746 Old U.S. 20 West
             Elkhart, Indiana                             46515-1168
(Address of Principal Executive Offices)                  (Zip Code)

Registrants telephone number include area code:  (219) 295-2200

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

                                                   (Name of each exchange on 
           (Title of Class)                             which registered)
Class A Common Stock, without par value              American Stock Exchange

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 (or for such  shorter  period that the  Registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

                YES        X              NO ______

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 Registrants  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ( X )

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of March 27, 1997 was  $8,676,962.  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 27 1997,  was 1,482,020  shares,  and 1,200,000
shares, respectively.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders  are
incorporated into Part III of this report.



<PAGE>


The cover  page of the  Registrant's  annual  report,  on Form 10-K for the year
ended  December 31,  1996,  is amended by this filing to include  certain  share
information  inadvertently  omitted from the cover page of the  original  filing
made on March 31, 1997. Additionally, Item 8 and Item 14 of the above referenced
Form 10-K, are restated deleting Schedule VIII and a reference to Schedule VIII,
respectively.


<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Morgan Group, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                    December 31
----------------------------------------------------------------------------------------------------     
                                                                                1996         1995
<S>                                                                           <C>           <C>     
Assets
Current assets:
        Cash and cash equivalents                                             $  1,308      $  2,851
        Trade accounts receivable, less allowance for doubtful
                accounts of $59,000 in 1996 and $102,000 in 1995                11,312        11,285 
        Accounts receivable, other                                                 274           514
        Refundable taxes                                                           584           ---
        Prepaid expenses and other current assets                                3,445         2,875
        Deferred income taxes                                                      ---           586
----------------------------------------------------------------------------------------------------   
Total current assets                                                            16,923        18,111
Property and equipment, net                                                      2,763         6,902
Assets held for sale                                                             2,375            --
Intangible  assets,  net                                                         8,911         5,285
Deferred income taxes                                                            1,683            --
Other assets                                                                       411           497
----------------------------------------------------------------------------------------------------   
 Total assets                                                                 $ 33,066      $ 30,795
====================================================================================================   
Liabilities  and shareholders' equity 
Current liabilities:
        Note payable to bank                                                    $1,250       $    --
        Trade accounts payable                                                   3,226         3,845
        Accrued liabilities                                                      4,808         2,245
        Accrued claims payable                                                   1,744         1,337
        Refundable deposits                                                      1,908         1,607
        Current portion of long-term debt                                        1,892           784
----------------------------------------------------------------------------------------------------      
Total current liabilities                                                       14,828         9,818
Long-term debt, less current portion                                             2,314         2,491
Deferred income taxes                                                               --           622
Long term accrued claims payable                                                 2,820         2,286
Commitments and contingencies                                                      ---           ---
Shareholders' equity
        Common stock, $.015 par value 
        Class A:
        Authorized shares 7,500,000;                                                23            23
        Issued and outstanding shares  1,485,520 and 1,449,554
        Class B:
        Authorized shares 2,500,000;                                                18            18
        Issued and outstanding shares 1,200,000
        Additional paid-in capital                                              12,441        12,441
        Retained earnings                                                        2,126         4,370
----------------------------------------------------------------------------------------------------  
Total capital and retained earnings                                             14,608        16,852
Less  treasury stock, 120,043 and 156,009 shares, at cost                       (1,000)       (1,274)
     loan to officer for stock purchase                                           (504)           --
----------------------------------------------------------------------------------------------------    
Total shareholders' equity                                                      13,104        15,578
----------------------------------------------------------------------------------------------------  
Total liabilities and shareholders' equity                                    $ 33,066      $ 30,795
====================================================================================================   
</TABLE>

See accompanying notes


<PAGE>

The Morgan Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                               December 31
                                                                   1996           1995          1994
------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>           <C>        
Operating revenues:
        Manufactured housing                                  $    72,616    $    63,353   $    53,520
        Specialized transport                                      26,169         29,494        28,246
        Driver outsourcing                                         23,090         19,842        15,197
        Other service revenue                                      10,333          9,614         4,917
------------------------------------------------------------------------------------------------------
Total operating revenues:                                         132,208        122,303       101,880
Cost and expenses:
        Operating costs                                           122,238        110,408        91,241
        Special charges                                             3,500            ---           ---
        Selling, general and administration                         8,235          7,260         6,290
        Depreciation and amortization                               1,498          1,264           914
------------------------------------------------------------------------------------------------------
Total costs and expenses                                          135,471        118,932        98,445
------------------------------------------------------------------------------------------------------
Operating (loss) income                                            (3,263)         3,371         3,435
Interest expense, net                                                 352             87            68
------------------------------------------------------------------------------------------------------
(Loss) income before taxes                                         (3,615)         3,284         3,367
Total income tax (benefit) expense
        Current                                                       268            859         1,031
        Deferred                                                   (1,813)           156           124
------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense                                 (1,545)         1,015         1,155
------------------------------------------------------------------------------------------------------
Net (loss) income                                                  (2,070)         2,269         2,212
Less preferred dividend                                                --            221           244
------------------------------------------------------------------------------------------------------
Net (loss) income applicable to Common stock                  $    (2,070)   $     2,048   $     1,968
======================================================================================================
Net (loss) income per share:
        Primary                                               $     (0.77)   $      0.80   $      0.75
======================================================================================================
        Fully diluted                                         $     (0.77)   $      0.80   $      0.73
======================================================================================================
Average number of common shares and common stock equivalents    2,684,242      2,557,516     2,626,926
======================================================================================================
</TABLE>


See accompanying notes

<PAGE>
The Morgan Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                   December 31
                                                                      1996             1995            1994
------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>             <C>    
Net income (loss)                                                   $(2,070)         $ 2,269         $ 2,212
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
      Depreciation                                                    1,101              901             630
      Amortization                                                      396              363             284
      Deferred income taxes                                          (1,719)             156             124
      Special charges                                                 3,500               --              --
      Imputed non-cash interest on acquisition debt                     101              112              71
      Amortization of debt issuance costs                                36               40              40
      Gain (loss) on sale of equipment                                   37              (19)              8
      Changes in operating assets and liabilities:              
                Accounts receivable                                     213           (1,835)         (1,976)
                Refundable taxes                                       (584)              --              --
                Prepaid expenses and other current assets              (891)            (372)           (939)
                Other assets                                             86              (44)              9
                Accounts payable                                       (779)              45           1,324
                Accrued liabilities                                      86              433             806
                Accrued claims payable                                  341              297             496
                Refundable deposits                                     363              157             409
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                               217            2,503           3,498
Investing Activities
      Purchases of property and equipment                              (780)          (1,955)         (1,433)
      Proceeds from disposal of property and equipment                   94               28             183
      Acquisition of businesses                                        (895)          (1,018)             --
------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                (1,581)          (2,945)         (1,250)
Financing Activities
      Net proceeds from (payments on)                     
          bank and seller-financed                            
          notes and credit lines                                    $   225             (626)           (493)
      Conversion of warrants                                             --              297              --
      Purchase of treasury stock                                       (286)          (1,274)             --
      Proceeds from sale of treasury stock                               56               --              --
      Redemption of Series A preferred stock                             --           (1,300)             --
      Common stock dividends paid                                      (174)            (161)           (158)
      Redeemable preferred stock dividends paid                          --             (337)           (229)
------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                  (179)          (3,401)           (880)
------------------------------------------------------------------------------------------------------------
Net increase in (decrease in) cash and cash equivalents              (1,543)          (3,843)          1,368
Cash and cash equivalents at beginning of year                        2,851            6,694           5,326
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $ 1,308          $ 2,851         $ 6,694
============================================================================================================
</TABLE>


See accompanying notes

<PAGE>
The Morgan Group, Inc. and Subsidiaries

CONSOLIDATED  STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER SHAREHOLDERS EQUITY

(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                               Redeemable
                                                Series A     Class A    Class B   Additional
                                                Preferred    Common     Common     Paid-in      Officer     Treasury   Retained
                                                  Stock       Stock      Stock     Capital        Loan        Stock    Earnings
<S>                                            <C>         <C>        <C>        <C>         <C>         <C>         <C>     
Balance December 31, 1993                       $  3,089    $     20   $     18   $ 10,459        $---        $---    $    673
        Net income                                   ---         ---        ---        ---         ---         ---       2,212
        Redeemable Preferred
                Stock dividends:
                        Accrued                      244         ---        ---        ---         ---         ---        (244)
                        Paid                        (229)        ---        ---        ---         ---         ---         ---      
        Common stock dividends:
                Class A ($.08 per share)             ---         ---        ---        ---         ---         ---        (110)
                Class B ($.04 per share)             ---         ---        ---        ---         ---         ---         (48)
                                                -------------------------------------------------------------------------------
Balance, December 31, 1994                         3,104          20         18     10,459         ---         ---       2,483
        Net income                                   ---         ---        ---        ---         ---         ---       2,269
        Redeemable Preferred
                Stock dividends:
                        Accrued                      221         ---        ---        ---         ---         ---        (221)
                        Paid                        (337)        ---        ---        ---         ---         ---         ---
        Redemption of Series A
                Preferred Stock                   (2,988)          2        ---      1,686         ---         ---         ---     
        Conversion of Warrants,
                        including tax benefit        ---           1        ---        296         ---         ---         ---
        Purchase of Treasury Stock                   ---         ---        ---        ---         ---      (1,274)        ---
        Common stock dividends:
                Class A ($.08 per share)             ---         ---        ---        ---         ---         ---        (113)
                Class B ($.04 per share)             ---         ---        ---        ---         ---         ---         (48)
                                                -------------------------------------------------------------------------------
Balance, December 31, 1995                           ---          23         18     12,441         ---      (1,274)      4,370
        Net  (loss)                                  ---         ---        ---        ---         ---         ---      (2,070)
        Sale of Treasury Stock, net                  ---         ---        ---        ---        (504)        274         ---
        Common stock dividends:
                Class A ($.08 per share)             ---         ---        ---        ---         ---         ---        (126)
                Class B ($.04 per share)             ---         ---        ---        ---         ---         ---         (48)
                                                -------------------------------------------------------------------------------
Balance, December 31, 1996                      $      0    $     23   $     18   $ 12,441    $   (504)   $ (1,000)   $  2,126
                                                ===============================================================================
</TABLE>


See accompanying notes

<PAGE>
NOTES TO CONSOLIDATED STATEMENTS

1.   Summary of Significant Accounting Policies

Description of Business

The Morgan Group,  Inc.  (Company),  formerly  Lynch Services  Corporation,  was
incorporated  in 1988 for the  purpose of  acquiring  Morgan  Drive  Away,  Inc.
(Morgan),  and Interstate  Indemnity Company  (Interstate).  In 1994 the Company
formed Morgan Finance,  Inc. (Finance),  in 1995 acquired the assets of Transfer
Drivers,  Inc. (TDI), and on December 30, 1996,  purchased the assets of Transit
Homes of America,  Inc.  (Transit).  Lynch  Corporation  (Lynch) owns all of the
1,200,000 shares of the Company's Class B Common stock and 150,000 shares of the
Company's  Class A Common  stock,  which in the  aggregate  represent 66% of the
combined voting power of both classes of the Company's Common stock. 

The Company is the nation's leader in arranging for transportation  services for
the  manufactured  housing  and motor home  industries  and is building a strong
market  presence in providing  outsourcing  services for a wide range of vehicle
manufacturers and fleet users. The Company provides  outsourcing  transportation
services  through a national  network of drivers.  A majority  of the  Company's
accounts  receivable are due from companies in the manufactured  housing,  motor
home,  and commercial  truck  industries  located  throughout the United States.
While the Company does not  consider  its business to be dependent  upon any one
customer,  services  provided  to  Fleetwood  Enterprises,  Inc.  accounted  for
approximately  20%, 24%, and 27% of operating  revenues in 1996, 1995, and 1994,
and 12% and 17% of gross  accounts  receivables  at December  31, 1996 and 1995,
respectively.


<PAGE>

     The Company's  services also include  delivering other products,  including
office trailers,  and providing certain insurance and financing  services to its
owner operators through Interstate and Finance. Revenues,  operating profits, or
identified  assets  of these  subsidiaries  do not  account  for over 10% of the
Company's revenues,  operating profits, or identifiable assets, and accordingly,
no segment information is required.

Principles of Consolidation

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

Recognition  of  Revenues 

Operating  revenues and related estimated costs of movements are recognized when
movement of the manufactured housing,  recreational  vehicles, or other products
is completed.

Property and Equipment

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

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,  impairment  is  determined  to  exist  if  estimated
undiscounted  future cash flows are less than 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.  As  discussed in Note 16, the Company
recognized an adjustment  during 1996 for  write-downs  of assets to be disposed
of.

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  No.  123,  "Accounting  for  Stock-Based
Compensation," is immaterial.


<PAGE>

Cash  Equivalents 

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

Intangible Assets 

Intangible assets,  including goodwill, are being amortized by the straight-line
method over their estimated useful lives. 

The Company continually evaluates the performance of acquired companies by using
the undiscounted  cash flow method to identify whether events and  circumstances
have occurred that indicate the value of recorded goodwill may be impaired.

Insurance and Claim Reserves

The Company  maintains  liability  insurance  coverage of up to $20,000,000  per
occurrence, with a deductible of $250,000 per occurrence for personal injury and
property  damage.  The Company  currently  maintains  cargo damage  insurance of
$1,000,000 per  occurrence  with a deductible of $250,000.  The Company  carries
statutory  insurance  limits  on  workers  compensation  with  a  deductible  of
$250,000. Claims and insurance accruals reflect the estimated cost of claims for
cargo  loss and  damage,  bodily  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, and no portion of these reserves have been discounted.

Net Income Per Common Share

In 1995,  primary net income per common share has been  computed by dividing net
income,  after  reduction  for (the now retired)  Series A Redeemable  Preferred
Stock dividends,  by the average number of shares  outstanding during each year,
as adjusted  for stock  splits.  For periods  prior to 1995,  fully  diluted net
income per common share includes the dilutive  effect of the warrants  issued in
1992 as computed by application of the treasury stock method. In 1995 net income
per common share  reflects the conversion of the warrants into shares of Class A
Common stock. Because each share of the Company's Class B Common stock is freely
convertible  into one share of Class A Common  stock,  the total of the  average
number of common  shares  and  Common  stock  equivalents  outstanding  for both
classes of Common stock are considered in the computation of income per share.


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 (i) the reported  amounts of assets and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
(ii) the reported amounts of revenues and expenses during the reporting  period.
Actual results could differ from those estimates.

Reclsssifications

Certain amounts in the financial statements have been reclassified to conform to
the 1996 presentation.  Such  reclassifications had no effect on total assets or
net income.


<PAGE>

2.   Property and Equipment

Property and equipment consisted of the following:
                                  Estimated             December 31
                                 Useful Life        1996          1995
-----------------------------------------------------------------------
                                   (Years)           (In thousands)      
Land                                     --       $   487       $ 1,263
Buildings                                25           524         2,368
Transportation equipment             3 to 5         1,470         5,022
Office and service equipment         5 to 8         3,145         3,058
-----------------------------------------------------------------------
                                                    5,626        11,711
Less accumulated depreciation                       2,863         4,809
-----------------------------------------------------------------------
Property and equipment, net                       $ 2,763       $ 6,902
=======================================================================
                                                        
3.  Intangible Assets

The  components of  intangible  assets and their  estimated  useful lives are as
follows:

                                  Estimated             December 31
                                 Useful Life        1996          1995
-----------------------------------------------------------------------
                                   (Years)           (In thousands)     
Contractor network                        3        $1,210       $1,210
Trained work force                  3 to 12         1,030        1,030
Covenants not to compete            5 to 15         1,152        1,152
Trade name and goodwill--original        40         1,660        1,660
Trade name and goodwill--purchased       20         6,828        2,806
Other                                3 to 5           800          800
-----------------------------------------------------------------------
                                                   12,680        8,658
Less accumulated amortization                       3,769        3,373
-----------------------------------------------------------------------
Intangible assets, net                             $8,911       $5,285
=======================================================================
                                                          
4. Indebtedness

On March 27, 1997, the Company  entered into a credit  facility with a bank. The
credit facility,  which replaced a similar facility with the same bank, provides
financing for working capital needs,  equipment leasing,  letters of credit, and
general  corporate  needs. The Company pays a fee of .125% on the unused line of
credit facilities, and may fix interest rates over the short term LIBOR plus 150
basis points. All letters of credit expire at various dates throughout 1997. The
Company has total available credit  facilities of $10,000,000 of which there are
available  borrowings of  $4,158,000  as of December 31, 1996. In addition,  the
Company has available  borrowing of $400,000 under its mortgage debt agreements.
The key  provisions of the credit  arrangements  are summarized in the following
table:

<TABLE>
<CAPTION>
                                                    
Key Provisions                                      Credit          Interest
of Credit                         Expiration      Arrangements        Rate               Interest
Arrangements                        Dates         Outstanding         Basis                Rate
------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>              <C>               <C>  
Working capital line of credit      4-30-99        $1,250,000         Prime             8.25%
Lease line of credit                4-30-99           833,000         Various           6.27% to 7.48%
Letter of credit facility           4-30-99         3,418,000         Fixed             1.00%
Term note                           7-31-00           341,000         Fixed             8.25%
------------------------------------------------------------------------------------------------------
Bank borrowing                                                                         
     (non-mortgage)                                 5,842,000                          
Revolving real                                                                         
     estate note                    10-1-98           330,000         Prime +.75%       9.00%
------------------------------------------------------------------------------------------------------
Total bank credit arrangements                     $6,172,000   
======================================================================================================         
</TABLE>
              
<PAGE>
      
     The lines of credit, notes, and letters of credit are collateralized by the
assets of Interstate,  Morgan,  Finance,  and TDI, and the accounts  receivable,
inventory, and motor equipment of Morgan and TDI. The revolving real estate note
is  collateralized  by  approximately  24 acres of property  and  structures  in
Elkhart,  Indiana. The Company's Class B Common stock has been collateralized to
secure a Lynch Corporation line of credit.

As of December 31, 1996, long-term debt consisted of the following:

                                                            December 31
                                                        1996            1995
--------------------------------------------------------------------------------
                                                           (In thousands)
Real estate note with principal and interest    
     payable monthly through October 1, 1998           $ 330           $ 690
Promissory note with imputed interest at 8%,    
     principal and interest payments due     
     monthly through September 1, 1998                   270             426
Promissory note with imputed interest at 7%,    
     principal and interest payments due     
     annually through October 31, 2001                   256             295
Promissory note with imputed interest at 7.81%, 
     principal and interest payments due annually    
     through August 11, 2000                           1,154           1,414
Term note with principal and interest payable
        monthly through July 31, 2000                    341             450
Promissory note with imputed interest at 6.31%,
     principal and interest payments due     
     quarterly through December 31, 2001               1,158             ---
Promissory note principal due on January 2, 1997         697             ---
--------------------------------------------------------------------------------
                                                       4,206           3,275
Less current portion                                   1,892             784
--------------------------------------------------------------------------------
Long-term debt, net                                   $2,314           $2,491
================================================================================
<PAGE>

     Maturities on long-term debt for the five  succeeding  years are as follows
(in thousands):

                      1997                                $1,892
                      1998                                   977
                      1999                                   686
                      2000                                   448
                      2001                                   153
                      Thereafter                              50
                      ------------------------------------------
                                                          $4,206
                      ==========================================
                              
     The Company, pursuant to a loan agreement with a bank, has agreed to comply
with certain covenants including minimum net worth, maximum ratio of funded debt
to net worth,  minimum of interest ratio coverage,  and incurrence of additional
debt.  

     Cash  payments for interest were  $381,000 in 1996,  $278,000 in 1995,  and
$202,000 in 1994.

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):

                                        1996             1995            1994
--------------------------------------------------------------------------------
Current:                                                            
        State                         $    28          $   180         $   219
        Federal                           240              679             812
--------------------------------------------------------------------------------
                                          268              859           1,031
Deferred:                                                           
        State                            (267)             ---             --- 
        Federal                        (1,546)             156             124
--------------------------------------------------------------------------------
                                       (1,813)             156             124
--------------------------------------------------------------------------------
                                      $(1,545)         $ 1,015         $ 1,155
================================================================================

     Deferred tax assets and  (liabilities)  are  comprised of the  following at
December 31:

                                                 1996          1995
--------------------------------------------------------------------
                                                   (In thousands) 
Deferred tax assets:
        Accrued insurance claims                $ 1,595      $ 1,016
        Special charges                           1,260           --
        Minimum tax carryforward                     96           --
--------------------------------------------------------------------
                                                  2,951        1,016
Deferred tax liabilities:
        Depreciation                               (709)        (507)
        Prepaid expenses                           (482)        (465)
        Other                                       (77)         (80)
--------------------------------------------------------------------
                                                 (1,268)      (1,052)
--------------------------------------------------------------------
                                                $ 1,683      $   (36)
====================================================================


<PAGE>

     A  reconciliation  of the income tax provisions and the amount  computed by
applying the  statutory  federal  income tax rate to income  before income taxes
follows:

                                               1996         1995         1994
--------------------------------------------------------------------------------
                                                        (In thousands)
Income tax provision (benefit) at
     federal statutory rate                   $(1,229)     $ 1,117      $ 1,145
Increases (decreases):
        State income tax, net of
           federal tax benefit                   (155)         118          144
Reduction attributable to special
     election by captive insurance company       (216)        (223)        (202)
Other                                              55            3           68
--------------------------------------------------------------------------------
                                              $(1,545)     $ 1,015      $ 1,155
================================================================================

     Cash payments for income taxes were $934,000 in 1996, $736,000 in 1995, and
$685,000 in 1994.

6.  Redeemable Preferred Stock

The Company  redeemed the Series A Redeemable  Preferred  Stock in a transaction
approved by a special  meeting of the Board of  Directors  on November 22, 1995.
The transaction  involved the redemption of the 1,493,942 preferred shares owned
by Lynch  Corporation  in exchange for  $1,300,000 in cash and 150,000 shares of
Class A Common stock. The  consideration  received in exchange for the shares of
Class A Common  stock  exceeded  the book value at the date of the  exchange  by
$450,000.  The  resulting  premium  was  recorded  as an increase to the paid-in
capital account in the Company's  shareholders  equity. 

     On December 7, 1994,  June 22, 1995,  and  November 22, 1995,  the Board of
Directors declared a Series A Redeemable  Preferred Stock cash dividend pursuant
to its terms.  Accordingly,  $120,498,  $118,533,  and $97,577 of cash dividends
were paid to Lynch during 1995.

7.  Stock Warrants

In November 1992, the Company  granted an officer  warrants to purchase  133,333
shares  of  Class A Common  stock at an  option  price  of $.75 per  share.  The
warrants were  exercisable over a three year vesting period beginning in August,
1993. In June 1995, the officer exercised the warrants to purchase 88,888 shares
of Class A Common  stock at an option  price of $.75 per  share.  This  exercise
represented two thirds of the total outstanding warrants. The final third of the
warrants, representing 44,445 shares, were canceled. 

     The Company accepted 22,660 shares of stock from the officer to satisfy the
federal income tax withholding  resulting from the warrant  exercise.  The stock
price on the warrant exercise date was $8.375 per share.


<PAGE>

8.  Stock Option Plan

On June 4, 1993, the Board of Directors  approved the adoption of 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 officers,  including
members of the Board of Directors,  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.  Three
non-employee  directors were granted  non-qualified  stock options to purchase a
total of 24,000  shares of Class A Common stock at prices  ranging from $6.80 to
$9.00 per shares.  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 grantees
employment  terminates  prior to  exercise  for reasons  other than  retirement,
death, or disability. 

     Employees have been granted non-qualified stock options to purchase 175,500
shares of Class A Common stock,  net of cancellations  and exercises,  at prices
ranging  from  $7.38 to $8.75 per  share.  Stock  options  vest over a four year
period  pursuant to the terms of the plan.  As of December 31, 1996,  there were
88,375  options  to  purchase  shares  granted  to  employees  and  non-employee
directors which were exercisable  based upon the vesting terms, and 4,000 shares
had option  prices less than the December 31, 1996 closing  price of $7.50.  The
following table summarizes activity under the option plan:

                                           Shares            Option Price
--------------------------------------------------------------------------------
Outstanding at December 31, 1993           152,000           $8.75 - $9.00
        Grants                              16,500           $6.80 - $7.75
        Exercises                              ---        
        Cancellations                       (8,000)       
--------------------------------------------------------------------------------
Outstanding at December 31, 1994           160,500        
        Grants                              15,000           $7.88 - $8.38
        Exercises                           (1,250)       
        Cancellations                      (35,250)       
--------------------------------------------------------------------------------
Outstanding at December 31, 1995           139,000        
        Grants                              48,500           $7.38 - $8.69
        Exercises                              ---        
        Cancellations                      (12,000)       
--------------------------------------------------------------------------------
Outstanding at December 31, 1996           175,500        
                                                       
9.  Special Employee Stock Purchase Plan

In February of 1996, the Company adopted a Special  Employee Stock Purchase Plan
(Plan) under which Morgan Drive Away's  President  and Chief  Executive  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  bearing an interest  rate of five (5%)  percent per annum due in 2003.
The Plan allows for  repayment of the note using shares at $8.00 per share.  The
Company has the right to  repurchase,  at $8.00 per share,  56,000 shares during
the first year of the agreement and 28,000 during the second year.


<PAGE>

10.  Benefit Plans

In 1994, the Company adopted a 401(k) Savings Plan which matches 25% of employee
contributions up to a designated amount. The Company's  contribution to the Plan
was $27,000 in 1996, $23,000 in 1995, and $19,000 in 1994.

     The Company has established a non-qualified Compensation Plan applicable to
highly  compensated  employees.  The Plan  provides  tax  deferred  savings  for
executives  unfavorably  impacted  by IRS  restrictions.  The rate of  return is
predicated on rates available from life insurance products.  For the years ended
December  31,  1996 and 1995,  $12,000 and $10,000  were  recognized  as premium
expense under this Plan.

11.  Transactions with Lynch

Lynch  provides  certain  services  to  the  Company  which  include  executive,
financial  and  accounting,  planning,  budgeting,  tax,  legal,  and  insurance
services.  As discussed in Note 6, the Redeemable Preferred Stock owned by Lynch
Corporation was redeemed during 1995 at a discount. The Company incurred service
fees of $100,000 in 1996, $100,000 in 1995, and $0 in 1994.

12.  Leases

The  Company  leases  certain  buildings  and  equipment  under   non-cancelable
operating leases that expire in various years through 2001. Rental expenses were
$830,000 in 1996,  $727,000 in 1995,  and  $564,000  in 1994.  Equipment  leases
totaled $1,259,000 in 1996, $1,077,000 in 1995, and 641,000 in 1994.

     Future payments under non-cancelable operating leases with initial terms of
one year or more consisted of the following at December 31, 1996 (in thousands):

                    1997                                 $1,518
                    1998                                    990
                    1999                                    268
                    2000                                    163
                    2001                                     65
                    -------------------------------------------
                    Total lease payments                 $3,004
                    ===========================================
                                              
13.  Treasury Stock

On March 9, 1995,  June 22, 1995,  and July 31,  1996,  the  Company's  Board of
Directors  approved the purchase of up to 150,000 shares of Class A Common stock
for its  Treasury  at  dates  and  market  prices  determined  by the  Company's
Chairman. As of December 31, 1996, 101,155 shares had been repurchased at prices
between $7.25 and $9.625 per share for a total of $843,215. In addition to these
purchases, the 22,660 shares tendered to the Company as a result of the exercise
of warrants (see Footnote 7) were placed in the Treasury at a value of $189,778.
On December 15, 1995, the Company's  Board of Directors  approved the repurchase
of 66,228  shares from a prior officer of the Company at a market price of $8.00
per share  totaling  $529,824.  In addition,  in February of 1996,  Morgan Drive
Away's  President and Chief Executive  Officer  purchased 70,000 shares of stock
from Treasury stock at the then current market value of $560,000.


<PAGE>

14.  Acquisitions

Effective May 22, 1995, the Company purchased the assets of TDI, a market leader
in the fragmented  outsourcing  services  business for a total purchase price of
$2,725,000.  The acquisition was financed through a payment of $1,000,000 on May
11,  1995,  with the balance of  $1,725,000  financed  with the seller over five
years with the  payments  beginning  August 10, 1996.  The present  value of the
acquisition  was  $2,462,000,  $75,000 of which related to the operating  assets
purchased and $2,387,000 to the purchase of intangible assets. In addition,  the
Company  entered into a consulting  agreement  with two of the principals of the
seller,  pursuant to which the principals agreed to provide consulting  services
to the Company  for  sixty-three  months for  consideration  totaling  $202,500,
payable over the consulting  period.  The book value of the  promissory  note in
this  transaction  was $1,154,000 at December 31, 1996.  

Effective  December 30, 1996, the Company  purchased the assets of Transit Homes
of America,  Inc.,  a provider  of  outsourcing  transportation  services to the
manufactured housing industry. The aggregate purchase price was $4,372,000 which
includes the cost of the acquisition and certain limited  liabilities assumed as
part of the  acquisition.  The acquisition was financed  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 $400,000,  $300,000,  and $200,000 in years 1997, 1998, and 1999,
respectively,  and  $100,000 in each of the years 2000 and 2001.  The  incentive
payments  are based  upon  achieving  certain  profit  levels  in the  Company's
Manufactured  Housing  Group and will be  treated  as  compensation  expense  if
earned.  The  excess  purchase  price over  assets  acquired  was  approximately
$3,988,000  and is being  amortized  over twenty years.  In connection  with the
acquisition, liabilities assumed were as follows:

        Fair value of assets acquired                $ 350,000 
        Goodwill acquired                            4,022,000
        Cash paid December 30, 1996                   (895,000) 
        Note issued due January 2, 1997               (697,000)
        Note issued at acquisition date             (1,158,000) 
        ------------------------------------------------------
        Liabilities assumed                        $ 1,622,000
        ======================================================


<PAGE>

     The following  unaudited pro forma condensed combined results of operations
of Transit and the Company have been prepared as if the  acquisition  of Transit
had occurred at the beginning of 1995.  The  following  table  incorporates  the
special charges of $3,500,000  ($2,100,000  after tax or $.78 per share) related
to exiting the  truckaway  operation  and write down of properties in accordance
with SFAS No. 121 (See Note 16):

                                      Pro Forma Years Ended
                                  Dec. 31                Dec. 31
                                   1996                    1995
------------------------------------------------------------------
                                     (Dollars in thousands   
                                     except per share data)
Net Sales                         $162,000               $154,000
Operating income (loss)             (2,510)                 3,600
Net income (loss)                   (1,625)                 2,200
Net income (loss) per share           (.61)                   .77

     The pro forma  consolidated  results  do not  purport to be  indicative  of
results  that would have  occurred  had the  acquisition  been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future.

15.  Contingencies

The Company  has  general  liabilities  claims  pending,  incurred 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.

     On August  4,  1995,  Finance  entered  into a  Commercial  Paper  Purchase
Agreement with a lender  whereby the lender has provided an equipment  financing
facility for Morgans independent contractors. Under the Agreement, Finance has a
limited  guarantee of twenty five percent (25%) of the original  amount financed
on each loan  purchased.  As of  December  31,  1996,  the lender  had  extended
$238,000 of financing and Finance had limited guarantees outstanding of $59,500.

16.  Special Charges

In the  fourth  quarter  of  1996,  the  Company  recorded  special  charges  of
$2,675,000  ($1,605,000 after tax or $.60 per share) associated with exiting the
truckaway operation. The special charges comprise 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.

     In addition, the Company is in the process of selling four properties,  two
of which are associated with the exiting of the truckaway operation. The Company
has  recognized an  adjustment to the extent the carrying  value of the affected
assets (which was  $2,200,000  as of December 31,  1996),  exceeds the estimated
realizable  value (which was  estimated at  $1,375,000 as of December 31, 1996).
Accordingly, an adjustment of $825,000 ($495,000 net of taxes or $.18 per share)
is included as special  charges.  The truckaway  operation had revenues of $12.9
million and $14.4 million,  and operating losses of  approximately  $1.8 million
and $1.2 million for the years ended December 31, 1996, and 1995,  respectively.
In addition,  truckaway had revenues of $20.6  million and  operating  income of
$1.2 million in 1994.
<PAGE>

17.  Operating Costs and Expenses (in thousands)

                                         1996            1995            1994
--------------------------------------------------------------------------------
Purchased transportation costs        $ 92,037        $ 84,314        $ 70,137
Operating taxes and licenses             6,460           6,052           4,269
Insurance                                3,502           4,000           3,064
Claims                                   6,080           4,797           4,761
Dispatch costs                           7,676           6,637           5,896
Regional costs                           2,948           2,492           2,141
Repairs and maintenance                    918             770             799
TDI, Inc.                                1,356             823              --
Other                                    1,261             523             174
--------------------------------------------------------------------------------
                                      $122,238        $110,408        $ 91,241
================================================================================
                                                                
The following is a summary of the unaudited  quarterly results of operations for
the years ended  December 31,  1996,  and 1995 (in  thousands,  except per share
data):
                                              1996--Three Months Ended
--------------------------------------------------------------------------------
                             March 31        June 30       Sept. 30     Dec. 31
--------------------------------------------------------------------------------
Operating revenues            $30,506        $36,698       $35,305      $29,699
Operating income (loss)           (48)           678           788       (4,681)
Net income (loss)                   9            417           495       (2,991)
Earnings (loss) per share                                              
        Primary                   ---            .15           .18        (1.11)
        Fully diluted         $   ---           $.15          $.18      $ (1.11)
                                                                     
                                              1995--Three Months Ended
--------------------------------------------------------------------------------
                             March 31        June 30       Sept. 30     Dec. 31
--------------------------------------------------------------------------------
Operating revenues            $26,803       $31,554         $33,251     $30,695
Operating income (loss)           737         1,242           1,103         289
Net income                        463           764             814         228
Earnings per share                                       
        Primary                   .15           .27             .29         .07
        Fully diluted         $   .15       $   .27         $   .29     $   .07
                                                       
     In the fourth  quarter of 1996,  the Company  recorded  special  charges of
$3,500,000  ($2,100,000  after  taxes or $.78 per share)  related to exiting the
truckaway  operation and a write down of properties in accordance  with SFAS No.
121. In addition, in the fourth quarter, the Company recorded $750,000 ($.17 per
share) of increased  insurance reserves and insurance costs primarily related to
1996 accidents.

     In the fourth quarter of 1995,  the Company  recorded  $300,000  ($0.08 per
share) of  insurance  costs  after beng  notified  of a  significant  jury award
against the Company. This charge reflects the uninsured portion of the award.

<PAGE>

                         Report of Independent Auditors



Board of Directors
The Morgan Group, Inc.

We have audited the accompanying consolidated balance sheet of The Morgan Group,
Inc. and  subsidiaries  as of December 31,  1996,  and the related  consolidated
statements of operations,  changes in redeemable  preferred stock,  common stock
and other  shareholders'  equity,  and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 audit provides 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  at December 31, 1996,  and the  consolidated  results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

                                                           /s/ Ernst & Young LLP

Greensboro, North Carolina
March 27, 1997

<PAGE>

The Board of Directors, The Morgan Group, Inc.

We have audited the  accompanying  balance  sheets of The Morgan Group,  Inc. (A
Delaware Corporation) and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated  statements of operations,  changes in redeemable preferred
stock,  Common stock and other shareholders  equity and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

     We conducted  our audit 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 audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of The Morgan Group, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of its operations
and cash flows for the years then ended in conformity  with  generally  accepted
accounting principles.


                                             /s/ Arthur Andersen LLP
Chicago, Illinois
February 5, 1996


<PAGE>

PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a)      List the following documents filed as part of the report:

                                                             
        Financial Statements Included in Item 8.

        Consolidated Balance Sheets
        Consolidated Statements of Operations
        Consolidated Statements of Cash Flows
        Consolidated Statements of Change in 
        Redeemable Preferred Stock, Common Stock 
        and Other Shareholders Equity

        Notes to Consolidated Financial Statements
        Reports of Independent Auditors

b)      Reports on Form 8-K
        Registrant filed no reports on Form 8-K  
        during  the  quarter  ending
        December 31, 1996.

c)      The exhibits filed herewith or incorporated 
        by reference herein are set forth on the Exhibit 
        Index on page E-1 (page following signature page 
        of original filing)



<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:  April 2, 1997             BY:     /s/ Richard B. DeBoer
                                          -------------------------------------
                                          Richard B. DeBoer, Vice President and
                                          Chief Financial Officer