U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-QSB



[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 For the quarterly period ended June 30, 1998

[    ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 For the transition period ended ____ to



                       Commission File Number: 33-30123-A



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



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



              2859  Paces Ferry, Suite 1740, Atlanta, Georgia 30039
                     (Address of principal executive offices)


                                 (770) 444-0240
                           (Issuer's telephone number)


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

There were 22,967,267 shares of the Company's  common stock  outstanding as of
July 31, 1998.

Transitional Small Business Disclosure Format (Check One) Yes    No X

<PAGE>

                              TRANSIT GROUP, INC.

                                  FORM 10-QSB

                                     INDEX

PART I. FINANCIAL INFORMATION                                      Page Number

        Item 1
        Financial Statements

        Consolidated Balance Sheets
         as of June 30, 1998 and December 31, 1997                         2

        Consolidated Statements of Operations for the three
         and six month periods ended June 30, 1998 and 1997                3

        Consolidated Statement of Changes in Total Non Redeemable
         Preferred Stock, Common Stock and other Shareholders' Equity      4

        Consolidated Statements of Cash Flows for the six
         months ended June 30, 1998 and 1997                               5

        Notes to Consolidated Financial Statements                         6

        Item 2
        Management's Discussion and Analysis or Plan of Operation          9

PART II.OTHER INFORMATION

        Item 1
        Legal Proceedings                                                13

        Item 2
        Changes in Securities and Use of Proceeds                        13

        Item 3
        Defaults Upon Senior Securities                                  13

        Item 4
        Submission of Matters to a Vote of Security Holders              13

        Item 5
        Other Information                                                13

        Item 6
        Exhibits and Reports on Form 8-K                                 14

<PAGE>
<TABLE>
<CAPTION>
                                                TRANSIT GROUP, INC.

                                           CONSOLIDATED BALANCE SHEETS

                                                     ASSETS
    
                                                                            June 30,              December 31,
                                                                              1998                    1997
                                                                         ----------------        ---------------
                                                                           (Unaudited)
<S>                                                                      <C>                     <C> 
Current assets:

  Cash                                                                   $     2,869,450         $      789,791

  Accounts receivable (net of allowance of $609,716 and $173,000)             22,729,646             11,314,417

  Other current assets                                                         4,226,178              1,429,181
                                                                         ----------------        ---------------
      Total current assets                                                    29,825,274             13,533,389
                                                                         ----------------        ---------------
Noncurrent assets:

  Equipment, at net book value                                                51,243,773             30,045,866

  Goodwill                                                                    41,444,760             30,706,028

  Other assets                                                                   932,090                769,522
                                                                         ----------------        ---------------
      Total noncurrent assets                                                 93,620,623             61,521,416
                                                                         ----------------        ---------------
       Total assets                                                      $   123,445,897         $   75,054,805
                                                                         ================        ===============
          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

  Current portion of long-term debt and capital lease obligations        $    20,247,108         $    8,176,975

  Accounts payable and accrued expenses                                       15,885,954              9,551,527

  Current portion of deferred taxes                                              732,548                582,548

  Net current liabilities of discontinued operations                             499,073                565,886
                                                                         ----------------        ---------------
      Total current liabilities                                               37,364,683             18,876,936
                                                                         ----------------        ---------------
<PAGE>
Noncurrent liabilities:

  Long-term debt and capital lease obligations                                37,686,583             23,651,763

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

  Other noncurrent liabilities                                                 3,211,000                  -----

  Deferred taxes                                                               3,921,981              2,357,425
                                                                         ----------------        ---------------
     Total noncurrent liabilities                                             47,819,564             30,009,188
                                                                         ----------------        ---------------

     Total liabilities                                                        85,184,247             48,886,124
                                                                         ----------------        ---------------
Commitments and contingencies

Redeemable common stock                                                        5,675,400              7,452,007
                                                                         ----------------        ---------------
Non redeemable preferred stock, common stock

 and other shareholders' equity:

  Preferred stock, $.01 par value, 800,000 shares authorized                       -----                  -----

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

  authorized, 22,870,603 and 20,574,626 shares issued and outstanding            213,665                185,770

  Additional paid-in capital                                                  63,521,749             50,650,534

  Notes receivable secured by stock                                           (1,710,412)              (675,000)

  Accumulated deficit                                                        (29,438,752)           (31,444,630)
                                                                         ----------------        ---------------
      Total non redeemable preferred stock, common stock
       and other shareholders' equity                                         32,586,250             18,716,674
                                                                         ----------------        ---------------

      Total liabilities and shareholders' equity                         $   123,445,897         $   75,054,805
                                                                         ================        ===============
</TABLE>
      See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                              TRANSIT GROUP, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

                                                          Three Months Ended June 30,             Six Months Ended June 30,
                                                     -------------------------------------   ------------------------------------

                                                            1998                1997               1998                1997
<S>                                                 <C>                 <C>                 <C>                <C> 
                                                    -----------------   -----------------   ---------------    -----------------
Revenues and other income:
Freight and transportation revenue                   $     34,307,604    $          -----    $   60,240,344     $          -----
Other income                                                1,100,603               -----         1,598,347                -----
                                                     -----------------   -----------------   ---------------    -----------------
    Total revenues and other income                         35,408,207              -----        61,838,691                -----
                                                     -----------------   -----------------   ---------------    -----------------

Operating expenses:
Purchased transportation                                   16,281,096               -----        28,659,668                -----
Salaries, wages and benefits                                7,981,256               -----        13,579,800                -----
Fuel                                                        2,571,675               -----         4,591,423                -----
Operating supplies and expenses                             3,093,475               -----         5,193,791                -----
Insurance                                                     644,582               -----         1,170,528                -----
Depreciation and amortization expense                       1,642,968               -----         2,992,085                -----
General and administrative expense                          1,054,291             174,658         1,765,375              268,066
                                                     -----------------   -----------------   ---------------    -----------------
      Total operating expenses                             33,269,343             174,658        57,952,670              268,066
                                                     -----------------   -----------------   ---------------    -----------------

     Operating income (loss)                                2,138,864            (174,658)        3,886,021             (268,066)
Interest expense                                              866,475               -----         1,671,134                -----
                                                     -----------------   -----------------   ---------------    -----------------

Continuing operations:
   Income (loss) from continuing operations
      before income taxes                                   1,272,389            (174,658)        2,214,887             (268,066)
   Income taxes attributable to continuing
     operations                                               108,752               -----           209,009                -----
                                                     -----------------   -----------------   ---------------    -----------------
   Income (loss) from continuing operations                 1,163,637            (174,658)        2,005,878             (268,066)

Discontinued operations:
  Loss from discontinued operations                             -----          (3,678,986)            -----           (6,114,408)
  Loss on disposal including provision for
     operating losses through disposal date                     -----          (7,455,966)            -----           (7,455,966)
                                                     -----------------   -----------------   ---------------    -----------------

  Net income (loss)                                         1,163,637         (11,309,610)        2,005,878          (13,838,440)
Preferred stock dividend requirement                            -----            (192,500)            -----             (385,000)
                                                     -----------------   -----------------   ---------------    -----------------

Income (loss) to common shareholders                 $      1,163,637    $    (11,502,110)   $    2,005,878     $    (14,223,440)
                                                     =================   =================   ===============    =================
<PAGE>
Income (loss) per common share -- basic
  and diluted
  Continuing operations                              $           0.05    $          (0.06)   $         0.09     $          (0.13)
  Loss from discontinued operations                             -----               (1.84)            -----                (2.77)
                                                     -----------------   -----------------   ---------------    -----------------

        Net income (loss) per basic and diluted
          common share                               $           0.05    $          (1.90)   $         0.09     $          (2.90)
                                                     =================   =================   ===============    =================

Weighted average number of common shares
  outstanding - basic                                      21,726,967           6,039,497        21,277,313            4,905,385
                                                     =================   =================   ===============    =================

Weighted average number of common shares
  outstanding - diluted                                    23,267,346           6,039,497        22,666,801            4,905,385
                                                     =================   =================   ===============    =================
</TABLE>
     See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                 TRANSIT GROUP, INC.

                                     CONSOLIDATED STATEMENT OF CHANGES IN TOTAL

                                    NON REDEEMABLE PREFERRED STOCK, COMMON STOCK

                                           AND OTHER SHAREHOLDERS' EQUITY

                                                                                                             Total
                                      Common        Additional      Note receivable     Accumulated      shareholders'
                                       stock     paid-in capital    secured by stock      deficit            equity
                                       -----     ---------------    ----------------      -------            ------
<S>                                 <C>            <C>                 <C>            <C>                <C>  
Balance at December 31, 1997        $ 185,770      $ 50,650,534        $ (675,000)    $ (31,444,630)     $ 18,716,674

Stock issued for acquisitions          23,168        11,174,342             -----             -----        11,197,510

Stock no longer subject

  to redemption                         4,935         1,771,665             -----             -----         1,776,600

Accrued interest                        -----             -----           (32,383)            -----           (32,383)

Note secured by stock                   -----             -----        (1,003,029)            -----        (1,003,029)

Retirement of stock                      (208)          (74,792)            -----             -----           (75,000)

Net income                              -----             -----             -----         2,005,878         2,005,878

                                   ===========  ================ ================= ================= =================
Balance June 30, 1998               $ 213,665      $ 63,521,749      $ (1,710,412)    $ (29,438,752)     $ 32,586,250
                                   ===========  ================ ================= ================= =================
</TABLE>
     See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                 TRANSIT GROUP, INC.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (Unaudited)
                                                                                       Six Months Ended June 30,
                                                                         ----------------------------------------------

                                                                                  1998                     1997
                                                                         ---------------------    ---------------------
<S>                                                                      <C>                      <C>          
Cash flows from operating activities:
  Income (loss) from continuing operations                               $          2,005,878     $           (268,066)
                                                                         ---------------------    ---------------------
    Adjustments to reconcile income (loss) to cash provided by (used in)
      operating activities:
      Depreciation and amortization                                                 2,992,085                    1,179
      Gain on sale of equipment                                                      (135,608)                   -----
    Changes in assets and liabilities
      Increase in accounts receivable                                                (670,545)                   -----
      Decrease (increase) in other assets                                             136,056                 (298,467)
      (Decrease) increase in accounts payable and accrued expenses                 (1,061,514)                  96,322
      Other                                                                            20,950                    -----
                                                                         ---------------------    ---------------------
          Total adjustments                                                         1,281,424                 (200,966)
                                                                         ---------------------    ---------------------

          Net cash provided by (used by) continuing operations                      3,287,302                 (469,032)
          Net cash used by discontinued operations                                    (66,813)              (2,263,764)
                                                                         ---------------------    ---------------------
              Net cash provided by (used by) operating activities                   3,220,489               (2,732,796)
                                                                         ---------------------    ---------------------

Cash flows from investing activities:
  Business combinations, net of cash acquired                                      (3,243,751)                   -----
  Proceeds from disposal of equipment                                               2,366,933                  198,555
  Purchase of equipment                                                            (2,498,084)                 (98,848)
                                                                         ---------------------    ---------------------
               Net cash (used by)provided by investing activities                  (3,374,902)                  99,707
                                                                         ---------------------    ---------------------

Cash flows from financing activities:
  Repayment of capital lease obligations and long-term debt                        (8,495,888)              (5,293,260)
  Increase in borrowings                                                           11,700,560                2,945,600
  Proceeds from issuance of common stock                                                -----                6,375,014
  Dividends paid on preferred stock                                                     -----                 (666,750)
  Conversion of debentures                                                              -----                 (300,000)
  Decrease in bank overdraft                                                         (970,600)                (423,957)
                                                                         ---------------------    ---------------------
               Net cash provided by financing activities                            2,234,072                2,636,647
                                                                         ---------------------    ---------------------

Increase in cash                                                                    2,079,659                    3,558
Cash, beginning of period                                                             789,791                    6,455
                                                                         ---------------------    ---------------------
Cash, end of period                                                      $          2,869,450     $             10,013
                                                                         =====================    =====================
<PAGE>
Supplemental cash flow data:
   Cash paid for interest                                                $          1,682,826     $            311,302
                                                                         =====================    =====================

Business combinations:
  Fair value of assets acquired                                          $         46,544,421     $              -----
  Fair value of liabilities assumed                                               (30,743,911)                   -----
  Common stock issued                                                             (11,197,510)                   -----
                                                                         ---------------------    ---------------------
               Net cash payments                                         $          4,603,000     $              -----
                                                                         =====================    =====================
</TABLE>
    See accompanying notes to consolidated financial statements.
<PAGE>
                              TRANSIT GROUP, INC.
                   Notes to Consolidated Financial Statements

The information presented herein as of June 30, 1998, and for the three and six
month periods ended June 30, 1998 and 1997 is unaudited.  The December 31, 1997
balance  sheet was derived  from  audited  financial  statements,  but does not
include all disclosures required by generally accepted accounting principles.

1.  Basis of Presentation
The consolidated  balance sheet of Transit Group, Inc.  ("Transit Group" or the
"Company") as of June 30, 1998, its consolidated statements of operations,  and
its  consolidated  statements of cash flows for the three and six month periods
ended June 30, 1998 and 1997  reflect the  disposal of the parcel  delivery and
courier operations and the acquisition of eight truckload carriers.

     These financial  statements include the consolidated balance sheets of the
Company and it's eight acquired  subsidiaries,  Carolina Pacific  Distributors,
Inc.  ("Carolina  Pacific"),  Capitol Warehouse,  Inc.  ("Capitol  Warehouse"),
Service Express, Inc. ("Service Express"), Carroll Fulmer Group, Inc. ("Carroll
Fulmer"),  Rainbow Trucking  ("Rainbow"),  Transportation  Resource Management,
Inc. ("TRM"),  Certified Transport, Inc. ("Certified"),  and KJ Transportation,
Inc.  ("KJ") at June 30, 1998 and the results of operations  and cash flows for
the periods since acquisition:

Company                                           Date Acquired
------------------------                          -------------
Carolina Pacific                                  July 12, 1997
Capitol Warehouse                                 August 16, 1997
Service Express                                   August 16, 1997
Carroll Fulmer                                    August 30, 1997
Rainbow                                           December 30, 1997
TRM                                               January 31, 1998
Certified                                         May 5, 1998
KJ                                                June 17, 1998

The Company's  consolidated statement of operations for the three and six month
period  ended June 30, 1997 and it's  consolidated  statement of cash flows for
the six month  period  ended June 30,  1997 have been  restated  to reflect the
disposal of the company's parcel delivery and courier operations.

2.  Summary of Significant Accounting Policies

Management's Representation

The accompanying interim  consolidated  financial statements have been prepared
by the Company in accordance and consistent with the accounting policies stated
in the  Company's  1997  Annual  Report on Form  10-KSB  and  should be read in
conjunction with the consolidated  financial  statements  appearing therein. In
the opinion of management, all adjustments necessary for a fair presentation of
such  consolidated  financial  statements are reflected in the interim  periods
presented.  The consolidated  financial  statements for the three and six month
periods ended June 30, 1997 have been restated in accordance with APB No. 30 to
reflect the Company's  decision to dispose of the courier and package  delivery
operations.  Interim  results are not  necessarily  indicative of results for a
full year.

The consolidated  financial  statements and notes are presented as permitted by
Form  10-QSB and do not  contain  certain  information  included  in the annual
consolidated financial statements and notes of Transit Group.
<PAGE>
3.  Business Combinations

The Company acquired five truckload  carriers in 1997, one company in the first
quarter of 1998,  and two  companies in the second  quarter of 1998.  On May 5,
1998 the company acquired all of the outstanding shares of Certified, a dry van
carrier  and  its  logistics  affiliate  Venture  Logistics,   Inc.,  based  in
Indianapolis,  Indiana.  In connection  with this  acquisition the Company paid
$800,000 in cash and issued  1,072,165 of its common  shares.  On June 16, 1998
the Company  acquired all of the  outstanding  shares of KJ  Transportation  (a
truckload carrier based in Rochester, New York) in exchange for $3.5 million in
cash and 878,688 shares of the Company's common stock.

All of the Company's  acquisitions  have been  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.  The  purchase  price has been
preliminarily allocated to the assets acquired and liabilities assumed based on
their  estimated  fair market  value at the date of  acquisition.  The purchase
price  of the  respective  companies  exceeded  the fair  value  of net  assets
acquired  by  approximately  $42.4  million,  which  is  being  amortized  on a
straight-line basis over 40 years. In connection with these  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 the plan. The following unaudited pro
forma  consolidated  results of operations of the Company for the three and six
month periods  ended June 30, 1998 and 1997 account for the eight  acquisitions
and the disposal of the Company's parcel delivery and courier  operations as if
they had  occurred  on  January 1, 1998 and 1997,  respectively.  The pro forma
results give effect to the amortization of goodwill,  the effects of additional
interest expense and certain other adjustments.
<TABLE>
<CAPTION>
                                Unaudited Pro Forma Combined Results of Operations
                                                 Three months ended June 30,           Six months ended June 30,
                                                  1998                1997              1998                1997
                                              -------------      --------------    ---------------    ----------------
     <S>                                      <C>                <C>               <C>                <C>  
     Revenues                                 $  57,542,000      $  56,904,000     $  108,659,000     $  107,726,000
                                              ==============     ==============    ===============    ================

     Income from continuing
     operations available to                  $   1,154,000      $     847,000     $    2,734,000     $    1,354,000
     common shareholders
                                              ==============     ==============    ===============    ================

     Income per basic common share            $        .05       $         .06     $          .12     $          .09
                                              ==============     ==============    ===============    ================

     Income per diluted common share          $        .05       $         .05     $          .11     $          .08
                                              ==============     ==============    ===============    ================

     Weighted average number of basic
     common shares outstanding                  22,870,604          15,346,327         22,881,021         15,346,327
                                              ==============     ==============    ===============    ================

     Weighted average number of diluted
     common shares outstanding                  24,410,983          15,890,128         24,270,509         16,040,712
                                              ==============     ==============    ===============    ================
</TABLE>
<PAGE>
The above pro forma  statements do not necessarily  purport to be indicative of
the results of operations  which would have occurred had the  acquisition  been
made on January 1, 1998 or 1997, nor are they indicative of future results.

4.  Income Taxes

At June 30, 1998, the Company has approximately  $28.4 million of net operating
loss carryforwards  potentially available to offset taxable income which expire
during the years 2000 to 2012.  The  Company has not given  recognition  to tax
benefits of net  operating  loss  carryforwards  in the  financial  statements,
except for those net operating loss  carryforwards  which can be offset against
current income,  because management believes the Company's history of operating
losses  diminishes the Company's  immediate  ability to  demonstrate  that more
likely than not, the future benefits will be realized. Accordingly, the Company
has provided a valuation allowance of $12.2 million against those net operating
loss  carryforwards.  Additionally,  these net operating loss carryforwards are
subject to limitation in any given year in the event of significant  changes in
ownership  as set  forth in the  Internal  Revenue  Code and  related  Treasury
Regulations.

The  difference   between  the  provision  for  income  taxes  attributable  to
continuing  operations  and the amount that would be expected using the Federal
statutory  income  tax of 34% is  related  to the  reduction  in the  valuation
allowance due to the generation of taxable income in the current period as well
as certain nondeductible expenses.

5.  Subsequent Events

In July  1998 the  Company  acquired  Network  Transport,  Inc.  ("Network")  a
Canadian  trucking  company with routes across  Canada as well as  cross-border
services to Northern markets in the U.S. The Company issued cash and 191,000 of
its shares valued at  approximately  $1.4 million in exchange for the shares of
Network.

In August 1998, Transit Group completed the acquisition of Diversified Trucking
Corporation a dry-van  carrier based in Opelika,  Alabama.  The Company  issued
178,519  shares of its common  stock and cash,  in  exchange  for the shares of
Diversified Trucking. The cash and stock transaction is valued at approximately
$1.3 million.

Also in August 1998, the Company completed the previously announced acquisition
of  Northstar  Transportation,  Inc.  Northstar  Transportation  focuses on the
paper, building materials, and food industries and is based in Dothan, Alabama.
In connection  with the  acquisition  of Northstar,  the Company issued 349,091
shares of its stock and cash valued at approximately $2.5 million.

The  business  combinations  described  above will be  accounted  for under the
purchase method of accounting.  Assets acquired and liabilities assumed will be
recorded at fair market value.  The purchase price of the respective  companies
is  expected to exceed the fair value of net assets  acquired by  approximately
$45 million,  which will be amortized on a  straight-line  basis over 40 years.
<PAGE>
The  following  unaudited pro forma  consolidated  results of operations of the
Company  for the three  and six  month  periods  ended  June 30,  1998 and 1997
account for the Company's five 1997 acquisitions, the three acquisitions in the
first  half of 1998  and  the  three  acquisitions  (Network,  Diversified  and
Northstar)  which  have  taken  place  thus far in the third  quarter,  and the
disposal of the Company's parcel delivery and courier operations as if they had
occurred on January 1, 1998 and 1997, respectively.  The pro forma results give
effect to the  amortization  of goodwill,  the effects of  additional  interest
expense, and certain adjustments.
<TABLE>
<CAPTION>
                                Unaudited Pro Forma Combined Results of Operations

                                                  Three months ended June 30,           Six months ended June 30,
                                                   1998              1997                1998               1997
                                              ---------------    --------------     ---------------    ---------------
     <S>                                      <C>                <C>                <C>                <C> 

     Revenues                                 $   64,624,000     $  63,730,000      $  122,381,000     $  120,623,000
                                              ===============    ==============     ===============    ===============

     Income from continuing
     operations available to                  $    1,529,000     $   1,079,000      $    3,622,000     $    1,786,000
     common shareholders
                                              ===============    ==============     ===============    ===============

     Income per basic common share            $          .06     $         .07      $          .15     $          .11
                                              ===============    ==============     ===============    ===============

     Income per diluted common share          $          .06     $         .07      $          .14     $          .11
                                              ===============    ==============     ===============    ===============

     Weighted average number of basic
     common shares outstanding                    23,589,214        15,873,937          23,599,630         15,873,937
                                              ===============    ==============     ===============    ===============

     Weighted average number of diluted
     common shares outstanding
                                                  25,129,593        16,417,738          24,989,118         16,568,308
                                              ===============    ==============     ===============    ===============
</TABLE>
The above pro forma  statements do not necessarily  purport to be indicative of
the results of operations  which would have occurred had the  acquisition  been
made on January 1, 1998 or 1997, nor are they indicative of future results.

6.    Commitments and Contingencies

On February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse.  The lawsuit against Capitol Warehouse is pending in
the U.S.  District  Court of the Western  District of  Pennsylvania  (C.A.  No.
97-45J)  and is a  personal  injury  action  in  connection  with  an  accident
involving one of Capitol  Warehouse's  trucks.  The Complaint alleges and seeks
damages of $3.5 million.  Capitol  Warehouse is insured in connection with such
claim for  damages  up to $1.0  million.  In  addition,  a portion of the stock
consideration  paid by the Company for Capitol  Warehouse is held in escrow and
would be returned to the Company in the event that the Company is  obligated to
pay any amounts in connection with this lawsuit. Management is unable to assess
at this time whether and to what extent the plaintiff will be successful on its
claim.
<PAGE>
                      TRANSIT GROUP, INC. AND SUBSIDIARIES
                Item 2. Management's Discussion and Analysis or
                               Plan of Operation

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 or Plan of  Operation
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 growth strategy that relies in part 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.

The following discussion and analysis reflect the Company's financial position,
results of operations and cash flows as restated to reflect the disposal of the
parcel delivery and courier operations in accordance with APB No. 30.

Liquidity and Capital Resources

The Company has incurred  substantial  operating  losses and cash flow deficits
since  inception.  From  September  1985 through June 30, 1998, the Company had
accumulated  a deficit  from  operating  losses of $28.1  million  and has paid
dividends on its preferred stock of approximately $1.3 million.  As of June 30,
1998, the Company had raised $63.7 million,  net of notes receivable secured by
stock in the amount of $1.7 million,  from (i) private  placements of preferred
stock  (which has been  converted  to common  stock),  (ii) its initial  public
offering of November 2, 1989,  (iii) the sale of  restricted  and  unrestricted
common shares and (iv) stock issued in connection  with the  acquisition of the
eight  truckload  carriers.  As a result of  equity  placements,  dividends  on
preferred  stock and  cumulative  losses,  shareholders'  equity as of June 30,
1998,  was $32.6 million,  and common stock issued subject to put  arrangements
was $5.7 million.

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 June 30, 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 $1.7 million of stock at $3.875 per share and
$0.3 million at $6.75 per share have the right to require the Company to redeem
their shares and are  guaranteed  by a major  shareholder.  Of this amount $0.3
million was purchased by third parties in the third quarter.
<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.

Management believes, but can offer no assurances, that it can improve operating
performance and cash flows through the following measures:

Eliminating  Parcel  Delivery and Courier  Operations.  Management has sold its
unprofitable parcel delivery operations to a company controlled by its Chairman
and its courier operations to an unrelated third party.

Acquiring  Profitable Trucking  Operations.  The Company has reorganized into a
"holding company" based in Atlanta,  Georgia.  This new corporate  structure is
intended to increase the Company's  flexibility to pursue the  acquisition  and
operation of profitable  truckload motor carriers.  The Company's  intent is to
continue  to identify  and  acquire  additional  mid-size  trucking  companies,
primarily  with  annual  revenues  between $5 million  and $100  million,  that
possess strong market  positions,  sound  management and a commitment to a high
level of service and quality.  The Company has  completed  the  acquisition  of
eight  companies at June 30, 1998 and has acquired three companies in the third
quarter of 1998.  In connection with these 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 the plan.

Relying on Equity Sales to or Loans from Major  Shareholders.  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 at June 30,  1998.  The loan  amortizes at a rate of $1.0 million
per year  commencing  April  1999.  Accordingly,  $1.0  million of this loan is
included in the balance  sheet under the heading  Current  portion of long-term
debt and capital leases.

Obtaining Bank Financing. Management has negotiated new lines of bank financing
to  provide  working  capital  financing  and  financing  for  acquisitions  of
additional truckload motor carriers. The Company has entered into a $20 million
revolving  credit facility from a bank to make available to Capitol  Warehouse,
Carroll Fulmer,  Service Express,  Rainbow Trucking,  Carolina  Pacific,  TRM ,
Certified  Transport,  and KJ  Transportation  an asset  based  line of  credit
secured by accounts receivable.

Demand Notice

In connection with its  acquisitions,  the Company  routinely  requests waivers
and/or  approvals  from  commercial  lenders  in  regards  to change of control
covenants included in subsidiary loan documents.  Subsequent to the acquisition
of KJ Transportation,  Transamerica  Business Credit  Corporation  notified the
Company  that it does  not  consent  to the  sale of KJ  Transportation  to the
Company and further, has demanded payment in full on approximately eleven Notes
aggregating $6.6 million.  Concurrent with the demand notification,  the lender
offered to re-finance the eleven  obligations  under new terms and  conditions.
<PAGE>
The Company is reviewing the proposal and may refinance these  obligations with
the existing lender or another commercial lender.

The Company is currently negotiating with other lenders to re-finance up to $30
million of existing  obligations  (including  those discussed above) as well as
provide   approximately  $20  million  for  new  equipment  purchases.   It  is
anticipated  that this  refinancing  will be completed in the fourth quarter of
1998.

Legal Proceedings

On February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse.  The lawsuit against Capitol Warehouse is pending in
the U.S.  District  Court of the Western  District of  Pennsylvania  (C.A.  No.
97-45J)  and is a  personal  injury  action  in  connection  with  an  accident
involving one of Capitol  Warehouse's  trucks.  The Complaint alleges and seeks
damages of $3.5 million.  Capitol  Warehouse is insured in connection with such
claim for  damages  up to $1.0  million.  In  addition,  a portion of the stock
consideration  paid by the Company for Capitol  Warehouse is held in escrow and
would be returned to the Company in the event that the Company is  obligated to
pay any amounts in connection with this lawsuit. Management is unable to assess
at this time whether and to what extent the plaintiff will be successful on its
claim.

Financial Condition

As of June 30,  1997,  the  Company  treated  its parcel  delivery  and courier
business as  discontinued  operations.  The Company's  outstanding  vehicle and
equipment  indebtedness,  $2.6 million of  indebtedness  to an affiliate of the
Company's Chairman,  and certain operating leases were assumed by the companies
purchasing the operations.  The Company remains  contingently liable on certain
leases.

Results of Operations - Three and six months ended June 30, 1998

The Company  discontinued  its parcel delivery 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 seven  additional
companies.

The  following  table  sets  forth  items  in  the  Consolidated  Statement  of
Operations  for the three and six months ended June 30, 1998 as a percentage of
operating  revenue.  Because all truckload  operations were acquired during the
second half of 1997 and in the first half of 1998, the table is not comparative
to an earlier period.
<PAGE>
<TABLE>
<CAPTION>
                                                                       Percentage of Operating Revenues
                                                                                 June 30,1998
                                                                                 ------------
                                                                 Three Months Ended        Six Months Ended
                                                               ----------------------    ---------------------
          <S>                                                          <C>                       <C>  

          Revenues and other income                                    100.0%                    100.0%
                                                               ----------------------    ---------------------

          Operating expenses:
             Purchased transportation                                   46.0                      46.3
             Salaries, wages and benefits                               22.5                      22.0
             Fuel                                                        7.3                       7.4
             Operating supplies and expenses                             8.7                       8.4
             Insurance                                                   1.8                       1.9
             Depreciation and amortization expense                       4.7                       4.9
             General and administrative expense                          3.0                       2.9
                                                                                         ---------------------
                                                               ----------------------
                Total operating expenses                                94.0                      93.8
                                                               ----------------------    ---------------------

                Operating income                                         6.0                       6.2
          Interest expense                                               2.4                       2.7
                                                               ----------------------    ---------------------

                Income from continuing
          operations
                   before income taxes                                   3.6                       3.5
          Income taxes attributable to continuing
               Operations                                                0.3                       0.3
                                                               ----------------------    ---------------------

          Income from continuing operations                              3.3%                      3.2%
                                                               ======================    =====================
</TABLE>
The  operating  margins for the three and six month periods ended June 30, 1998
reflect  no  unusual  changes.   The  Company  is  continuing  the  process  of
implementing its  centralization  policy on a regional basis, which will result
in three  primary  operating  regions - the  Southeast  Region,  the  Northeast
Region,  and the Midwest Region.  It is anticipated that this structure will be
completed in the fourth quarter of 1998. This  organization will facilitate the
growth and  management  of the  Company and is expected to continue to identify
operating efficiencies and opportunities including:

     Increased backhaul revenue
     Purchasing efficiencies in the areas of equipment, tires
      and maintenance costs
     Reduction of deadhead miles
<PAGE>
The Company incurred corporate administration expenses for the six months ended
June 30,  1998 of  approximately  $1.8  million as  compared  to  approximately
$268,000  for  the  six  months  ended  June  30,  1997.  These  increases  are
attributable to  administrative  costs of  reorganizing  into a holding company
structure,  the opening of a new  corporate  office in Atlanta,  the  increased
costs associated with its acquisition activities, as well as the administrative
costs of the acquired companies.

Revenues attributable to the discontinued  businesses were $9.8 million for the
six months ended June 30, 1997.

Year 2000

The Company  operates two primary  software  applications:  its  accounting and
financial  reporting  systems and its integrated  dispatch and billing systems.
The accounting and financial reporting systems were acquired from a third party
vendor in 1996 and were  represented  to be compliant  with Year 2000 issues at
acquisition.  The  vendors of the  Company's  integrated  dispatch  and billing
systems have advised the Company that all Year 2000 software modifications will
be completed by the third quarter of 1998. The cost of these modifications will
be covered by the Company's existing software maintenance agreements.

Although the Company does not believe that it will incur any material  costs or
experience  material  disruptions in its business associated with preparing its
internal systems for the Year 2000, there can be no assurances that the Company
will not experience  unanticipated  negative consequences and/or material costs
caused by undetected  errors or defects in the technology  used in its internal
systems. The Company is currently unable to estimate the most reasonably likely
worst-case  effects of the Year 2000 and does not currently  have a contingency
plan in place for any such unanticipated  negative effects. The Company intends
to analyze the worst-case  scenarios and the need for such contingency planning
once the  measures  described  above  have been  completed  and  testing of the
company's systems for Year 2000 compliance has begun.

The  Company  is  currently  unable  to  estimate  whether  it  is  exposed  to
significant  risk of being  adversely  affected by Year 2000  noncompliance  by
third  parties.  During  the third and fourth  quarters  of 1998,  the  Company
intends  to  begin   contacting  third  parties  with  which  it  has  material
relationships,  including its material customers, to attempt to determine their
preparedness  with  respect to Year 2000 issues and to analyze the risks to the
Company in the event any such third  parties  experience  significant  business
interruptions  as result of Year 2000  noncompliance.  The  Company  expects to
complete  this review and analysis and to  determine  the need for  contingency
planning in this regard by March 31, 1999.
<PAGE>
                              TRANSIT GROUP, INC.
                          Part II - Other Information


Item 1 - Legal Proceedings

The Company acquired Capitol Warehouse,  Inc. in August,  1997 and Capitol
Warehouse,  Inc. is currently a  wholly-owned  subsidiary  of the  Company.  On
February 20, 1997, Mark Iannello,  an individual  plaintiff,  filed a Complaint
against Capitol Warehouse,  Inc. The lawsuit against Capitol Warehouse, Inc. is
pending in the U.S.  District  Court of the Western  District  of  Pennsylvania
(C.A.  No.  97-45J)  and is a  personal  injury  action in  connection  with an
accident  involving  one of Capitol  Warehouse,  Inc.'s  trucks.  The Complaint
alleges and seeks damages of $3.5 million.  Capitol Warehouse,  Inc. is insured
in connection  with such claim for damages up to $1.0 million.  In addition,  a
portion of the stock  consideration  paid by the Company for Capitol Warehouse,
Inc.  is held in escrow and would be  returned to the Company in the event that
the Company is obligated to pay any amounts in  connection  with this  lawsuit.
Management  is unable to assess at this time  whether  and to what  extent  the
plaintiff will be successful on its claim.

Item 2 - Changes in Securities and Use of Proceeds

         Not applicable

Item 3 - Defaults on Senior Securities

         Not applicable


Item 4 - Submission of Matters to a Vote of Security Holders

         At its Annual Meeting on June 25, 1998 the Company's shareholders:

         1.   Elected by a vote of 16,870,000 for and 1,300,000 against,
               the following five Directors:

              T. Wayne Davis     Chairman of the Board of Directors
              Philip A. Belyew   Director,President and Chief Financial Officer
              Derek E. Dewan     Director
              Carroll L. Fulmer  Director
              Ford G. Pearson    Director

         2.   Approved the 1998 Stock Incentive Plan of Transit Group, Inc. by
               a vote of 15,776,000 for and 127,914 against,

         3.   Approved the 1998 Stock Purchase Plan of Transit group, Inc. by a
              vote of 15,900,857 for and 11,849 against, and

         4.   Ratified  by a vote of  16,869,177  for and  2,300  against,  the
              appointment  by the Board of  Directors of Price  Waterhouse  LLP
              independent  accountants  for the fiscal year ended  December 31,
              1999.

Item 5 - Other Information

         Not applicable
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K

   (a)   Exhibits


             Exhibit 10 - Material Contracts

            10.1           Purchase Agreement  governing purchase by Transit of
                           the  stock  of  Certified   Transport   and  Venture
                           Logistics  (incorporated  by reference  from Exhibit
                           2.1 to Registrant's Form 8-K dated May 5, 1998).

            10.2           Purchase Agreement governing purchase by Transit of 
                           the stock of KJ Transportation (incorporated by 
                           reference from Exhibit 2.1 to Registrant's Form 8-K
                           dated June 17, 1998).

            11.1           Statement Regarding Computation of Earnings per 
                            Share.

            27.1           Financial Data Schedules

  (b) The Company  filed the following  Current  Reports on Form 8-K during the
       second quarter of 1998:

         (i)      A report on Form 8-K dated May 5, 1998, filed on May 18, 1998 
                  reporting the acquisition of Certified Transport Ltd. and 
                  Venture Logistics Inc.;

         (ii)     A report on Form 8-K dated June 17,  1998,  filed on June 26,
                  1998 reporting the acquisition of KJ Transportation  Inc. and
                  J&L Leasing Inc.

Signature

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

                                           Transit Group, Inc.

Date: August 13, 1998

                                           By:   /s/Wayne N. Nellums
                                                 -------------------
                                                    Wayne N. Nellums
                                                    Vice President,
                                                    Chief Financial Officer
                                                     and Secretary