SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934 For
                     the fiscal year ended December 31, 1998
                                       or
 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

                        Commission file number: 000-18601

                               TRANSIT GROUP, INC.
                 (Name of small business issuer in its charter)


     State of Florida                                59-2576629
-------------------------------            ----------------------------------
 (State or other jurisdiction of
 incorporation or organization)            (I.R.S. Employer Identification No.)

 2859 Paces Ferry Road, Suite 1740, Atlanta, GA            30339
 ----------------------------------------------            -----
 (Address of principal executive offices)                (Zip Code)

          Issuer's telephone number including area code: (770) 444-0240

           Securities registered pursuant to Section 12(g) of the Act:
  Title of Each Class                  Name of Exchange on which registered

Common Stock                                  NASDAQ SmallCap Market
Warrants                                      NASDAQ SmallCap MArket
(two warrants entitle the holder to
purchase at a price of $7.50 per share,
one share of common stock)


Check whether  issuer (1) has filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  and 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 __

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this form 10-KSB.[ ]

Issuer's revenues for the year ended December 31, 1998: $177,552,961

The aggregate market value of the voting common stock held by the non-affiliates
of the registrant was  $117,210,000  based on the closing sale price reported on
March 26, 1999.

There were  26,046,682  shares of the Company's  common stock  outstanding as of
March 26, 1999.

Transitional Small Business Disclosure Format (Check one):  Yes       No  X

Documents  Incorporated  by Reference:  Portions of the Proxy  Statement for the
Registrant's  1999 Annual Meeting of Shareholders  are incorporated by reference
into Part III.
<PAGE>
                                     PART I

Item 1. BUSINESS

Introduction

Transit Group, Inc. ("TGI" or the "Company") is a holding company  concentrating
on the acquisition, consolidation, and operation of short and long haul trucking
companies.  The Company  believes  that many of these  smaller  companies  would
benefit from an affiliation with a larger  organization  such as TGI in order to
realize  certain  operating  efficiencies  as well as realize  the full value of
their company.

Forward-Looking Statement

This Annual Report on Form 10-K contains certain forward-looking  statements, as
defined in the Private  Securities  Litigation Reform Act of 1995,  including or
related  to our future  results  (including  certain  projections  and  business
trends).

These and other statements, which are not historical facts, are based largely on
current  expectations  and assumptions of management and are subject to a number
of risks and uncertainties  that could cause actual results to differ materially
from those contemplated by such forward-looking statements.  Assumptions related
to  forward-looking  statements  include that we will continue to be competitive
and that our acquisition strategy will remain successful and that we will retain
key personnel and that competitive conditions within our markets will not change
materially or adversely.

Assumptions  relating  to  forward-looking  statements  involve  judgments  with
respect  to,  among  other  things,  future  economic,  competitive  and  market
conditions  and  future  business  decisions,  all of  which  are  difficult  or
impossible to predict accurately and many of which are beyond our control.  When
used in this Annual  Report,  the words  "estimate,"  "project,"  "intend,"  and
"expect"  and similar  expressions  are  intended  to  identify  forward-looking
statements.  Although we believe that assumptions underlying the forward-looking
statements are reasonable,  any of the assumptions  could prove  inaccurate and,
therefore,  there  can be no  assurance  that the  results  contemplated  in the
forward-looking   information  will  be  realized.   Management   decisions  are
subjective  in many respects and  susceptible  to  interpretations  and periodic
revisions based on actual  experience and business  developments,  the impact of
which may cause us to alter our business  strategy or capital  expenditure plans
which  may,  in  turn,  affect  our  results  of  operations.  In  light  of the
significant  uncertainties inherent in the forward-looking  information included
herein,  the  inclusion  of  such  information  should  not be  regarded  as our
representation  that any  strategy,  objectives or other plans will be achieved.
The forward-looking  statements contained in this Annual Report speak only as of
the date of this Annual  Report,  and we do not have any  obligation to publicly
update or revise any of these  forward-looking  statements.  Any forward looking
statements  should be read in  conjunction  with the risk  factors  contained in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" on page 10 herein.

Industry Overview

The  trucking  industry can be divided  into four  general  categories:  Package
Delivery,  Less-than-Load,  Household Goods, and Truckload  ("TL").  The Company
operates in the TL segment of the trucking industry,  which is highly fragmented
with over 300,000 companies.

Over the past several years the following trends have evolved in the TL segment:

       -   Shippers  are  limiting  the number of  carriers  to larger  more
           efficient trucking companies who can provide a consistent level of
           service at a competitive price.

       -   Companies  are  outsourcing  their  shipping  needs  to  trucking
           companies who can offer a full range of logistic services.

       -   The  advent  of  just-in-time   inventory  systems  has  demanded
           significant levels of technology to provide reliable time-definite
           service.

The Company  believes  that its size,  range of services  offered and  continued
growth will enable it to take advantage of these trends in the TL segment of the
trucking industry. Based on industry statistics,  management believes that it is
the ninth largest truckload carrier in North America.
<PAGE>
History and Development

Transit  Group,  Inc.  was  incorporated  on August 28,  1985 as General  Parcel
Service,  Inc., a Florida  corporation  engaged in the parcel delivery business.
The Company began operations in Jacksonville, Florida and expanded into Georgia,
North Carolina and South Carolina. Due to unprofitable  operations,  the Company
ceased parcel delivery in March 1997.

In January 1997, TGI was reorganized into a holding company  structure and began
the acquisition of mid-size short and long haul trucking companies.  The Company
acquired 11 companies during the period from July 1997 through December 1998 and
three additional companies during the first quarter of 1999.

Acquisitions

The Company is building a national  trucking  company by  acquiring TL carriers,
which  meet  certain  criteria.  Initially,  the  Company's  primary  source  of
acquisition candidates was brokers. Currently, the primary source of acquisition
candidates is through referrals.

The Company  seeks to  identify  for  acquisition  trucking  companies  with the
following attributes:

     -    Profitable
     -    Revenues in excess of $10 million
     -    Strong market position
     -    Sound  management  with key personnel  committed to the Company's
          strategy
     -    Commitment to a high level of quality and service

The Company's  expansion  plans are dependent  upon the  availability  of, among
other things,  suitable acquisition  candidates,  adequate financing,  qualified
personnel, and TGI's future operations and financial condition. When identified,
a  potential  candidate  is  evaluated  on its  ability  to open new  lanes  and
geographic areas or its capacity to exploit  existing  markets,  customers,  and
lanes.

If it is  determined  that  the  candidate  will be a "fit,"  certain  financial
screens are utilized to further evaluate potential acquisitions. The Company has
sought to acquire  companies  principally  on a multiple  of pre-tax  income and
EBITDA (earnings before interest, taxes, depreciation, and amortization.) If the
target  passes  these  screens,   the  Company  will  perform  its  operational,
financial, legal, and environmental due diligence procedures. Depending upon the
complexity  of the  organization  and time devoted to  negotiating  the purchase
price, it can take from three to six months to consummate an acquisition.

The Company has acquired the following 14 companies since July 1997.


                                                            Date
           Company                                        Acquired
-----------------------------------                       --------
Carolina Pacific Distributors, Inc.                       07/11/97
Service Express, Inc. (1)                                 08/16/97
Capitol Warehouse, Inc.                                   08/16/97
Carroll Fulmer Group, Inc. (2)                            08/30/97
Rainbow Trucking, Inc. (3)                                12/30/97
Transportation Resources and Management, Inc.  (4)        01/31/98
Certified Transport, Inc. (5)                             05/05/98
KJ Transportation, Inc.                                   06/17/98
Network Transportation, Inc.                              07/13/98
Diversified Trucking, Inc.                                08/05/98
Northstar Transportation, Inc.                            08/11/98
Priority Transportation, Inc.                             01/19/99
Massengill Trucking Service, Inc.                         03/03/99
KAT, Inc.                                                 03/22/99

(1)      In connection  with the  acquisition  of Service  Express,  the Company
         granted the selling shareholders the right, through August 15, 1998, to
         require  the  Company to redeem  $1.8  million of the shares  that they
         received.  Through December 31, 1998, these  shareholders  sold certain
         shares in a private  transaction  for a price of $0.4  million.  In the
         first quarter of 1999, the shareholders  sold a portion of these shares
         to a third party and the Company  acquired the remaining  shares for an
         aggregate price of $1.4 million.
<PAGE>
(2)      In  connection  with the  acquisition  of Carroll  Fulmer,  the Company
         granted the selling  shareholders  the right to require that either the
         Company redeem or a major shareholder of the Company acquire up to $6.0
         million of stock at a price of $3.60 per share. These redemption rights
         expire  August 29, 2003.  Through  December  31, 1998,  the Company has
         redeemed   $75,000  in  stock  from  a  selling   shareholder  and  the
         shareholders   have  sold   shares  in  a   private   transaction   for
         approximately  $2.25 million,  thereby reducing the Company's remaining
         obligation to approximately $3.675 million.
(3)      The  Company  has made loans to  certain  selling  shareholders  in the
         aggregate  amount of $675,000,  which are due on June 30, 1999.  If the
         average  closing price per share of the Company's  common stock for the
         period  June 23,  1999  through  June 29,  1999 is less than $6.625 per
         share,  the notes shall be  non-recourse  to such extent and the debtor
         shall not be  personally  liable for such  deficiency,  but the Company
         shall  be  entitled  to a  return  of a  proportionate  amount  of  the
         Company's stock.
(4)      A $0.2 million  recourse  loan,  due April 30,  1999,  was made to a 
         selling shareholder. 
(5)      A $0.4 million recourse loan, due November 4, 1999 was made to a 
         selling shareholder.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Operations

The Company's  business  operations  are divided  between the  corporate  office
located in Atlanta,  Georgia and its  operating  divisions  and  locations.  The
corporate  office is  responsible  for the overall  direction  of the  Company's
operations,   information  systems,   finance,  banking,  human  resources,  and
financial reporting.

Carolina  Pacific  Distributors  ("Carolina  Pacific")  -  Founded  in 1977  and
headquartered in High Point,  North Carolina,  Carolina Pacific provides dry van
and refrigerated  transportation services between major markets in the Carolinas
and  the  West  Coast.   Carolina  Pacific   transports  a  variety  of  general
commodities,  including  textiles and  tobacco,  and serves as a carrier for the
produce industry.

Service  Express  ("Service  Express") - Service  Express,  founded in 1963,  is
headquartered in Tuscaloosa,  Alabama. Service Express operates primarily in the
Southeastern  United  States and  transports  a variety of general  commodities,
including paper, resins, magnetic tapes and chemicals.

Transit Leasing,  formerly known as Capitol  Warehouse  ("Capitol  Warehouse") -
Located  in  Louisville,  Kentucky,  Transit  Leasing  operated  both a trucking
segment and a warehousing  segment.  During fiscal 1998 the trucking  operations
were  merged  into  those of Rainbow  Trucking  (see  below)  and the  warehouse
component was phased out and terminated on March 15, 1999.

Carroll  Fulmer  Group  ("Carroll   Fulmer")  -  Carroll  Fulmer  is  a  general
commodities hauler headquartered in Groveland,  Florida. Carroll Fulmer operates
primarily  through  19 agent  offices.  Approximately  45% of its  revenues  are
generated through brokerage  operations and the balance through  owner/operators
and company  owned  equipment.  Carroll  Fulmer  transports,  among other items,
beverages, household goods and foodstuffs.

Rainbow Trucking Services, Inc. ("Rainbow") - Rainbow was founded in 1982 and is
headquartered in Louisville,  Kentucky.  During 1998, the trucking operations of
Capitol Warehouse,  Hawks Enterprises and T.W. Transport,  Inc. were merged into
Rainbow.  Rainbow  transports  a wide  range of general  commodities,  including
plastics, paper and glass throughout the United States.

Transportation  Resources  and  Management  ("TRM")  - Founded  in 1979,  TRM is
headquartered  in Fort Wayne,  Indiana.  TRM  operates  primarily in the Midwest
(Northern Indiana, Ohio, Illinois, Michigan) and transports a variety of general
commodities, including copper wire and carpet padding.

Certified  Transport  ("Certified") - Headquartered  in  Indianapolis,  Indiana,
Certified  began  operations  in 1991.  Certified's  lanes are  primarily in the
Midwest and Canada.  Certified maintains a logistics division in addition to its
trucking  operation,  which  services  the  automotive,  wrapping  and air cargo
industries.
<PAGE>
KJ  Transportation  ("KJ") - KJ is located in Farmington,  New York. KJ operates
several divisions including, a brokerage division, which generates approximately
29% of their revenue,  and a trucking  division,  which can be divided between a
dry van and a refrigerated division. A maintenance division,  which services the
equipment of certain  Transit Group companies in addition to third parties and a
truck leasing operation,  are conducted through J&L Truck Leasing of Farmington,
Inc. The trucking division operates throughout the U.S. with primary lanes from
the  Northeast to the  Southeast  and from the  Northeast to the West Coast.  KJ
transports a variety of  commodities  with  particular  emphasis in the food and
beverage industries.

Network Transportation ("Network") - Network was the Company's first acquisition
outside the U.S. Network operates a fleet of dry van and refrigerated units and
services the food  industry  primarily in the Toronto - Montreal  corridor  with
limited service to the Northern U.S.

Diversified  Trucking  ("Diversified")  -  Diversified  operates out of Opelika,
Alabama and is a carrier for the apparel, paper and consumer goods industries.

Northstar  Transportation  ("Northstar") - Northstar is headquartered in Dothan,
Alabama. Northstar services the food, paper, and industrial products industries.
Northstar is the third company acquired by the Company in Alabama.

Priority Transportation,  Inc. ("Priority") - Priority,  located in northeastern
Mississippi,  was  acquired in January  1999 and is a carrier  for the  consumer
electronics,  paper, and paint industries. Priority also maintains warehouse and
cross dock facilities for its customers.

Massengill  Trucking Service,  Inc.  ("Massengill") - Massengill was acquired in
March  1999.  Organized  in 1950,  Massengill  is a  carrier  for the  furniture
industry, servicing the Midwest and Northeast.

KAT, Inc.  ("KAT") - Headquartered in Chesterton,  Indiana,  KAT was acquired in
March 1999.  Approximately  65% of its revenue is derived from its  refrigerated
division.  KAT's primary operational area is east/west from Denver,  Colorado to
upstate New York. KAT is a carrier for the food industry.

Effective  January 1, 1999, all of the  subsidiaries  acquired in 1997 and 1998,
with the exception of Rainbow,  Carroll Fulmer & Co., Inc. (a former  subsidiary
of Carroll  Fulmer Group),  J&L Truck Leasing of Farmington,  Inc., and Network,
were merged into a newly formed wholly-owned  subsidiary of Transit Group, Inc.,
named Transit Group  Transportation,  LLC ("TGT").  The Company anticipates that
the merger of these  entities into one operating  subsidiary  will reduce legal,
accounting  and  permitting  costs,  as  well  as  facilitate  access  to  fleet
information,  which may  enhance  revenue  per mile and reduce  deadhead  miles.
Furthermore,  the Company anticipates that Rainbow,  Massengill, and KAT will be
merged  into  TGT in the  second  half of  1999.  The  operations  of  Priority,
purchased in January 1999, have been transferred to TGT.


Information Technology

Operations Software.  The Company is in the process of converting its operations
to a  single  software  platform.  Approximately  50%  of  the  operations  were
converted during 1998, with completion for the remaining divisions scheduled for
the second half of 1999.  Priority and KAT already utilize the same software and
will not require a major conversion.

It is  anticipated  that by the end of 1999 TGI's  divisions  will be  operating
under a common billing,  dispatch,  settlement, and fleet monitoring system. The
Company  believes  a  common  operating  system  will  further  facilitate  load
matching, enhance equipment utilization, and increase revenue per mile.

Communications.  The Company is committed to installing satellite communications
and  monitoring  equipment  throughout  its fleet during 1999.  During 1998, the
Company  agreed to acquire  3,000 units from a leading  communications  software
vendor  in  the  transportation  industry  over a  three-year  period.  To  date
approximately 88% of the Company's trucks are utilizing  communication software.
Communication between dispatch and drivers is required by many national shipping
customers and is anticipated to maximize driver efficiency.

Web Site. A  company-wide  web site is  currently  being built for TGI. The site
will offer traditional information such as Company background, services offered,
and financial  information.  In addition,  the site will allow customers,  after
meeting   certain   security   criteria,   to  interface   with  the   Company's
communications  software to  determine  the  location  and arrival time of their
shipment.  The Company's web site will significantly enhance customer service by
allowing real-time access 24 hours a day to a customer's shipments.
<PAGE>
Corporate Services

The Company's  operations,  sales,  marketing,  dispatch,  customer service, and
customer  relations  functions  operate on a  decentralized  basis.  The Company
periodically  holds meetings for its various  departments in order to share best
practices and explore business opportunities.

Accounting,   legal,  financial  reporting,  banking,  fleet  purchasing,  fleet
maintenance, cash management, risk management, and human resource functions have
been  and/or  continue  to be  consolidated  in the  recently  formed  Corporate
Services Division of TGT. By consolidating these functions, the Company believes
it can reduce legal, accounting, tax, insurance and equipment costs.

Fleet Summary

The Company has a policy to trade-in  power units on a 3-4 year cycle (400,000 -
500,000  miles) and  trailers  approximately  every 8 years.  A summary of TGI's
fleet is as follows (number of units):

                                                December 31,
                              -----------------------------------------------
                                     1998                       1997
                              ---------------------       -------------------

 Company Trucks                     1,401                        434
 Owner/Operators                      566                        291
                              ---------------------       -------------------

      Total Power Units             1,967                        725
                              =====================       ===================

 Trailers                           3,921                      1,150
                              =====================       ===================


Debt Conversion

In May 1997, the Company agreed to a debt-for-equity conversion that reduced the
Company's  long-term  debt.  T. Wayne  Davis,  Chairman  of the  Board,  and his
affiliates assumed  approximately $4.7 million of the Company's debt in exchange
for 2.7 million shares of the Company's  common stock.  In May 1997, the Company
also  received a capital  infusion of  approximately  $1.2  million from Messrs.
Davis and Belyew in exchange for the issuance of an aggregate of 687,000  shares
of restricted common stock of the Company.

Discontinued Operations

In December 1997, the Company sold the parcel delivery business to a corporation
controlled by affiliates of the Company's  Chairman.  In this  transaction,  the
buyer assumed  liabilities of approximately $4.0 million in excess of assets. To
compensate for the excess  liabilities  assumed by the buyer, the Company issued
876,569 shares of restricted common stock to the buyer.

Competition

The trucking industry is highly  competitive and subject to pressures from major
business cycles.  Management  believes that competition in the trucking industry
is based primarily on service and efficiency, and to a lesser extent, prices.

The  shipping   requirements   of   "just-in-time"   inventory   systems  demand
geographically  diverse  trucking  companies  with  well-developed  tracking and
dispatching  information  systems.  The Company  anticipates  that the  trucking
industry will continue to consolidate and remain extremely  competitive for both
customers and qualified  personnel.  Management believes that TGI's current size
and  anticipated  growth  will  allow  it to  participate  in the  consolidating
trucking industry.  However,  there is significant disparity in the revenues and
financial resources of the largest trucking companies compared with those of the
Company, and there is no assurance that the Company can continue to maintain its
growth.

The Company competes with trucking  companies located in the market areas served
by its divisions. Management believes that there is not a dominant competitor in
the trucking industry that competes directly with the Company.
<PAGE>
Potential Liability

Potential liability associated with accidents in the trucking industry is severe
and occurrences are  unpredictable.  The industry is also subject to substantial
workers'  compensation expense. A material increase in the frequency or severity
of accidents,  workers'  compensation  claims, or an unfavorable  development of
existing  claims can be expected to  adversely  affect the  Company's  operating
income.  Management  believes that the Company has insurance coverage sufficient
to cover most expected losses.

Marketing

The  Company  markets its  services  through its own sales force and a developed
network of brokers and agents operating throughout the United States.

Regulation

Prior to 1995, the Company was regulated by the Interstate  Commerce  Commission
("ICC"). Effective January 1, 1995, the ICC was eliminated and substantially all
of its key  functions  were  transferred  to the  Department  of  Transportation
("DOT").  The DOT governs such activities as drug and alcohol testing,  hours of
service, rates, insurance, reporting, and accounting systems.

The Company is also subject to the regulations  promulgated by the Environmental
Protection Agency and similar state regulatory agencies regarding  environmental
laws and regulations.  These agencies address matters  concerning the management
of hazardous  wastes,  the discharge of pollutants  into the air,  surface,  and
underground waters, and the disposal of certain substances. Violation of certain
applicable laws and regulations could result in clean-up costs, property damage,
and other fines or penalties.  Management  believes that its  operations  are in
material compliance with current laws and regulations.

Employees

The Company and its subsidiaries employ approximately 2,000 employees,  of which
approximately 1,400 are drivers, 130 work in various garage facilities,  and 470
work in administrative  and operational  capacities at the divisional  locations
and in the  corporate  office.  None of the  Company's  employees are covered by
collective bargaining agreements, and the Company believes that its relationship
with its employees is satisfactory.

Item 2. PROPERTIES

The Company has operations at the following locations:

                                                              Lease/
                       Location                                 Own
         -------------------------------------          --------------------

         High Point, North Carolina                            Lease
         Louisville, Kentucky                                  Lease
         Tuscaloosa, Alabama                                   Lease
         Groveland, Florida                                     Own
         Fort Wayne, Indiana                                   Lease
         Indianapolis, Indiana(1)                              Lease
         Farmington, New York                                  Lease
         Mississauga, Canada                                   Lease
         Opelika, Alabama                                      Lease
         Dothan, Alabama                                       Lease
         Olive Branch, Mississippi(1)                          Lease
         Hickory Flat, Mississippi                              Own
         Chesterton, Indiana                                   Lease

(1) Includes warehouse facilities.

The Company  believes  that its  facilities  are adequate and suitable for their
respective uses.

Item 3. LEGAL PROCEEDINGS

Neither the Company nor its  subsidiaries or divisions is subject to any pending
legal  proceedings  other than  routine  litigation  that is  incidental  to its
business.

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

None
<PAGE>
                                     PART II

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

The  Company's  common stock is traded on the NASDAQ  SmallCap  Market under the
trading  symbol  "TRGP." The  Company's  warrants  are also traded on the NASDAQ
SmallCap  Market,  under the trading symbol "TRGPW." As of March 26, 1999, there
were 406  shareholders  of record of the common stock and 13 warrant  holders of
record,  not including  individuals and entities  holding shares in street name.
The closing sale price for the  Company's  common  stock on March 26, 1999,  was
$4.50, and the closing price of the Company's warrants was $1.44.

The quarterly high and low closing bid prices of the Company's  common stock are
shown below:

                       Market Price of Common Stock - TRGP

                1999(1)                   1998                     1997
          ------------------       ------------------       ------------------
Quarter     High       Low           High       Low            High      Low

First      $5.250    $4.000         $6.500    $5.000          $5.000    $2.750
Second       ----      ----          8.000     5.875           5.250     1.625
Third        ----      ----          7.875     3.250           7.625     5.000
Fourth       ----      ----          6.000     3.125           7.500     6.000

(1)      For 1999 includes through March 26, 1999.

The  quarterly  high and low closing bid prices of the  Company's  warrants  are
shown below:

                        Market Price of Warrants - TRGPW

                1999(1)                   1998                     1997
          ------------------       ------------------       ------------------
Quarter     High       Low           High       Low            High      Low

First      $1.625    $1.438         $2.500    $1.625          $1.125    $ .750
Second       ----      ----          1.750     1.500           1.375      .813
Third        ----      ----          1.688     1.563           1.875     1.375
Fourth       ----      ----          1.563     1.563           2.125     1.875

(1)      For 1999 includes through March 26, 1999.

The  Company  has not  declared  any  dividends  and does not expect to pay cash
dividends in the foreseeable  future.  Future dividend policy will be determined
by the  Company's  Board of Directors  based on the  conditions  then  existing,
including the Company's financial condition,  capital  requirements,  cash flow,
profitably,  business outlook,  general economic conditions,  and other factors.
The Company's Board of Directors  currently  anticipates  retaining  earnings to
provide funds for the operation and expansion of the Company's business.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

The following  discussion  should be read in conjunction  with the  Consolidated
Financial Statements,  including the footnotes, and is qualified in its entirety
by the  foregoing  and  other  more  detailed  financial  information  appearing
elsewhere   herein.   Historical   results  of  operations  and  the  percentage
relationships  among any amounts  included  in the  Consolidated  Statements  of
Operations,  and any trends which may appear to be inferable  therefrom,  should
not be taken as being necessarily  indicative of trends in operations or results
of operations for any future periods.

Comments in this Management's Discussion and Analysis of Financial Condition and
Results of Operations  regarding the Company's business which are not historical
facts are forward-looking statements that involve risks and uncertainties. Among
these risks are the Company is in a highly competitive  business,  has a history
of operating  losses,  and is pursuing a strategy  that relies  primarily on the
completion of acquisitions of companies in the trucking  industry.  There can be
no assurance that in its highly competitive  business  environment,  the Company
will  successfully  improve  its  operating  profitability  or  consummate  such
acquisitions.  Any forward looking statements should be read in conjunction with
the risk factors contained on page 17 herein.

Results of Operations-Historical  Results 1998 vs 1997. The Company discontinued
its general parcel and courier  business  effective June 30, 1997.  Accordingly,
the Company had no revenues from continuing  operations until July 11, 1997 with
the purchase of Carolina  Pacific and such  revenues  continued to increase with
the acquisitions of four additional companies in 1997 and six companies in 1998.
<PAGE>
The following table sets forth items in the Consolidated Statement of Operations
for the year ended  December  31,  1998 and 1997 as a  percentage  of  operating
revenues.

                                                    Percentage of
                                                 Operating Revenues
                                                      December 31,
                                           --------------------------------
                                                 1998            1997
                                           ---------------    -------------
 Total revenues and other income                100.00%        100.00%
                                           ---------------    -------------

 Purchased transportation                        43.58          46.11
 Salaries, wages and benefits                    22.91          21.93
 Fuel                                             7.28           7.65
 Operating supplies and expenses                 12.62           9.63
 Insurance                                        1.60           2.49
 Depreciation and amortization expense            4.23           4.73
 General and administrative expense               2.77           3.41
                                           ---------------    -------------
 Total expenses                                  94.99          95.95
                                           ---------------    -------------

   Operating income                               5.01           4.05
 Interest expense                                 2.43           3.07
                                           ---------------    -------------

   Income before income taxes                     2.58            .98
 Income taxes (benefit)                          (4.01)           .21
                                           ---------------    -------------

   Income from continuing operations              6.59%           .77%
                                           ===============    =============

Total revenues and other income.  Total revenue  increased from $34.0 million in
1997 to $177.6  million,  or 422.0%,  for 1998. The increase is due primarily to
the  acquisition  of six  companies  in 1998 ($93.0  million) and a full year of
revenues for those companies acquired in 1997 ($50.6 million).

Purchased transportation.  Purchased transportation increased from $15.7 million
in 1997 to $77.4 million, or 393.3%. Purchased transportation as a percentage of
total revenues and other income decreased from 46.11% in 1997 to 43.58% in 1998.
Changes in the fleet mix from  brokerage  and  owner-operators  to company owned
trucks as a result of the  acquisitions  resulted  in the  decline  in  purchase
transportation as a percentage of sales.

Salaries,  wages and benefits.  Salaries, wages and benefits increased from $7.5
million  in 1997 to $40.7  million,  or  445.2%,  in 1998.  Salaries,  wages and
benefits as a  percentage  of total  revenues and other  income  increased  from
21.93% in 1997 to 22.91% in 1998. The increase as a percentage of total revenues
and other  income is  attributed  to the change in revenue mix  discussed in the
preceding paragraph as well as continued pressure on driver wages. Should driver
wages  continue to increase as a result of the  industry-wide  driver  shortage,
there can be no assurance that these costs can be passed along through increased
freight rates.

Fuel. Fuel increased from $2.6 million in 1997 to $12.9 million,  or 397.7%,  in
1998.  Fuel as a percentage of total  revenues and other income  decreased  from
7.65% in 1997 to 7.28% in 1998.  Fuel costs as a  percentage  of total  revenues
decreased as a result of lower fuel prices,  the Company's  ability to negotiate
more favorable fuel contracts and improved gas mileage from the purchase of new,
more efficient  equipment.  In the first quarter of 1999,  fuel costs  increased
over recent  levels.  Should fuel costs  continue to  increase,  there can be no
assurance that these costs can be passed along to our customers.

Operating supplies and expenses.  Operating supplies and expenses increased from
$3.3 million in 1997 to $22.4 million,  or 584.2%, in 1998.  Operating  supplies
and expenses as a percentage of total  revenues and other income  increased from
9.63% in 1997 to 12.62% in 1998.  The increase as a percentage of total revenues
and other  income is  attributed  to the change in mix  discussed  above and the
increased use of leased equipment.

Insurance. Insurance expense increased from $.9 million in 1997 to $2.8 million,
or 236.1%,  in 1998.  Insurance  expense as a percentage  of total  revenues and
other income  decreased  from 2.49% in 1997 to 1.60% in 1998.  The decrease as a
percentage of total revenues and other income is due to the Company's ability to
negotiate more  favorable  insurance  rates because of its larger,  more diverse
insurance base.
<PAGE>
Depreciation and  amortization  expense.  Depreciation and amortization  expense
increased  from  $1.6  million  in 1997 to $7.5  million,  or  366.9%,  in 1998.
Depreciation  and  amortization  expense as a percentage  of total  revenues and
other income  decreased  from 4.73% in 1997 to 4.23% in 1998.  The decrease as a
percentage  of total  revenues and other income is due to the  increased  use of
leased equipment.

General and administrative expense. General and administrative expense increased
from $1.2  million in 1997 to $4.9  million,  or 323.5%,  in 1998.  General  and
administrative  expense  as a  percentage  of total  revenues  and other  income
decreased  from 3.41% in 1997 to 2.77% in 1998.  The decrease as a percentage of
total  revenues  and other  income is related to the  ongoing  consolidation  of
certain accounting, finance, and legal administrative functions.

Operating  income.  Operating income increased from $1.4 million in 1997 to $8.9
million, or 545.1%, in 1998.  Operating income as a percentage of total revenues
and other  income  increased  from 4.05% in 1997 to 5.01% in 1998 as a result of
the various factors noted above.

Interest  expense.  Interest expense increased from $1.0 million in 1997 to $4.3
million,  or  312.4%,  in 1998  as a  result  of  increased  borrowings  to fund
acquisitions  offset by more  favorable  interest rates and the increased use of
leased equipment.

Income taxes. Income taxes attributable to continuing  operations decreased from
a  provision  of  $70,665  in 1997 to a benefit  of $7.1  million in 1998 as the
Company recognized the future value of net operating loss carryforwards.

Income  (loss)  to common  shareholders.  Income  (loss) to common  shareholders
increased  from a loss of $12.0  million  in 1997 to income of $11.7  million in
1998  because  of the  various  factors  noted  above and the sale of the parcel
delivery business in 1997.

Income (loss) per diluted  common share.  Income (loss) per diluted common share
increased  from a loss of $1.08 per diluted  common share to income of $0.49 per
diluted common share because of the factors noted above.

Income  (loss) per basic  common  share.  Income  (loss) per basic  common share
increased  from a loss of $1.08  per  basic  common  share to income of $.52 per
basic common share because of the factors noted above.

Weighted  average  number of diluted  common  shares  outstanding.  The weighted
average number of diluted common shares outstanding increased as a result of the
shares issued for the various acquisitions by the Company.

Weighted average number of basic common shares outstanding. The weighted average
number of basic common  shares  outstanding  increased as a result of the shares
issued for the various acquisitions by the Company.

Results of Operations - Unaudited Pro Forma 1998 vs 1997.  Since July 1997,  the
Company has acquired 14 truckload  carriers.  TGI has enabled these companies to
reduce  certain  costs  particularly  in the areas of  insurance,  interest  and
leasing costs, fuel, and redundant overhead.  The Company's strategy is to allow
the acquired companies to focus on marketing,  customer service,  and operations
while  administrative  and  financial  costs are  centralized  in the  Corporate
Services Division of TGT.

The unaudited pro forma financial  information reflects the operations of the 14
acquired  companies  as if they all had been  acquired  on January 1, 1997.  The
following  adjustments  were  made to the  historical  financial  statements  of
acquired companies prior to their acquisition by the Company:

     -   Reduced  depreciation  expense  due to  changes  in  depreciation
         policies and estimated lives;
     -   Amortization of goodwill recorded in connection with the acquisitions;
     -   Additional interest costs for the cash portion of the acquisition
         costs; and
     -   Interest costs of the acquired companies have been adjusted to reflect
         the Company's financing costs.

No  projected  provision  for  cost  reductions  (such as  insurance,  overhead,
purchasing, and fuel) have been reflected in the historical financial statements
of the subsidiaries from January 1, 1997 through the date of acquisition.
<PAGE>
<TABLE>
<CAPTION>
                                Unaudited Pro Forma Combined Results of Operations

                                                        December 31, 1998                   December 31, 1997
                                                 --------------------------------    ---------------------------------
                                                        $                 %                 $                  %
                                                 ----------------    ------------    -----------------    ------------
                                                    (Dollars                             (Dollars
                                                   in thousands)                       in thousands)
<S>                                              <C>                 <C>             <C>                  <C>
Total revenue and other income                   $       296,364       100.00%       $       296,228       100.00%
                                                 ----------------    ------------    -----------------    ------------

Operating expenses                                       259,935        87.71                261,937        88.42
Depreciation and amortization                             13,596         4.59                 14,185         4.79
General and administrative expenses                        7,512         2.53                  8,501         2.87
                                                 ----------------    ------------    -----------------    ------------

Total operating expenses                                 281,043        94.83                284,623        96.08
                                                 ----------------    ------------    -----------------    ------------
   Operating income                                       15,321         5.17                 11,605         3.92
         
Interest expense                                           6,889         2.32                  7,006         2.37
                                                 ----------------    ------------    -----------------    ------------
   Income before income taxes                              8,432         2.85                  4,599         1.55

Income taxes (benefit)                                    (6,271)       (2.11)                   526         0.18
                                                 ----------------    ------------    -----------------    ------------

   Net income                                    $        14,703         4.96%       $         4,073         1.37%
                                                 ================    ============    =================    ============

Income per basic common share                    $           .56                     $           .16
                                                 ================                    =================

Income per diluted common share                  $           .53                     $           .15
                                                 ================                    =================

Weighted average number of basic common
shares outstanding                                    26,381,209                           25,791,743
                                                 ================                    =================

Weighted average number of diluted
common shares outstanding                             27,636,140                           27,147,982
                                                 ================                    =================
</TABLE>
Excluding the impact of the Rainbow/Capitol  merger discussed below,  comparable
unaudited pro forma  revenues  increased by  approximately  $4 million (1.5%) in
1998 compared to 1997.

The Company phased out the warehouse  operations of Capitol Warehouse due to its
marginal  profitability and merged its trucking operations into those of Rainbow
Trucking  during fiscal 1998. The combined  operations had a decrease in revenue
of $3.9 million in  unaudited  pro forma 1998  compared to  unaudited  pro forma
1997.  Despite the revenue decline,  these actions increased pre-tax earnings of
the  Rainbow/Capitol  operation by  approximately  $.4 million in unaudited  pro
forma 1998 compared to 1997.

Operating  expenses decreased from $261.9 million in unaudited pro forma 1997 to
$259.9 million in unaudited pro forma 1998.  Operating  expenses as a percent of
total revenues and other income decreased from 88.73% in 1997 to 87.71% in 1998.
This  decline  reflects  the  impact  of  certain  synergies  including  reduced
insurance and fuel costs.

Depreciation  and  interest  costs have  declined  both in terms of dollars  and
percent of revenue as a result of the Company's  lower cost of capital  compared
to the  acquired  companies  and  emphasis  on leasing  rather  than  purchasing
equipment.

As a  consequence  of merging  certain  operations  and  improving  certain cost
components, the Company's operating ratio has improved on a pro-forma basis from
96.1% in 1997 to 94.8% in 1998.

In 1998,  the Company  recorded a credit to income tax expense to recognize  the
future value of net operating loss carryforwards in the amount of $7.5 million.

Liquidity  and  Capital  Resources.   The  Company's  acquisition  strategy  and
requirements for replacing its revenue  equipment  require  significant  capital
resources.
<PAGE>
In July 1997,  an  affiliate  of the  Company's  Chairman  loaned the Company $4
million to consummate the  acquisition of Carolina  Pacific  Distributors,  Inc.
During August,  September and October of 1997, the affiliate  loaned the Company
an  additional  $2.6  million to fund the  continuing  operations  of the parcel
delivery and courier  operations and fund certain  expenses  associated with the
acquisition  of the  truckload  companies.  Of the $6.6 million  borrowed,  $2.6
million  was  assumed  by the  purchaser  of the  parcel  delivery  and  courier
operations,  leaving a balance of $4 million. The Company repaid $0.5 million in
the fourth  quarter of 1998 and $.5  million in the first  quarter of 1999.  The
loan amortizes at a rate of $1.0 million per year commencing  April,  2000 bears
interest  at a rate of 9.0% and  matures  in April,  2002.  In March  1999,  the
Company  borrowed an  additional  $1 million from an affiliate of the  Company's
Chairman, which bears interest at 10% per annum and is due on June 30, 1999.

In November  1998,  the Company  increased the capacity of its revolving line of
credit with  AmSouth Bank from $20 million to $30  million.  The facility  bears
interest  at a rate of 2.25%  over LIBOR  (5.06% at  December  31,  1998) and is
secured by accounts receivable.  The loan matures on April 1, 2000 at which time
it may be converted to a term facility with final maturity on April 1, 2001. The
revolving credit facility contains covenants which require,  among other things,
net worth,  leverage,  and interest  coverage ratios within specified levels and
contain other  provisions  and covenants  customary in lending  transactions  of
these types.  At December 31, 1998,  $3.1 million was available under the credit
facility.

Concurrent with expanding its credit facility,  the Company converted $5 million
of debt,  which was due in 1999, to a term facility  which  amortizes over seven
years and has a final  maturity in January 2002.  The loan bears interest at the
rate of 2.50%  over  LIBOR  and is  cross-collateralized  with  the $30  million
facility discussed above.

Also in November 1998, the Company  entered into a $50 million  equipment  lease
facility with a commercial  lender. The facility is available to restructure the
financing of certain  existing  equipment  and the  remainder to support  future
equipment  leases.  The terms of the leases will vary from 30-48 months for used
equipment,  and up to 60 months for new  equipment.  Initial  fundings under the
facility  bore  interest at rates  between  5.50% and 6.00%.  Interest  rates on
future fundings will be subject to changes in the 3-year U.S.  Treasury interest
rates. At the expiration of the lease,  the Company may renew the lease,  return
the  equipment  subject to the payment of a Terminal Rate  Adjustment  Clause or
purchase  the  equipment.  At December  31, 1998  approximately  $15 million was
available under this facility.

The  Company  has  recognized  a benefit of $7.5  million in the  current  years
financial  statements for net operating losses because management believes it is
more likely than not that the  benefits  will be  realized.  The Company will be
limited  to in the  amount of net  operating  loss  which can be offset  against
taxable  income in any given year because of  significant  changes in ownership.
Amounts in excess of these  amounts  will be taxed at the  prevailing  corporate
income tax rates.

In 1998,  cash flow from  operating  activities  was $8.4  million  and  capital
expenditures  were $7.1  million  for new trucks and  trailers.  There can be no
assurance that the Company can continue to finance its fleet through  operations
or commercial lenders.

The Company believes that the amounts available from operating cash flows, funds
available  under its credit  facilities and its equipment lease facility will be
sufficient to meet the Company's  expected  operating  needs and planned capital
expenditures for the foreseeable future.

Redemption Rights for Selling  Shareholders in Acquisitions.  In connection with
the acquisitions of Capitol Warehouse,  Service Express, and Carroll Fulmer, the
Company  granted  the selling  shareholders  the right to require the Company to
redeem a portion of the shares which they received in exchange for selling their
businesses  to the  Company.  The dollar  amount of stock  subject to  mandatory
redemption by the Company aggregated approximately $8.1 million upon acquisition
of those companies.

At December 31, 1998,  holders of redemption rights with respect to $3.7 million
of  stock  may  require  either  the  Company  to  redeem  the  stock or a major
shareholder  of the  Company to acquire the stock at a price of $3.60 per share.
Holders of redemption rights with respect to $1.4 million of stock at $3.875 per
share had the right to require the  Company to redeem  their  shares,  which was
guaranteed  by a  major  shareholder.  These  shares  were  either  sold  by the
shareholder or acquired by the Company in the first quarter of 1999. The Company
utilized  approximately  $1.4  million  available  under its credit  facility to
acquire these shares.
<PAGE>
To the extent such redemption rights are exercised, the Company will be required
to fund the cash required to meet its obligations under the redemption rights by
drawing on bank lines which may be  available  to its  subsidiaries,  or to call
upon a  major  shareholder  to  purchase  the  stock  under  such  shareholder's
obligations and guarantees associated with the acquisition contracts.

New Accounting Pronouncements.  In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS
130"),  "Reporting  Comprehensive  Income." SFAS 130  establishes  standards for
reporting and display of  comprehensive  income and its components in a full set
of general-purpose financial statements. The provisions of SFAS 130 were adopted
during the  current  period.  The  Company  has no items of other  comprehensive
income at December 31, 1998.

In June 1997 the FASB  issued SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and Related  Information."  The statement  requires that the Company
report certain  information  if specific  requirements  are met about  operating
segments of the Company including  information about services,  geographic areas
of operation and major customers. Management views the Company as operating in a
single segment.

In June 1998, the FASB issued SFAS 133,  "Accounting for Derivative  Instruments
and Hedging  Activities."  SFAS 133 is effective for all fiscal  quarters of all
fiscal  years  beginning  after  June  15,  1999.  SFAS  133  requires  that all
derivative  instruments be recorded on the balance sheet at fair value.  Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive  income,  depending on whether a derivative is designated as
part of a hedge  transaction  and,  if it is,  depending  on the  type of  hedge
transaction. The accounting for this standard is not expected to have a material
impact on the Company's financial statements.

Year 2000. The Company is aware of the  seriousness  associated  with the issues
related  to the  Year  2000  and  its  potential  impact.  In  response  to this
unprecedented  event,  management believes that it has identified,  outlined and
set forth  actions  that will  upgrade  all  information  technology  ("IT") and
non-information  technology  ("Non-IT") systems that are not Year 2000 compliant
with year 2000  compliant  systems by no later than September  1999.  Currently,
management  estimates that the Company is 90% complete in its efforts to be Year
2000 compliant.

Due to the contractual relationships with current software and hardware vendors,
the majority of the costs associated with Year 2000 compliance have been covered
under the annual  maintenance  fees that the Company  normally  pays.  Since the
majority  of  expenses  are  spread  throughout  the  year,  management  has not
specifically  itemized expenses related to the Year 2000.  Management  estimates
that  the  Company  has  spent  approximately  $200,000  to date  on  Year  2000
compliance  and  estimates  spending an  additional  $100,000  towards Year 2000
compliance during the remainder of 1999.

During  its  review of the  Company's  Year  2000  compliance  plan,  management
realized  that as important as internal  systems are to its mission of Year 2000
compliance,   customers,  vendors  and  community  resources  (utilities,  local
telephone  company,  etc),  represent  a  significant  portion  of the  business
processes as well.  To that end, the Company is asking its critical  partners to
provide to the Company in writing,  their own Year 2000 progress plans. Although
management  cannot  guarantee  the  Company's  compliance,  it will  continue to
monitor  its  progress  during  the  remainder  of 1999  and  refine  plans,  as
information becomes available.

The  Company  has  identified  its  billing,  dispatch,  settlement,  and  fleet
monitoring system as its mission critical internal system that could be affected
by the Year 2000.  The Company  plans to begin  testing the Year 2000  compliant
version of this software in the second quarter of 1999.

The Company has  developed a  contingency  plan that  includes  external  vendor
readiness as well as the possibility of an internal system failure.  If external
vendors are not Year 2000  compliant  by September  1999,  the Company will find
alternate  sources to supply it with  needed  products  and  services  if at all
possible.  If internal  systems  were to fail,  the  Company  will have a manual
system in place to provide the  necessary  business  activities to its customers
until the Company can correct any such failure.

Although the  possibility of failure exists,  management  believes that its Year
2000  efforts  will  be  completed,  and  its  systems  tested  in a  production
environment in accordance with its plan by September 1999.
<PAGE>
Risk Factors

Accumulated Deficit and Recent Losses

The Company has incurred  substantial  operating  losses and cash flow  deficits
since inception.  From September 1985 through December 31, 1998, the Company had
accumulated  a  deficit  from  operating  losses of $18.4  million  and has paid
dividends on its preferred stock of approximately $1.3 million.  The Company has
previously funded its operations from (i) private  placements of preferred stock
(which has been converted to common stock),  (ii) its initial public offering of
November  2, 1989,  and (iii) the sale of  restricted  and  unrestricted  common
shares.  As a result of equity  placements,  dividends  on  preferred  stock and
cumulative  losses,  shareholders'  equity as of December  31,  1998,  was $48.2
million.  There can be no  assurance  that the Company can sustain  consistently
profitable operations or raise additional external capital funding.

Competition

The  trucking  industry is extremely  competitive  and  fragmented.  Some of the
trucking  companies  with which the  Company  competes  have  greater  financial
resources,  own more revenue equipment and carry a larger volume of freight than
the Company. Medium- and long-haul truckload carriers and railroads also provide
competition.  The  Company  also  competes  with other  motor  carriers  for the
services of drivers.

Management of Growth

The Company  completed the  acquisition of 14 operating  companies from June 30,
1997, through March 22, 1999, and may acquire  additional  companies in the near
future.  The growth of the Company's  business and  expansion of operations  has
placed a significant  strain on the Company's  administrative,  operational  and
financial  resources.  The  Company's  recent  growth  has  also  resulted  in a
substantial  increase  in the  number  of its  employees  and the  scope  of its
operations.  Management  believes  that  it  is  successfully  coordinating  the
consolidation  of  its  acquisitions.   However,   the  Company's  inability  to
assimilate  these  newly  acquired  operations  and  support  the  growth of its
business  would have a material  adverse  effect on its financial  condition and
results of operations.

Shares Available for Resale

Some  of  the  Company's  presently  outstanding  Common  Stock  may  be  deemed
"restricted  securities"  and may be sold in  compliance  with Rule 144  adopted
under the 1933 Act.  Sales  under Rule 144 may have a  depressive  effect on the
market price of the Company's Common Stock.

No Intent to Pay Dividends

The Company has not paid any dividends on its Common Stock and intends to follow
a policy of retaining  all of its earnings,  if any, to finance the  development
and expansion of its business.

Continued NASDAQ Listing; Liquidity

The Common Stock currently is listed on the NASDAQ SmallCap Market. There can be
no assurance that the Company will continue to meet the requirements to maintain
its NASDAQ  listing.  If the  Company's  Common  Stock were no longer  quoted on
NASDAQ,  holders  of  Common  Stock  may  have  greater  difficulty  identifying
potential  purchasers  for  their  securities.   This  reduced  liquidity  could
adversely affect the market value of the Common Stock.

Volatility of Stock Price

The market  price of the Common Stock may be  significantly  affected by factors
such as  announcements  of  proposed  acquisitions  by the  Company,  as well as
variations in the Company's  results of operations  and market  conditions.  The
price may also be affected by market  movements  in prices of stocks in general.
There is no assurance that the current market price for the Common Stock will be
maintained.

Control by Principal Shareholders, Directors and Officers

T.  Wayne  Davis,  Chairman  of the  Board of the  Company,  and his  affiliates
currently own a significant number of shares of the voting stock of the Company.
As a result,  he is able to  influence  or  control  substantially  all  matters
requiring  approval of the  Company's  shareholders,  including  the election of
directors.
<PAGE>
Potential Liability

Potential liability associated with accidents in the trucking industry is severe
and occurrences are  unpredictable.  The industry is also subject to substantial
workers'  compensation expense. A material increase in the frequency or severity
of accidents or workers' compensation claims or the unfavorable determination of
existing claims and pending  litigation can be expected to adversely  affect the
Company's operating income and financial condition. Management believes that the
Company has insurance coverage sufficient to cover most expected losses.

Item 7. FINANCIAL STATEMENTS

The information called for by this Item begins on page 29 of this Form 10-K.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE

On February 17, 1997, General Parcel Service, Inc. dismissed Grenadier, Collins,
Mencke & Howard,  LLP and engaged  PriceWaterhouseCoopers  LLP to succeed as its
Independent Accountants. The change in Independent Accountants resulted from the
Registrant's  announced  plans to form an Atlanta based holding company and seek
to acquire other trucking companies.  The auditor's reports for the previous two
fiscal years did not contain  adverse  opinions or disclaimers  of opinion,  nor
were they modified as to uncertainty, audit scope, or accounting principles. The
decision to change  accountants  had been  approved  by the Board of  Directors.
There were no disagreements with Grenadier, Collins, Mencke & Howard, LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.  The Company has  previously  filed a Form 8-K with
respect to this matter.
<PAGE>
PART III

Item 9.  DIRECTORS,  EXECUTIVE OFFICERS,  PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information  regarding  directors  contained under the caption  "Election of
Directors -  Nominees"  in the  Company's  Proxy  Statement  for the 1999 Annual
Meeting of Shareholders is incorporated herein by reference.

The  information  regarding  executive  officers  contained  under the  caption:
"Election of Officers - Executive Officers" in the Company's Proxy Statement for
the 1999 Annual Meeting of Shareholders is incorporated herein by reference.

Item 10. EXECUTIVE COMPENSATION

The information  contained under the caption  "Election of Directors - Executive
Compensation"  in the Company's  Proxy  Statement for the 1999 Annual Meeting of
Shareholders is incorporated herein by reference.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information  contained  under the caption  "Voting  Securities and Principal
Holders  Thereof -  Security  Ownership  of  Certain  Beneficial  Owners" in the
Company's  Proxy  Statement  for the 1999  Annual  Meeting  of  Shareholders  is
incorporated herein by reference.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  contained  under the  caption  "Certain  Transactions"  in the
Company's  Proxy  Statement  for the 1999  Annual  Meeting  of  Shareholders  is
incorporated herein by reference.
<PAGE>

                                     PART IV

Item 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

(a)   Exhibits required by Item 601, Regulation S-B

3.       Articles of Incorporation and By-Laws

         3.1      Articles of  Incorporation,  as  amended,  (incorporated  by
                  reference  from  Exhibit 3.1 to the Registrant's Form S-18,
                  Registration No. 33-30123A).
         3.2      By Laws, as amended and restated,  (incorporated by reference
                  from Exhibit 3.2 to  Registrant's Form S-18, Registration No.
                  33-30123A).
         3.3      Certificate of Amendment to the Articles of  Incorporation  of
                  General   Parcel   Service,   Inc.,   dated   May  14,   1992,
                  (incorporated by reference from Exhibit F to Registrant's 1992
                  Form 10-KSB).
         3.4      Certificate of Amendment to the Articles of  Incorporation  of
                  General  Parcel  Service,   Inc.,  dated  December  29,  1993,
                  (incorporated by reference from Exhibit C to Registrant's 1992
                  Form 10-KSB).
         3.5      Certificate of Amendment to the Articles of  Incorporation  of
                  General   Parcel   Service,   Inc.,   dated   March  5,  1996,
                  (incorporated by reference from Exhibit A to Registrant's Form
                  8-K, dated March 5, 1996).
         3.6      Certificate of Amendment to the Articles of  Incorporation  of
                  General  Parcel  Service,  Inc.,  dated  September  30,  1996,
                  (incorporated by reference from Exhibit A to Registrant's Form
                  8-K, dated September 18, 1996).
         3.7      Certificate of Amendment to the Articles of  Incorporation  of
                  General  Parcel  Service,   Inc.,  dated  December  20,  1996,
                  (incorporated by reference from Exhibit A to Registrant's Form
                  8-K, dated December 20, 1996).

     4. Instruments defining the Rights of Security holders

         4.1      Specimen  Stock  Certificate (incorporated by reference from
                  Exhibit 4.1 to  Registrant's  Form S-18, Registration No.
                  33-30123A).
         4.2      Warrant  granting  stock  purchase  warrants  to J. Ray Gatlin
                  (incorporated   by   reference   from   Exhibit   4.2  to  the
                  Registrant's Form S-18, Registration No. 33-30123A).
         4.3      Warrant  granting  stock  purchase  rights to T.  Wayne  Davis
                  (incorporated  by reference  from Exhibit 4.3 to  Registrant's
                  Form S-18, Registration No. 33-30123A).
         4.4      Warrant  granting  stock  purchase  rights to T.  Wayne  Davis
                  (incorporated  by reference  from Exhibit 4.4 to  Registrant's
                  Form S-18, Registration No. 33-30123A).
         4.5      Warrant  granting  stock  purchase  rights  to Drue B.  Linton
                  (incorporated  by reference  from Exhibit 4.5 to  Registrant's
                  Form S-18, Registration No. 33-30123A).
         4.6      Warrant  granting stock  purchase  rights to Steven C. Koegler
                  (incorporated  by reference  from Exhibit 4.7 to  Registrant's
                  Form S-18, Registration No. 33-30123A).
         4.7      Warrant  granting  stock  purchase  rights  to J.  Ray  Gatlin
                  (incorporated  by reference  from Exhibit 4.8 to  Registrant's
                  Form S-18, Registration No. 33-30123A).
         4.8      Form of Warrant issued  (incorporated  by reference from
                  Exhibit 4.9 to  Registrant's  Form S-18, Registration No.
                  33-30123A).
         4.9      Form of Warrant  between the Company and  American  Transtech,
                  Inc., as Warrant Agent (incorporated by reference from Exhibit
                  4.10 to Registrant's Form S-18, Registration No.
                  33-30123A).
         4.10     Preferred   Stock   Purchase   Agreement  and  specimen  stock
                  certificate   between   the   Company   and  T.  Wayne   Davis
                  (incorporated by reference from Exhibit Z to Registrant's 1993
                  Form 8-K).

    10.  Material Contracts

         10.1     Incentive Stock Option Plan  (incorporated  by reference from
                  Exhibit 10.2 to  Registrant's  Form S-18, Registration No.
                  33-30123A).
         10.2     Lease Agreements governing the Company's terminal in Columbia,
                  South  Carolina and dated May 31, 1996 between the Company and
                  Angoria Columbia  Enterprises  (incorporated by reference from
                  Exhibit 10.1 to Registrant's June 30, 1996 10-QSB).
         10.3     Assignment  of  Lease  Agreement   governing  the  Company's
                  terminal in Greensboro,  North  Carolina  dated June 13, 1996
                  between the Company,  ABF Freight  System,  Inc.,  Bob G.
                  Gibson and Defco Company  (incorporated  by reference from
                  Exhibit 10.2 to Registrant's June 30, 1996 10-QSB).
         10.4     Lease  Agreement governing the Company's  terminal in
                  Charlotte,  North  Carolina  dated July 30, 1996  between  the
                  Company  and  Lincoln   National  Life   Insurance   Company
                  (incorporated  by reference from Exhibit 10.7 to Registrant's
                  June 30, 1996 10-QSB).
         10.5     Lease Agreement governing the Company's terminal in
                  Charleston, South Carolina dated July 9,1996  between the
                  Company and J.P. Gaillard, ET AL (incorporated  by reference
                  from Exhibit  10.8 to  Registrant's  June 30, 1996 10-QSB).
         10.6     Lease Agreement governing the Company's terminal in Tampa,
                  Florida dated  November  30, 1994 and amended on January 26,
                  1996 and  February 19, 1996 between  the Company and Scott
                  Steel,  Inc.  (incorporated  by  reference  from Exhibit 10.1
                  to Registrant's September 30, 1996 10-QSB).
         10.7     Purchase Agreement governing purchase by GPS Acquisition Corp.
                  from transit Express of Charlotte, Inc. of certain assets,
                  dated February 6, 1995  (incorporated by reference from
                  Exhibit 10.5 to  Registrant's  1995 10-KSB).
         10.8     Resignation  Agreement dated December 20, 1996 between the
                  Company, E. Hoke Smith, Jr., and T. Wayne Davis as
                  guarantor  (incorporated  by reference from Exhibit 10.31 to
                  Registrant's  1996 10-KSB).
         10.9     Stock Purchase  Agreement dated as of July 11, 1997 governing
                  the purchase  by the Company of the stock of Carolina Pacific
                  Distributors,  Inc. (incorporated by reference from Exhibit
                  2.1 to Registrant's  Form 8-K dated July 11, 1997).
         10.10    Agreement and Plan of  Reorganization  dated as of August 15,
                  1997 governing the merger of Service Express, Inc. and a
                  wholly-owned subsidiary of the Company  (incorporated by
                  reference from Exhibit 2.1 to Registrant's Form 8-K dated
                  August 15, 1997).
         10.11    Agreement and Plan of Reorganization dated as of August  15,
                  1997  governing  the  merger of Capitol Warehouse, Inc. and a
                  wholly-owned  subsidiary of the Company  (incorporated by
                  reference from Exhibit 2.2 to Registrant's  Form 8-K dated
                  August 15, 1997.
         10.12    Agreement and Plan of Reorganization  dated as of August 29,
                  1997 under which  Carroll  Fulmer  Group, Inc.  was  merged
                  with  and  into a  wholly-owned  subsidiary  of  the  Company
                  (incorporated  by  referenc from Exhibit 2.1 to Registrant's
                  Form 8-K dated August 29,  1997).
         10.13    Purchase  Agreement  dated as of  December  30,  1997
                  governing purchase by Transit of the stock of Rainbow
                  Trucking  Services,  Inc.,Hawks Enterprises, Inc. and T.W.
                  Transport, Inc. (incorporated by reference from Exhibit 2.1 to
                  Registrant's  Form 8-K dated December 30, 1997).
         10.14    Purchase Agreement  dated as of December  30, 1997  governing
                  purchase by Transit of the stock of Rainbow  Trucking
                  Services, Inc., (incorporated  by  reference  from Exhibit
                  2.1 to  Registrant's  Form 8-K dated December 30, 1997).
         10.15    Purchase Agreement  dated as of December  30, 1997  governing
                  purchase by Transit of the stock of Hawks Enterprises,  Inc.
                  (incorporated by reference from Exhibit 2.2 to Registrant's
                  Form 8-K dated December 30, 1997).
         10.16    Purchase  Agreement dated as of  December 30, 1997 governing
                  purchase by Transit of the stock of T. W. Transport,  Inc.
                  (incorporated by reference from Exhibit 2.3 to Registrant's
                  Form 8-K dated December 30, 1997).
         10.17    Advised  Revolving Line of Credit Agreement dated December
                  18, 1997 between certain  subsidiaries of the Company and
                  AmSouth Bank (incorporated by reference from Exhibit 99.1 to
                  Registrant's Form 8-K dated December 18, 1997).
         10.18    Revolving  Credit Note dated as of December 18, 1997,
                  by and among the Lender and the  Co-Borrowers  (incorporated
                  by reference  from Exhibit 99.2 to Registrant's  Form 8-K
                  dated December 18, 1997).
         10.19    Security Agreement  dated as of  December  18,  1997,  by and
                  among the  Lender  and the Co-Borrowers.
         10.20    Joinder to Advised  Revolving Line of Credit  Agreement and
                  Joinder to Security  Agreement dated as of January 14, 1998
                  by Rainbow  Trucking Services, Inc.(incorporated by reference
                  from Exhibit 99.4 to Registrant's Form 8-K dated  December
                  18, 1997).
         10.21    Termination of Lease Agreements between Transit Leasing, Inc.
                  (formerly known as Capitol Warehouse,  Inc.) and Jerry W.
                  and  Anna  Pennington  dated  February  9,  1999.
         10.22    Agreement and Plan of Reorganization  dated as of May 5, 1998
                  governing  the  merger  of  Certified Transport, Inc. and
                  Venture Logistics, Inc. and a wholly-owned subsidiary of the
                  Company (incorporated  by reference from Exhibit 2.6 to
                  Registrant's  Form 8-K dated May 5, 1998).
         10.23    Agreement and Plan of Reorganization  dated as of June
                  16,  1998  governing  the  merger of K. J.  Transportation
                  with a  wholly-owned subsidiary of the Company (incorporated
                  by  reference  from  Exhibit  2.6 to Registrant's  Form  8-K
                  dated  June  17,  1998).
         10.24    Promissory  Note  for $2,645,451.00  dated as of November 12,
                  1998,  by and among  General Electric Capital Corporation and
                  certain wholly-owned  subsidiaries of the Company.
         10.25    Master  Lease  Agreement  dated as of November 12,  1998,  by
                  and among  General Electric  Capital  Corporation,  Transit
                  Group,  Inc. and certain  wholly-owned subsidiaries of the
                  Company.
         10.26    Corporate  Guaranty dated as of November 12, 1998, by and
                  among General Electric Capital Corporation and certain
                  wholly-owned subsidiaries  of the  Company.
         10.27    Master  Security  Agreement  dated  as of November 12, 1998,
                  by and among General Electric Capital Corporation and certain
                  wholly-owned  subsidiaries  of the Company.
         10.28    Loan  Agreement  and Security Agreement  for a $1.5  million
                  facility  dated as of November  5, 1998,  by and between
                  AmSouth Bank and the Company.
         10.29    Unconditional  guarantee for a $1.5 million facility dated as
                  of November 5, 1998, by and between  AmSouth Bank and
                  certain wholly-owned  subsidiaries of the Company
         10.30    Promissory Note for $1.5 million dated as of November 5, 1998,
                  by and among AmSouth Bank and the Company.
         10.31    Loan Agreement and Security Agreement for a $3.5 million
                  facility dated as of  November  5,  1998,  by and  between
                  AmSouth  Bank and the  Company.
         10.32    Unconditional  guarantee  for a $3.5  million  facility dated
                  as of November 5, 1998, by and between AmSouth Bank and
                  certain  wholly-owned  subsidiaries of the Company.
         10.33    Promissory Note for $3.5 million dated as of November 5, 1998,
                  by and among AmSouth Bank and the Company.
         10.34    Advised  Revolving Line of Credit Agreement  dated as of
                  November 5, 1998, by and between AmSouth Bank and certain
                  wholly-owned  subsidiaries of the Company.
         10.35    Revolving Credit Note dated as of  November  5,  1998  by and
                  among  AmSouth  Bank and  certain  wholly-owned subsidiaries
                  of the Company.
         10.36    Unconditional  Guarantee dated as of November 5, 1998,
                  between AmSouth Bank and the Company.
         10.37    Security  Agreement dated November  5,  1998,  by  and  among
                  AmSouth  Bank  and  certain   wholly-owned subsidiaries  of
                  the Company.
         10.38    1998 Stock Incentive Plan of Transit Group, Inc.
                  (incorporated by reference from Exhibit 99.1 to Registrant's
                  December 11, 1998 S-8, Registration No. 333-68807).
         10.39    1998 Employee Stock Purchase Plan of Transit Group, Inc.
                  (incorporated by reference from Exhibit 99.2 to Registrant's
                  December 11, 1998 S-8,  Registration No.  333-68807).
         10.40    Agreement and Plan of Merger dated December 23, 1998 by and
                  among certain wholly-owned subsidiaries of the Company.
         10.41    Agreement and Plan of Merger dated December 23, 1998 by and
                  among certain  wholly-owned  subsidiaries of the Company.
         10.42    Lease Agreement governing the Company's terminal in Olive
                  Branch,  Mississippi dated January 19, 1999  between  the
                  Company and  Horvath & Horvath,  LLC.
         10.43    Lease  Agreement governing the  Company's  terminal in
                  Chesterton,  Indiana dated March 18, 1999 between the Company
                  and Ameling Properties, LLC.

11.1     Statement re: Computation of Per Share Earnings      Pages 47-51

21.      Subsidiaries of the Registrant                         Page 52

23.1     Consent of PriceWaterhouseCoopers LLP                  Page 53

27.      Financial Data Schedule                        (for SEC purposes only)

(b) No reports on Form 8-K were filed in the fourth quarter of 1998.
<PAGE>
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
                                       TRANSIT GROUP, INC.


                                    BY:        /s/  Philip A. Belyew
                                    ----------------------------------------
                                        Philip A. Belyew, President,
                                        Chief Executive Officer, and
                                        Director

                                        Date:   March 30, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been  signed by the  following  persons on behalf of the  Registrant  in the
capabilities and on the date indicated.

  Signature                            Title                      Date

/s/ T. Wayne Davis              Chairman of the Board         March 30, 1999
---------------------            of Directors
    T. Wayne Davis

/s/ Philip A. Belyew            Director, President, and      March 30, 1999
---------------------           Chief Executive Officer
    Philip A. Belyew

/s/ Carroll L. Fulmer           Director                      March 30, 1999
---------------------
    Carroll L. Fulmer

/s/ Derek E. Dewan              Director                      March 30, 1999
---------------------
    Derek E. Dewan

/s/ Robert R. Hermann           Director                      March 30, 1999
---------------------
    Robert R. Hermann

/s/ Wayne N. Nellums            Chief Financial Officer       March 30, 1999
---------------------
    Wayne N. Nellums

/s/ Scott J. Tsanos             Chief Accounting Officer      March 30, 1999
---------------------
    Scott J. Tsanos
<PAGE>
                               TRANSIT GROUP, INC.

                     1998 CONSOLIDATED FINANCIAL STATEMENTS

                                    CONTENTS


                                                                      Pages
                                                                      -----
Report of Independent Accountants                                       28

Consolidated Financial Statements

 Consolidated Balance Sheets as of December 31, 1998 and 1997           29

 Consolidated Statements of Operations for the years ended              30
  December 31, 1998 and 1997

 Consolidated Statements of Changes in Total Non Redeemable
  Preferred  Stock,  Common  Stock and Other  Stockholder's             31
  Equity for the years ended  December 31, 1998 and 1997

 Consolidated Statements of Cash Flows for the years ended              32
  December 31, 1998 and 1997

Notes to Consolidated Financial Statements                             33-46
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


March 30, 1999

To the Board of Directors and Stockholders of
Transit Group, Inc.

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  of  changes  in total non  redeemable
preferred stock, common stock and other  stockholders'  equity and of cash flows
present  fairly,  in all material  respects,  the financial  position of Transit
Group,  Inc. and its subsidiaries at December 31, 1998 and 1997, and the results
of their  operations and their cash flows for the years then ended in conformity
with generally accepted accounting  principles.  These financial  statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial  statements based on our audits.  We conducted our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
<PAGE>
<TABLE>
<CAPTION>



                                        TRANSIT GROUP, INC.

                                   CONSOLIDATED BALANCE SHEETS


                                             ASSETS

                                                                                       December 31,
                                                                                       ------------
                                                                               1998                   1997
                                                                               ----                   ----
Current assets:
<S>                                                                    <C>                    <C>
  Cash                                                                 $     2,019,715        $       789,791

  Accounts receivable (net of allowance of $706,000 and $173,000)           28,437,208             11,314,417

  Other current assets                                                       5,611,332              1,429,181

  Deferred  income taxes                                                     1,103,220                  -----
                                                                       ----------------       ----------------
      Total current assets                                                  37,171,475             13,533,389
                                                                       ----------------       ----------------
Noncurrent assets:

  Property, equipment, and capitalized leases                               42,818,024             30,045,866

  Goodwill                                                                  50,061,862             30,706,028

  Other assets                                                                 475,620                769,522
                                                                       ----------------       ----------------
      Total noncurrent assets                                               93,355,506             61,521,416
                                                                       ----------------       ----------------
      Total assets                                                     $   130,526,981        $    75,054,805
                                                                       ================       ================

                             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Current obligations under capital leases                             $     1,518,187        $     2,993,935

  Current maturities of long-term debt                                      10,754,424              5,183,040

  Accounts payable                                                           6,169,561              3,401,662

  Bank overdrafts                                                            1,319,203                662,074

  Accrued expenses and other current liabilities                            10,028,776              5,487,791

  Current portion of deferred income taxes                                       -----                582,548

  Net current liabilities of discontinued operations                           272,832                565,886
                                                                       ----------------       ----------------
      Total current liabilities                                             30,062,983             18,876,936
                                                                       ----------------       ----------------
Noncurrent liabilities:

  Long-term obligations under capital leases                                 2,429,245              8,026,808

  Long-term debt                                                            36,534,421             15,624,955

  Note payable to affiliate of Chairman                                      3,500,000              4,000,000

  Other liabilities                                                          4,290,770                  -----

  Deferred income taxes                                                        438,958              2,357,425
                                                                       ----------------       ----------------
     Total noncurrent liabilities                                           47,193,394             30,009,188
                                                                       ----------------       ----------------
     Total liabilities                                                      77,256,377             48,886,124
                                                                       ----------------       ----------------
Commitments and contingencies (Note 15)
<PAGE>
Redeemable common stock                                                      5,115,071              7,452,007
                                                                       ----------------       ----------------
Non redeemable preferred stock, common stock

 and other stockholders' equity:

  Preferred stock, no par value, 5,000,000 shares authorized,

   none outstanding                                                               -----                  -----

  Note receivable secured by stock                                            (729,000)              (675,000)

  Common Stock, $.01 par value, 30,000,000 shares

   authorized, 23,610,190 and 20,574,626 shares issued and outstanding         222,177                185,770

  Additional paid-in capital                                                68,411,245             50,650,534

  Accumulated deficit                                                      (19,748,889)           (31,444,630)
                                                                       ----------------       ----------------
      Total non redeemable preferred stock, common stock

       and other stockholders' equity                                       48,155,533             18,716,674
                                                                       ----------------       ----------------

      Total liabilities and stockholders' equity                       $   130,526,981        $    75,054,805
                                                                       ================       ================
</TABLE>
     See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                       TRANSIT GROUP, INC.

                              CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                Years ended December 31,
                                                                                ------------------------
                                                                              1998                   1997
                                                                              ----                   ----
<S>                                                                    <C>                    <C>
Revenues and other income:

  Freight and transportation revenue                                   $   173,659,018        $    33,266,454

  Other income                                                               3,893,943                745,195
                                                                       ----------------       ----------------
      Total revenues and other income                                      177,552,961             34,011,649
                                                                       ----------------       ----------------
Operating expenses:

  Purchased transportation                                                  77,372,214             15,683,040

  Salaries, wages and benefits                                              40,670,008              7,459,889

  Fuel                                                                      12,931,732              2,598,163

  Operating supplies and expenses                                           22,409,300              3,275,160

  Insurance                                                                  2,844,739                846,340

  Depreciation and amortization expense                                      7,518,485              1,610,172

  General and administrative expense                                         4,914,383              1,160,414
                                                                       ----------------       ----------------
      Total operating expenses                                             168,660,861             32,633,178
                                                                       ----------------       ----------------
      Operating income                                                       8,892,100              1,378,471

  Interest expense                                                           4,310,359              1,045,312
                                                                       ----------------       ----------------
Continuing operations:

  Earnings from continuing operations

   before income taxes                                                       4,581,741                333,159

  Income taxes (benefit) attributable to continuing operations              (7,114,000)                70,665
                                                                       ----------------       ----------------
      Income from continuing operations                                     11,695,741                262,494

Discontinued operations:

  Loss from discontinued operations                                              -----             (6,114,408)

  Loss on disposal including provision

   for operating losses through disposal date                                    -----             (5,792,146)

      Net income (loss)                                                     11,695,741            (11,644,060)
                                                                       ----------------       ----------------
Preferred stock dividend requirement                                             -----               (385,000)
                                                                       ----------------       ----------------

         Income (loss) to common shareholders                          $    11,695,741        $   (12,029,060)
                                                                       ================       ================
<PAGE>
Income (loss) per basic common share:

  Continuing operations                                                $          0.52        $         (0.01)

  Discontinued operations:

    Loss from discontinued operations                                            -----                  (0.55)

    Loss on disposal                                                             -----                  (0.52)
                                                                       ----------------       ----------------
      Net income (loss) per basic common share                         $          0.52        $         (1.08)
                                                                       ================       ================
Weighted average number of basic

  common shares outstanding                                                 22,391,142             11,094,207
                                                                       ================       ================
Income (loss) per diluted common share:

  Continuing operations                                                $          0.49        $         (0.01)

  Discontinued operations:

    Loss from discontinued operations                                            -----                  (0.55)

    Loss on disposal                                                             -----                  (0.52)
                                                                       ----------------       ----------------
      Net income (loss) per diluted common share                       $          0.49        $         (1.08)
                                                                       ================       ================
Weighted average number of diluted

  common shares outstanding                                                 23,646,073             11,094,207
                                                                       ================       ================
</TABLE>
     See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                   TRANSIT GROUP, INC.

                                      CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL

                                     NON REDEEMABLE PREFERRED STOCK, COMMON STOCK

                                              AND OTHER STOCKHOLDERS' EQUITY 

                                                                                                                         Total

                                       Preferred     Common     Note receivable     Additional       Accumulated      stockholders'

                                         stock        stock     secured by stock  paid-in capital      deficit           equity
                                         -----        -----     ----------------  ---------------      -------     ---------------
<S>                                   <C>         <C>              <C>             <C>              <C>             <C>
Balance December 31, 1996             $    4,200  $    37,586      $      -----    $  21,386,455    $  (19,415,570) $    2,012,671

Dividends on preferred stock               -----        -----             -----            -----          (385,000)       (385,000)

Conversion of preferred stock             (4,200)      43,239             -----          345,961             -----         385,000

Sale of common stock                       -----        6,966             -----        1,212,034             -----       1,219,000

Stock issued in satisfaction of debt       -----       26,906             -----        4,681,672             -----       4,708,578

Stock issued for acquisitions              -----       82,033             -----       26,370,743             -----      26,452,776

Stock issued in connection with

  sale of GPS                              -----        8,766             -----        4,023,450             -----       4,032,216

Stock subject to redemption                -----      (19,976)            -----       (7,432,031)            -----      (7,452,007)

Note secured by stock                      -----        -----          (675,000)           -----             -----        (675,000)

Exercise of common stock options           -----          250             -----           62,250             -----          62,500

Net Loss                                   -----        -----             -----            -----       (11,644,060)    (11,644,060)
                                      ----------- ------------     -------------   --------------   --------------- --------------

Balance December 31, 1997                  -----      185,770          (675,000)      50,650,534       (31,444,630)     18,716,674

Stock retired                              -----         (257)            -----         (108,526)            -----        (108,783)

Exercise of stock options                  -----          254             -----          155,634             -----         155,888

Accrued interest                           -----        -----           (54,000)           -----             -----         (54,000)

Stock issued for acquisitions              -----       30,359             -----       15,382,718             -----      15,413,077

Stock subject to redemption                -----        6,051             -----        2,330,885             -----       2,336,936

Net income                                 -----        -----             -----            -----        11,695,741      11,695,741
                                      ----------- ------------     -------------   --------------   --------------- ---------------

Balance December 31, 1998             $    -----  $   222,177      $   (729,000)   $  68,411,245    $   19,748,889  $   48,155,533
                                      =========== ============     =============   ==============   =============== ===============
</TABLE>
         See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                       TRANSIT GROUP, INC.

                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                Years ended December 31,
                                                                                ------------------------
                                                                              1998                   1997
                                                                              ----                   ----
<S>                                                                    <C>                    <C>
Cash flows from operating activities:

  Income from continuing operations                                    $    11,695,741        $       262,494

  Adjustments to reconcile net income to cash

   provided by continuing operations:

     Depreciation and amortization                                           7,518,485              1,610,172

     Deferred income taxes                                                  (7,665,500)                 -----

     Changes in assets and liabilities:

       (Increase) decrease in accounts receivable                           (2,797,210)             2,061,893

       Decrease in other current assets                                        162,002                258,056

       (Decrease) increase in accounts payable                              (2,498,049)               282,969

       Increase (decrease) in accrued expenses                               2,026,535                (42,182)

       Increase in other long-term liabilities                                  21,526                208,361

       Other                                                                   355,148                 83,916
                                                                       ----------------       ----------------
         Total adjustments                                                  (2,877,063)             4,463,185
                                                                       ----------------       ----------------

       Net cash provided by continuing operations                            8,818,678              4,725,679

       Net cash used by discontinued operations                               (413,054)            (4,584,102)
                                                                       ----------------       ----------------
         Net cash provided by operating activities                           8,405,624                141,577
                                                                       ----------------       ----------------

Cash flows from investing activities:

  Business combinations, net of cash acquired                               (3,811,680)            (3,882,630)

  Proceeds from disposal of equipment                                       15,043,682                313,667

  Collection of mortgage receivables                                             -----                619,180

  Purchase of equipment                                                     (7,066,727)              (145,788)

  Other                                                                         82,195                  -----
                                                                       ----------------       ----------------
         Net cash provided (used) by investing activities                    4,247,470             (3,095,571)
                                                                       ----------------       ----------------
<PAGE>
Cash flows from financing activities:

  Proceeds from issuance of stock                                                -----              1,281,500

  Dividends paid on preferred stock                                              -----               (281,750)

  Increase in short-term borrowings                                            606,072              1,937,900

  Increase in revolving line of credit                                       3,863,757                  -----

  Increase in long-term debt                                                13,935,432              7,614,475

  Repayment of long-term debt and

   capital lease obligations                                               (30,485,560)            (5,193,886)

  Increase (decrease) in bank overdraft                                        657,129             (1,620,909)
                                                                       ----------------       ----------------
         Net cash provided (used) by financing activities                  (11,423,170)             3,737,330
                                                                       ----------------       ----------------

Increase in cash                                                             1,229,924                783,336

Cash beginning of period                                                       789,791                  6,455
                                                                       ----------------       ----------------
Cash end of period                                                     $     2,019,715        $       789,791
                                                                       ================       ================

Supplemental cash flow data:

  Cash paid for interest                                               $     3,916,542        $       841,393
                                                                       ================       ================

Business combinations:

  Fair value of assets acquired                                           $ 57,055,000           $ 80,703,000

  Fair value of liabilities assumed                                        (37,141,000)           (50,100,000)

  Common stock issued                                                       15,413,000            (26,453,000)
                                                                       ----------------       ----------------
    Net cash payments                                                      $ 4,501,000            $ 4,150,000
                                                                        ================       ================
</TABLE>
    See accompanying notes to consolidated financial statements.
<PAGE>
TRANSIT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: Organization and Basis of Presentation

Transit Group, Inc. ("Transit Group" or the "Company") is a Florida  corporation
engaged,  through  subsidiaries,  in the  short  and  long  haul  transportation
services  business.  The Company formerly known as General Parcel Service,  Inc.
("GPS") changed its name effective June 30, 1997.

In conjunction  with the name change,  the Company approved a plan to dispose of
all operations  previously  performed by GPS. The Company has accounted for this
disposal as a discontinued  operation (See Note 4 to the Consolidated  Financial
Statements).

NOTE 2: Summary of Significant Accounting Policies

Principles of Consolidation - The accompanying consolidated financial statements
include accounts of the Company and its wholly-owned subsidiaries.  All material
inter-company accounts and balances have been eliminated.

Reclassifications  - Certain  prior  year  balances  have been  reclassified  to
conform to the current year financial statement presentation.

Estimates - The process of preparing  financial  statements  requires the use of
estimates  and  assumptions  regarding  certain  types of  assets,  liabilities,
revenues,   and  expenses.   Such  estimates   primarily   relate  to  unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.

Revenue  Recognition  - Revenues  and related  expenses are  recognized  under a
method which  approximates  when freight is shipped.  The Company  believes that
alternative  methods  of  revenue  recognition  would not  result in a  material
difference in annual revenues or earnings per share.

Cash - The  Company  considers  all highly  liquid  investments  purchased  with
original  maturities  of  three  months  or  less to be  cash  equivalents.  The
Company's cash management program utilizes zero balance accounts.

Concentrations of Credit Risk - Financial  instruments which potentially subject
the Company to concentrations of credit risk consist primarily of trade accounts
receivable.  No  single  customer  accounted  for a  significant  amount  of the
Company's sales, and there were no significant accounts receivable from a single
customer.  The Company  reviews a customer's  credit  history  before  extending
credit and generally  does not require  collateral.  The Company  establishes an
allowance for doubtful  accounts based upon factors  surrounding the credit risk
of specific customers,  historical trends, and other information.  The Company's
historical  experience  in collection  of accounts  receivable  falls within the
recorded  allowances.  Due to these  factors,  no additional  credit risk beyond
amounts  provided for  collection  losses is believed  inherent in the Company's
trade accounts receivable.

Equipment  -  Equipment  is stated at  historical  cost,  except  for  equipment
obtained in connection with the Company's business  acquisitions which is stated
at fair market value on the date of acquisition, net of accumulated depreciation
and  amortization.  Except  for life  extending  repair  costs  (such as  engine
overhauls),  all equipment maintenance and repair costs are charged to operating
expense as incurred. The Company periodically reviews the value of its equipment
to determine if an impairment has occurred.  The Company  measures the potential
impairment  of its  equipment  by the  undiscounted  value  of  expected  future
operating  cash flows in relation to the fair value of the  equipment.  Based on
its review the  Company  does not believe an  impairment  of its  equipment  has
occurred.  Depreciation  is  provided  using the  straight-line  method over the
estimated  useful life of the asset.  Leased equipment is amortized over varying
periods  not in excess of the  estimated  useful life of the asset or lease term
depending on the type of capital lease. Gain or loss upon retirement or disposal
of equipment is recorded as income or expense.  The ranges of depreciable  lives
used for financial reporting purposes are:
                                                               Years
                                                               -----
         Autos, trucks, trailers and life extending repairs   2 to 10
         Office equipment and furniture                       3 to 10
         Terminal equipment                                   3 to 10
<PAGE>
Goodwill  -  Goodwill,  representing  the  excess of cost over fair value of net
assets acquired in business  combinations  accounted for by the purchase method,
is amortized by the straight-line method over 40 years. The Company periodically
reviews the value of its goodwill to determine if an  impairment  has  occurred.
The Company  measures  the  potential  impairment  of  recorded  goodwill by the
undiscounted  value of expected  future  operating cash flows in relation to its
net capital  investment  in the  acquired  business.  Based on its  review,  the
Company  does not believe  that an  impairment  of its  goodwill  has  occurred.
Amortization  expense was $963,000 and $271,000 in 1998 and 1997,  respectively.
Accumulated  amortization was approximately  $1,234,000 and $271,000 at December
31, 1998 and 1997, respectively.

Income Taxes - The Company applies Statement of Financial  Accounting  Standards
("SFAS") No. 109,  "Accounting  for Income  Taxes." Under SFAS 109, the deferred
tax  liability  or  asset is  determined  based on the  difference  between  the
financial  statement and tax bases of assets and  liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.

Foreign  Currency  Translation - Balance sheet  accounts are  translated at the
exchange rate in effect at each year-end and income  accounts are  translated at
the  average  rates of  exchange  prevailing  during the year.  Gains and losses
resulting from foreign currency transactions are currently included in income.

Comprehensive  Income - In June 1997, the Financial  Accounting  Standards Board
("FASB")  issued  SFAS  No.  130,  "Reporting  Comprehensive  Income."  SFAS 130
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The provisions
of SFAS 130 were adopted during the current period.  The Company has no items of
other comprehensive income at December 31, 1998.

Business  Segments - Segments are  determined  by the  "management  approach" as
described in SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and
Related Information," which the Company adopted in 1998. Management views the 
Company as operating in a single segment.

New  Accounting  Standards  - In June  1998,  the  FASB  issued  SFAS  No.  133,
"Accounting  for Derivative  Instruments  and Hedging  Activities."  SFAS 133 is
effective for all fiscal  quarters of all fiscal years  beginning after June 15,
1999.  SFAS 133  requires  that all  derivative  instruments  be recorded on the
balance  sheet at fair  value.  Changes  in the fair  value of  derivatives  are
recorded  each  period  in  current  earnings  or  other  comprehensive  income,
depending on whether a derivative is  designated as part of a hedge  transaction
and, if it is,  depending on the type of hedge  transaction.  The accounting for
this  standard  is not  expected  to have a  material  impact  on the  Company's
financial statements.

Earnings Per Share ("EPS") - Basic EPS is calculated  using the weighted average
number of outstanding common shares for the period,which were 11,094,207 in 1997
and 22,391,142 in 1998.  Diluted EPS reflects the potential  dilution that could
occur if securities were exercised or converted into common stock or resulted in
the issuance of common  stock that would then share in earnings.  Shares used in
the diluted EPS calculation were 23,646,073 in 1998.The difference between basic
and diluted shares represents the number of common shares issuable upon exercise
of diluted options.In 1997,options were not included in the computation of fully
diluted earnings per share because to do so would have been anti-dilutive.

NOTE 3: Business Combinations

In July 1997,  the Company  acquired  Carolina  Pacific,  Inc., a privately held
North Carolina corporation,  and the business and related assets operated by the
owners of Carolina  Pacific.  Carolina  Pacific is a truckload  carrier based in
High Point, North Carolina. Pursuant to the Stock Purchase Agreement executed at
closing,  the Company purchased all of the outstanding capital stock of Carolina
Pacific  and  the  business  and  related  assets  operated  and  owned  by  the
shareholders  of Carolina  Pacific  for $3.7  million in cash,  the  issuance of
1,733,000  shares of common stock of the Company to the shareholders of Carolina
Pacific, and the assumption of approximately $0.6 million in debt.

In  August  1997,  the  Company  acquired  Service  Express,  Inc.,  an  Alabama
corporation  with  operations  based in  Tuscaloosa,  Alabama.  Pursuant  to the
Agreement and Plan of Reorganization executed at closing, a wholly-owned Alabama
subsidiary  of  Transit  Group was  merged  with and into  Service  Express in a
reverse  triangular  merger,  with Service  Express  remaining as the  surviving
corporation  of  the  merger.  Upon  consummation  of  the  merger,  all  of the
outstanding common stock of Service Express was converted into 903,226 shares of
Transit  Group common  stock.  In  connection  with the  acquisition  of Service
Express,  the Company granted the selling  shareholders the right through August
15, 1998 to require  the  Company to redeem up to $1.8  million of shares of the
Company at $3.875 per share. Through December 31, 1998, selling shareholders had
sold $400,000 of stock to third parties.
<PAGE>
Also in August 1997, the Company  acquired Capitol  Warehouse,  Inc., a Kentucky
corporation  with  operations  based in  Louisville,  Kentucky.  Pursuant to the
Agreement  and  Plan of  Reorganization  executed  at  closing,  a  wholly-owned
Kentucky  subsidiary of Transit Group was merged with and into Capitol Warehouse
in a  reverse  triangular  merger,  with  Capitol  Warehouse  remaining  as  the
surviving corporation of the merger. Upon consummation of the merger, all of the
outstanding  common stock of Capitol Warehouse was converted into 641,283 shares
of Transit Group common stock.  In connection  with the  acquisition  of Capitol
Warehouse,  the Company granted the selling shareholder the right to require the
Company to redeem up to $300,000 of the Company's stock at $6.75 per share.  The
shareholders  have  exercised  their  redemption  rights for all of these shares
which were purchased by third parties.

In August 1997, the Company consummated the acquisition of Carroll Fulmer Group,
Inc.,  a  Florida  corporation  with  operations  based in  Groveland,  Florida.
Pursuant  to the  Agreement  and Plan of  Reorganization  executed  at  closing,
Carroll  Fulmer  merged with and into Transit  Group Sub.,  Inc. a  wholly-owned
Florida subsidiary of Transit Group (the "Subsidiary"),  in a forward triangular
merger,  with the  Subsidiary  remaining  as the  surviving  corporation  of the
merger.  Upon consummation of the merger, the Company executed a promissory note
in the amount of $2.25 million payable over 5 years,  and all of the outstanding
common stock of Carroll Fulmer was converted  into  4,166,666  shares of Transit
Group common  stock,  and the  Subsidiary's  name was changed to Carroll  Fulmer
Group,  Inc. In connection with the  acquisition of Carroll Fulmer,  the Company
granted the selling  shareholders the right to require either the Company redeem
or a major  shareholder of the Company  acquire up to $6.0 million of stock at a
price of $3.60 per share. Of this $6.0 million,  redemption rights in the amount
of $2.5 million are  exercisable  before August 29, 1998 when an additional $3.5
million  become  exercisable.  All  redemption  rights  expire  August 29, 2003.
Through  December  31,  1998,  the  Company  has  received   notification   that
shareholders   have   exercised   their   redemption   rights  with  respect  to
approximately $2.3 million. Of this amount, approximately $2.25 million of stock
has been purchased by third parties and $75,000 has been redeemed by the Company
thereby  reducing the Company's  obligation.  The remaining $3.7 million will be
either  sold to third  parties,  redeemed  by the Company or acquired by a major
shareholder.

In  December  1997,  the  Company  acquired  the net assets of Rainbow  Trucking
Services,  Inc.,  a Kentucky  corporation  engaged  in the full load,  long-haul
trucking business. Upon consummation of this acquisition all of the common stock
of Rainbow  Trucking (and two affiliate  companies)  was converted  into 679,246
shares of Transit  Group  common  stock.  The Company  made loans to the selling
shareholders in the amount of $675,000.  Such loans are due on June 30, 1999. If
the  average  closing  price per share of common  stock of the  Company  for the
period June 25, 1999  through  June 29, 1999 is less than $6.625 per share,  the
notes  shall  be  non-recourse  to such  extent  and  the  debtor  shall  not be
personally  liable for such  deficiency,  but the Company shall be entitled to a
return of a proportionate amount of the Company's stock.

In January 1998, the Company acquired Transportation Resources & Management,Inc.
("TRM"),  an Indiana  corporation with operations based in Fort Wayne,  Indiana.
Pursuant  to the  Reorganization  Agreement  executed  at  closing,  the Company
purchased all the outstanding  capital stock of TRM and the business and related
assets operated and owned by the shareholders of TRM for $.2 million in cash and
365,957 shares of the Company's common stock.

In May 1998, the Company  acquired  Certified  Transport and Venture  Logistics,
Inc.,  Indiana  corporations  with  headquarters  in  Indianapolis.  The Company
purchased  all of the  outstanding  capital  stock of Certified  and Venture for
$800,000 in cash and 1,072,165 shares of the Company's common stock.

In June 1998, the Company  consummated  the  acquisition  of KJ  Transportation,
Inc., a New York  corporation  with  operations  based in Farmington,  New York.
Pursuant to the Agreement  and Plan of  Reorganization  executed at closing,  KJ
merged with and into  Transit  Group  Subsidiary,  Inc. in a forward  triangular
merger with the Subsidiary remaining as the surviving corporation of the merger.
Upon consummation of the merger all of the outstanding stock of KJ was converted
into 878,688  shares of the Company's  stock and a cash payment in the amount of
$3.0 million.  Simultaneously  with the acquisition of KJ, the company  acquired
all of the outstanding stock of J&L Leasing of Farmington, Inc. for $.5 million.

In July 1998, the Company  purchased all of the issued and outstanding  stock of
two Canadian numbered companies which together own 100% of the outstanding stock
of Network Transport, Ltd. a Toronto, Canada based trucking company. The Company
made a cash payment of $.25 million and issued  191,491  shares of the Company's
common stock in exchange for all of the issued and outstanding shares of the two
numbered companies.
<PAGE>
In August 1998,  the Company issued 178,519 of its common shares in exchange for
all of the issued and outstanding shares of Diversified Trucking Corporation, an
Opelika, Alabama based trucking company.

Also in August  1998,  the Company  acquired  all of the issued and  outstanding
shares of Dothan, Alabama based Northstar  Transportation,  Inc. in exchange for
349,091 of Transit Group common stock.

In connection  with its  acquisitions,  the Company accrued $4.2 million for the
consolidation and elimination of redundant administrative functions. The accrual
is intended to cover severance costs of employees terminated in conjunction with
its  consolidation  plan. The amount charged to the accrual through December 31,
1998 is not considered significant.

See Note 13 for the Unaudited Pro Forma  results of the  acquisitions  discussed
above.

NOTE 4: Discontinued Operations

During the second quarter of 1997, the Company approved a plan to dispose of its
parcel delivery and courier  operations.  After  negotiations with a third party
failed,  the  Company  executed a contract  for the sale of the parcel  delivery
business to a company controlled by Transit Group's Chairman.  The sale contract
became  effective on September 30, 1997.  Under the contract,  the buyer assumed
certain net liabilities  related to the parcel delivery  operations and received
shares of the Company's common stock in exchange.

Revenues  attributable to the  discontinued  business were $14.7 million for the
year ended December 31, 1997.

The loss from  discontinued  operations  has been  reflected in accordance  with
Accounting  Principles  Board No. 30  "Reporting  the  Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual, and Infrequently  Occurring Events and Transactions" as a disposal of a
segment.  The December 31, 1997 consolidated  balance sheet and the consolidated
statements  of  operations  and cash  flows  for the year then  ended  have been
restated to separately  reflect the financial  position,  results of operations,
and cash flows of the discontinued parcel delivery and courier  businesses.  Net
liabilities  of  discontinued  operations  were $.3  million  and $.6 million at
December 31, 1998 and 1997, respectively.

NOTE 5: Stock

At December 31, 1996, the Company had accrued preferred stock dividends included
in accounts  payable of $281,750.  In the second  quarter of 1997 the holders of
the Company's  outstanding  preferred  stock elected to convert their  preferred
stock and accrued  dividends  of $385,000 to common  stock.  The Company  issued
4,323,922 shares of common stock upon the conversion.

NOTE 6: Income Taxes
<TABLE>
<CAPTION>
The (benefit) provision for income taxes consisted of the following:

                                                                        Years ended December 31,
                                                                ------------------------------------------
                                                                      1998                    1997
                                                                ------------------      ------------------
        <S>                                                     <C>                     <C>
        Current:
             Federal                                            $         145,000       $            ----
             Foreign                                                       12,500                    ----
             State                                                        394,000                  43,174
                                                                ------------------      ------------------
               Total current                                              551,500                  43,174
                                                                ------------------      ------------------

        Deferred:
             Federal                                                  (7,190,000)                    ----
             Foreign                                                        ----                     ----
             State                                                      (475,500)                  27,491
                                                                ------------------      ------------------
               Total deferred                                         (7,665,500)                  27,491
                                                                ------------------      ------------------

               (Benefit) provision for income taxes             $     (7,114,000)       $          70,665
                                                                ==================      ==================
</TABLE>
<PAGE>
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                              --------------------------------------------
                                                                     1998                     1997
                                                              --------------------     -------------------
         <S>                                                  <C>                      <C>
         Depreciation                                         $         7,024,361      $        3,762,133
         Net operating loss                                           (10,289,978)            (12,903,391)
         Estimated expenses deductible in
           future tax periods                                          (1,191,655)               (601,929)
         Other                                                            832,585                (220,231)
                                                              --------------------     -------------------
             Net deferred tax asset                                    (3,624,687)             (9,963,418)
         Valuation allowance                                            2,960,425              12,903,391
                                                              --------------------     -------------------

             Net deferred income tax liability                $          (664,262)     $        2,939,973
                                                              ====================     ===================
</TABLE>
The difference between the provision for income taxes attributable to continuing
operations  and the amounts that would be expected  using the Federal  statutory
income tax rate of 34% is explained below.
<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                    ------------------------------------------------
                                                                            1998                       1997
                                                                    ----------------------      --------------------
<S>                                                                 <C>                         <C>
Tax at federal statutory rate - continuing operations               $           1,557,793       $           113,274
Tax at federal statutory rate - discontinued operations                              ----                (4,048,228)
Change in deferred tax asset valuation allowance                               (9,710,399)                3,710,431
Nondeductible expenses                                                          1,079,896                   226,217
State taxes, net                                                                  (53,790)                   46,639
Other                                                                              12,500                    22,332
                                                                    ----------------------      --------------------

Net (benefit) provision for income taxes                            $          (7,114,000)      $            70,665
                                                                    ======================      ====================
</TABLE>

At December 31, 1998, the Company has  $27,401,275 of federal net operating loss
carryforwards potentially available to offset taxable income which expire during
the years 2007 to 2012.  The Company has  recognized  $7,504,000 in benefits for
these net operating  losses in the current year's financial  statements  because
management  believes  it is more  likely  than  not that  the  benefits  will be
realized.  The Company will be limited in the amount of net operating loss which
can be offset  against  taxable  income in any given year because of significant
changes in ownership.  Certain pre-acquisition losses of acquired companies will
be  unusable  because  of the change of  ownership  provisions  and a  valuation
allowance remains for those losses. To the extent these losses are utilized, any
benefit will be used to reduce  goodwill as the losses were incurred by acquired
subsidiaries. Tax loss carryforwards at December 31, 1998 expire as follows:

  Year of Expiration             Federal                State
  ------------------             -------                -----

        2002                       ----                    21,848
        2003                       ----                   651,378
        2004                       ----                   481,704
        2005                       ----                 2,696,980
        2006                       ----                 2,125,475
        2007                    807,966                 1,562,086
        2008                  1,554,837                 1,069,463
        2009                  1,656,995                 1,119,038
        2010                  4,583,462                 2,796,533
        2011                  7,838,682                 4,895,973
        2012                 10,959,333                 7,671,533
                       -----------------         -----------------

                       $     27,401,275          $     25,092,011
                       =================         =================
<PAGE>
NOTE 7: Property, Equipment, and Capitalized Leases
<TABLE>
<CAPTION>
                                                                             December 31,
                                                               -----------------------------------------
                                                                      1998                   1997
                                                               -------------------    ------------------
                   <S>                                         <C>                    <C>
                   Property and equipment:
                     Land                                      $          728,000     $        477,264
                     Building                                           2,814,809            2,786,376
                     Revenue equipment                                 38,077,860           17,762,556
                     Other                                              6,013,229            2,261,990
                                                               -------------------    ------------------
                       Total                                           47,633,898           23,288,186
                     Less accumulated depreciation                      7,361,949            3,096,115
                                                               -------------------    ------------------

                                                                       40,271,949           20,192,071
                                                               -------------------    ------------------
                   Capitalized leases:
                     Revenue equipment                                  3,433,674           10,132,651
                     Other                                                380,564                 ----
                                                               -------------------    ------------------
                       Total                                            3,814,238           10,132,651
                     Less accumulated amortization                      1,268,163              278,856
                                                               -------------------    ------------------

                                                                        2,546,075            9,853,795
                                                               -------------------    ------------------

                                                               $       42,818,024     $     30,045,866
                                                               ===================    ==================
</TABLE>
Depreciation  and  amortization  expense  related to  property,  equipment,  and
capitalized  leases was $6.6 and $1.3  million for the years ended  December 31,
1998 and 1997, respectively.

NOTE 8: Long-Term Debt
<TABLE>
<CAPTION>
                                                                           December 31,
                                                         --------------------------------------------------
                                                                  1998                       1997
                                                         -----------------------    -----------------------
<S>                                                      <C>                        <C>
Notes payable to commercial lenders,
 secured primarily by revenue equipment;
 interest rates from 5.7% to 12%; payable
 in monthly installments through 2003                    $           23,609,150     $           14,053,703

Notes  payable to bank, secured by land
 and building with a net book value of
 $3.4 million;  interest rates from 6.9%
 to 12%; payable in monthly  installments
 through 2015                                                         1,523,667                  1,446,991

Note payable to affiliate of the Chairman,
 unsecured; 9% interest; $.5 million
 due April 1999 and $1 million due each year
 thereafter                                                           3,500,000                  4,000,000

Note payable to bank, cross collateralized to
 credit facility; interest at 2.50% over LIBOR
 (5.06% at December 31, 1998);  payable monthly
 with final maturity in 2002                                          5,000,000                       ----

Credit facility secured by accounts
receivable; interest rate at 2.25% over LIBOR;
interest paid monthly; final maturity 2000                           17,156,028                  5,307,301
                                                         -----------------------    -----------------------

                                                                     50,788,845                 24,807,995
Less current portion                                                 10,754,424                  5,183,040
                                                         -----------------------    -----------------------

                                                         $           40,034,421     $           19,624,955
                                                         =======================    =======================
</TABLE>
<PAGE>
The revolving  credit facility  contains  covenants  which require,  among other
things,  net worth,  leverage,  and interest  coverage  ratios within  specified
levels  and  contain  other  provisions  and  covenants   customary  in  lending
transactions  of these types.  At December  31, 1998 $3.1 million was  available
under the credit facility.

Long-term debt matures as follows:
<TABLE>
<CAPTION>
                 Years Ended                                                      Long-term
                 December 31,                                                       Debt
                 -------------------------------------------------            ------------------
                 <S>                                                          <C>
                 1999                                                         $      10,754,424
                 2000                                                                25,372,461
                 2001                                                                 9,901,586
                 2002                                                                 3,127,406
                 2003                                                                   464,504
                 Thereafter                                                           1,168,464
                                                                              ------------------
                     Total long-term debt                                            50,788,845
                     Less current portion                                            10,754,424
                                                                              ------------------

                       Long-term portion of long-term debt                    $      40,034,421
                                                                              ==================
</TABLE>
NOTE 9: Capitalized Leases

The Company has entered into certain lease agreements, which have been accounted
for as capitalized  leases.  Substantially all of the capitalized leases are for
vehicles.  The present value of such commitments for the capitalized  leases are
as follows:
<TABLE>
<CAPTION>
                                                                                             Capitalized
          Years Ended                                                                           Lease
          December 31,                                                                       Obligations
          -----------------------------------------------------                            -----------------
          <S>                                                                              <C>
               1999                                                                        $      1,518,187
               2000                                                                                 942,505
               2001                                                                                 953,670
               2002                                                                                 533,070
               2003                                                                                    ----
                                                                                           -----------------
          Total minimum obligations                                                               3,947,432
          Less current portion                                                                    1,518,187
                                                                                           -----------------

              Long-term capitalized lease obligations                                      $      2,429,245
                                                                                           =================
</TABLE>
The present  values of minimum  future  obligations  shown above are  calculated
based on an interest  rate of 8% which was  determined  in  connection  with the
acquisition  of  the  respective   companies  and   approximates  the  Company's
incremental  borrowing rate.  Interest expense on obligations  outstanding under
capitalized  leases was approximately  $302,000 and $335,000 for the years ended
December 31, 1998 and 1997, respectively.

NOTE 10: Operating Leases

In  November  1998,  the Company  entered  into a $50  million  equipment  lease
facility with a commercial  lender. The facility is available to restructure the
financing of certain  existing  equipment  and the  remainder to support  future
equipment leases.  The terms of the leases will vary from 30-48 months for used
equipment,  and up to 60 months for new  equipment.  Initial  fundings under the
facility  bore  interest at rates  between  5.50% and 6.00%.  Interest  rates on
future fundings will be subject to changes in the 3-year U.S.  Treasury interest
rates. At the expiration of the lease,  the Company may renew the lease,  return
the  equipment  subject to the payment of a Terminal Rate  Adjustment  Clause or
purchase  the  equipment.  At December  31, 1998  approximately  $15 million was
available under this facility.
<PAGE>
The Company also leases  terminal  and office  facilities  under  non-cancelable
operating lease agreements. Lease terms range from one to five years and provide
that the Company will pay real estate taxes, maintenance,  insurance and certain
other   expenses.   At  December  31,  1998  future   minimum   payments   under
non-cancelable operating leases having an initial or remaining term of more than
one year were:
                                                   Operating
                                                  Years Ended
    Years ended                                       Lease
    Years Ended                                   Years Ended
    December 31,                                  Obligations
    -------------------------------          ---------------------

        1999                                 $         13,647,149
        2000                                           11,225,062
        2001                                            9,385,851
        2002                                            7,416,477
        2003                                            4,179,335
                                             ---------------------

           Total                             $         45,853,874
                                             =====================

Total rent expense under all operating  leases was  $6,748,000  and $215,000 for
the years ended December 31, 1998 and 1997,  respectively.  The Company believes
that upon  expiration of these leases it will be able to negotiate new leases on
acceptable terms although lease costs may increase.

NOTE 11: Fair Values of Financial Instruments

Disclosure  of fair  value  information  about  certain  financial  instruments,
whether or not  recognized in the balance sheet for which it is  practicable  to
estimate that value, is required by SFAS No. 107,  "Disclosure  about Fair Value
of  Financial  Instruments."  Substantially  all of  the  Company's  assets  and
liabilities  were obtained as a result of the Company's 11 acquisitions  through
December 31, 1998. In connection  with  accounting for those  acquisitions,  the
assets acquired and liabilities  assumed were recorded at fair market value. The
Company  believes that the fair market value of the assets and  liabilities  has
not changed significantly since the date of acquisition.

NOTE 12: Stock Options and Warrants

The  Company has granted  options  and  warrants to acquire its common  stock at
various times under various plans,  contracts,  and employment  agreements  that
approximated  or exceeded  fair market  value at the date of issue.  Options and
warrants  which vest over  various  periods  (to a maximum  of 4 years),  may be
exercised over periods  ranging up to ten years and generally  expire in five to
ten years.

The 1998 Stock Option Plan  provides that the Board of Directors or its delegate
may grant stock options, stock appreciation rights ("SARs"), or restricted stock
awards,  to selected  employees,  directors,  and independent  contractors.  The
maximum  aggregate number of shares of common stock that may be issued under the
Plan is  2,000,000,  plus 1% of the total  issued and  outstanding  shares as of
December 31 of the year the Plan is in effect.

A summary of outstanding options and warrants is as follows:
<TABLE>
<CAPTION>
                                                                        December 31,
                                         ---------------------------------------------------------------------------
                                                        1998                                   1997
                                         -----------------------------------    ------------------------------------
                                                           Weighted-Avg.                           Weighted-Avg.
                                            Shares        Exercise Price            Shares        Exercise Price
                                            ------        --------------            ------        --------------
<S>                                      <C>                  <C>               <C>                    <C>
Outstanding beginning of
  Year                                       2,754,158        $ 3.19                 1,290,225         $ 3.14
Granted during the year                        807,000          5.81                 1,488,933           3.22
Exercised                                      (49,900)         4.54                   (25,000)          2.50
Forfeited or expired                           (98,200)         6.01                      ----           ----
                                         --------------                         ---------------

Outstanding at end of year                   3,413,058        $ 3.69                 2,754,158         $ 3.19
                                         ==============                         ===============

Exercisable at end of year                   2,394,787                               1,763,105
                                         ==============                         ===============
</TABLE>
<PAGE>
Options and warrants outstanding at December 31, 1998 were exercisable at prices
ranging   from   $1.43  to  $6.88.   All  stock   options   and   warrants   are
non-compensatory. Options and warrants outstanding at year end may be summarized
as follows:
<TABLE>
<CAPTION>
                     Range of                         Number                     Weighted -Average
                  Exercise Price                   Outstanding                     Exercise Price
             --------------------------      -------------------------       ---------------------------
                    <S>                               <C>                              <C>
                    $1.43 -$1.99                         36,250                        $1.44
                     2.00 - 2.99                      1,695,151                         2.25
                     3.00 - 3.99                        363,500                         3.50
                     4.00 - 4.99                        453,157                         4.24
                     5.00 - 5.99                        113,500                         5.17
                     6.00 - 6.99                        751,600                         6.36
</TABLE>

Additionally,  in  conjunction  with the initial  public  offering,  the Company
issued 690,000 warrants.  Two warrants entitle the holder thereof to purchase at
a price of $7.50 per share, one share of common stock at any time until November
16,  2000.  The warrants  are subject to  redemption  by the Company at $.05 per
warrant  at any time on 30  days'  written  notice,  provided  that the  average
closing  bid  price of the  common  stock on  NASDAQ  is at least  $8.50 for ten
consecutive  trading  days  ending  five days prior to the date of the notice of
redemption.

The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation".
In accordance  with the provisions of SFAS 123, the Company  applies  Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related  Interpretations  in accounting for its stock option and warrant grants.
If the Company had elected to recognize compensation expense based upon the fair
value at the  grant  dates  for  awards  under  this  plan  consistent  with the
methodology prescribed by SFAS 123, the Company's results of operations would be
as follows:
<TABLE>
<CAPTION>
                                                                              1998                       1997
                                                                       --------------------       -------------------
     <S>                                  <C>                          <C>                        <C>
     Net  income (loss):                  As reported                  $        11,695,741        $      (11,644,060)
                                          Unaudited pro forma          $        10,873,470        $      (12,984,054)

     Net income (loss) per share:         As reported - basic                          .52                     (1.08)
                                          Unaudited pro forma
                                          basic                                        .49                     (1.21)

                                          As reported - diluted                        .49                     (1.08)
                                          Unaudited pro forma
                                          diluted                                      .46                     (1.21)
</TABLE>

The fair value of each  option and  warrant  is  estimated  on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively;  expected volatility
of 1.02% and  risk-free  interest  rates of 4.28% and  5.48%,  respectively.  An
expected  option  term of 5 years  for  both  periods  was  developed  based  on
historical  grant  information.  Because the Company has not paid  dividends and
anticipates  retaining earnings to provide funds for the operation and expansion
of the Company in the future,  no dividends  were  assumed in the  Black-Scholes
option pricing model.

Because  the  Company's   stock   options  and  warrants  have   characteristics
significantly  different from those of traded options and warrants,  and because
changes in the subjective input assumptions can materially affect the fair value
estimate,  in  management's  opinion,  the  existing  models do not  necessarily
provide a  reliable  single  measure  of the fair  value of its  employee  stock
options and warrants.
<PAGE>
NOTE 13: Subsequent Events

In January 1999, the Company  acquired  Priority  Transportation,  Inc. an Olive
Branch,  Mississippi based truckload carrier. Total consideration for all of the
outstanding shares of Priority was approximately  $4.75 million which was funded
by the issuance of  approximately  804,000 shares of Transit Group common stock,
the payment of $750,000 cash, and a $495,000 payment on a promissory note.

The Company acquired Massengill Trucking Service, Inc. in March 1999. Massengill
was a privately held truckload carrier based in Hickory Flat,  Mississippi.  The
acquisition  was  valued at $6.3  million  which was funded by the  issuance  of
approximately  970,000  shares of Transit Group common stock,  a cash payment of
$1.1 million at closing, and approximately $850,000 over a five year period.

Also in March 1999, the Company acquired Chesterton, Indiana based KAT, Inc. for
consideration   of   approximately   $4.2   million,   which  was  comprised  of
approximately 812,000 shares of Transit Group common stock and $725,000 in cash.

The business combinations described above and in Note 3 of Notes to Consolidated
Financial  Statements  will be  accounted  for  under  the  purchase  method  of
accounting.  Accordingly,  the operating results of the acquired  companies have
been included in the Company's  consolidated  financial  statements  since their
respective  dates of acquisition.  Assets acquired and liabilities  assumed were
recorded at fair market value.

The unaudited pro forma financial  information  reflects the operations of the 5
companies  acquired  in  1997,  the 6  companies  acquired  in  1998,  and the 3
companies  acquired in 1999 as if they all had been acquired on January 1, 1997.
The following  adjustments were made to the historical  financial  statements of
acquired companies prior to their acquisition by the Company:

     -   Reduced  depreciation  expense  due to  changes  in  depreciation
         policies and estimated lives;
     -   Amortization of goodwill recorded in connection with the acquisitions;
     -   Additional interest costs for the cash portion of the acquisition
         costs; and
     -   Interest costs of the acquired companies have been adjusted to reflect
         the Company's financing costs.

No  projected  provision  for  cost  reductions  (such as  insurance,  overhead,
purchasing, and fuel) have been reflected in the historical financial statements
of the subsidiaries from January 1, 1997 through the date of acquisition.

<TABLE>
<CAPTION>
                                Unaudited Pro Forma Combined Results of Operations

                                                                                       December 31
                                                                         ----------------------------------------
                                                                               1998                  1997
                                                                         ------------------    ------------------
           <S>                                                           <C>                   <C>

           Revenue                                                       $     296,364,000     $     296,228,000
                                                                         ==================    ==================

           Net income                                                    $      14,703,000     $       4,073,000
                                                                         ==================    ==================

           Income per basic common share                                 $             .56     $             .16
                                                                         ==================    ==================

           Income per diluted common share                               $             .53     $             .15
                                                                         ==================    ==================

           Weighted average number of basic    common
           shares outstanding                                                   26,381,209            25,791,743
                                                                         ==================    ==================

           Weighted average number of diluted
           common shares outstanding                                            27,636,140            27,147,982
                                                                         ==================    ==================
</TABLE>
<PAGE>
NOTE 14: Related Party Transactions

The Company leases certain  facilities  from several of the former owners of the
businesses  acquired.  During 1998 and 1997,  rental  payments  under  operating
leases  to  related  parties  aggregated  $73,000  and  $194,000,  respectively.
Payments to related  parties under  capitalized  leases totaled $1.6 million and
$785,000 in 1998 and 1997, respectively.

The terms of the leases with related  parties is, in the opinion of the Company,
no less  favorable to the Company than could be obtained  from  unrelated  third
parties.

NOTE 15: Commitments and Contingencies

In connection with the acquisitions of Capitol Warehouse,  Service Express,  and
Carroll  Fulmer,  the  Company  granted the  selling  shareholders  the right to
require  the  Company to redeem a portion of the shares  which they  received in
exchange for selling their businesses to the Company. The dollar amount of stock
subject to mandatory  redemption by the Company  aggregated  approximately  $8.1
million.  The redemption  rights expire in the amounts of $2.1 million at August
15, 1998 and $6.0 million at August 29, 2003.

Holders of  redemption  rights with respect to $6.0 million of stock may require
either the Company to redeem the stock or a major  shareholder of the Company to
acquire the stock at a price of $3.60 per share.  Through December 31, 1998, the
Company  has  received  notification  that  shareholders  have  exercised  their
redemption  rights with respect to approximately  $2.3 million.  Of this amount,
approximately  $2.25 million has been purchased by third parties and $75,000 has
been redeemed by the Company, thereby reducing the Company's obligation.  To the
extent such  redemption  rights are  exercised,  the Company will be required to
fund the cash required to meet its obligations  under the redemption  rights, by
drawing on bank lines which may be  available  to its  subsidiaries,  or to call
upon a  major  shareholder  to  purchase  the  stock  under  such  shareholder's
obligations and guarantees associated with the acquisition contracts.

In  connection  with the  sale of the  Company's  parcel  delivery  and  courier
operations, the Company issued certain warranties regarding the value of certain
assets and  liabilities  transferred  to the  purchasers of the  businesses  and
remains  contingently  liable on certain real and personal  property leases.  To
provide for  possible  liabilities,  which would arise under the  warranties  on
lease agreements, the Company has recorded a liability of approximately $273,000
and $566,000 at December 31, 1998 and 1997, respectively.

The Company is a party to various  other legal  actions  which are  ordinary and
incidental  to its  business.  While the  outcomes  of legal  actions  cannot be
predicted  with  certainty,  the  Company  believes  the outcome of any of these
proceedings, or all of them combined, will not have a material adverse effect on
its consolidated financial position or results of operations.