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 September 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: 000-18601



                               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 30339 (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  23,615,104  shares of the Company's  common
stock  outstanding  as  of  November  9,  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 September 30, 1998 and December 31, 1997                  2

           Consolidated Statements of Operations for the three
            and nine months ended September 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 nine
            months ended September 30, 1998 and 1997                        5

           Notes to Consolidated Financial Statements                       6

           Item 2
           Management's Discussion and Analysis or Plan of Operation        8

PART II.   OTHER INFORMATION

           Item 1
           Legal Proceedings                                                11

           Item 6
           Exhibits and Reports on Form 8-K                                 11
<PAGE>
<TABLE>
<CAPTION>

                                              TRANSIT GROUP, INC.

                                         CONSOLIDATED BALANCE SHEETS



                                                   ASSETS

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

  Cash                                                                   $     1,198,994        $       789,791

  Accounts receivable (net of allowance of $721,240 and $173,000)             26,011,725             11,314,417

  Other current assets                                                         3,614,661              1,429,181
                                                                         ----------------       ----------------
      Total current assets                                                    30,825,380             13,533,389
                                                                         ----------------       ----------------
Noncurrent assets:

  Equipment, at net book value                                                52,917,616             30,045,866

  Goodwill                                                                    45,189,752             30,706,028

  Other assets                                                                 2,418,227                769,522
                                                                         ----------------       ----------------
      Total noncurrent assets                                                100,525,595             61,521,416
                                                                         ----------------       ----------------
      Total assets                                                       $   131,350,975        $    75,054,805
                                                                         ================       ================
          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

  Current portion of long-term debt and capital lease obligations        $    16,146,017        $     8,176,975

  Accounts payable and accrued expenses                                       17,331,014              9,551,527

  Current portion of deferred taxes                                              466,462                582,548

  Net current liabilities of discontinued operations                             365,207                565,886
                                                                         ----------------       ----------------
      Total current liabilities                                               34,308,700             18,876,936
                                                                         ----------------       ----------------
<PAGE>
Noncurrent liabilities:

  Long-term debt and capital lease obligations                                42,233,410             23,651,763

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

  Other noncurrent liabilities                                                 3,855,821                  -----

  Deferred taxes                                                               3,909,746              2,357,425
                                                                         ----------------       ----------------
     Total noncurrent liabilities                                             52,998,977             30,009,188
                                                                         ----------------       ----------------
     Total liabilities                                                        87,307,677             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, 23,615,104 and 20,574,626 shares issued and outstanding            221,110                185,770

  Additional paid-in capital                                                  67,493,765             50,650,534

  Notes receivable secured by stock                                           (1,129,383)              (675,000)

  Accumulated deficit                                                        (28,217,594)           (31,444,630)
                                                                         ----------------       ----------------
      Total non redeemable preferred stock, common stock

       and other shareholders' equity                                         38,367,898             18,716,674
                                                                         ----------------       ----------------

      Total liabilities and shareholders' equity                         $   131,350,975        $    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 September 30,        Nine months ended September 30,
                                                     -------------------------------------   -------------------------------------
                                                            1998                1997                1998                1997
                                                     -----------------   -----------------   -----------------   -----------------
<S>                                                  <C>                 <C>                 <C>                 <C>   
Revenues and other income:
Freight and transportation revenue                   $     54,788,081    $     10,859,233    $    115,028,425    $     10,859,233
Other income                                                1,137,077               -----           2,735,424               -----
                                                     -----------------   -----------------   -----------------   -----------------
                                                     -----------------   -----------------   -----------------   -----------------
   Total revenues and other income                         55,925,158          10,859,233         117,763,849          10,859,233
                                                     -----------------   -----------------   -----------------   -----------------

Operating expenses:
Purchased transportation                                   22,757,085           4,142,025          51,416,753           4,142,025
Salaries, wages and benefits                               13,129,315           2,547,342          26,709,115           2,547,342
Fuel                                                        4,206,896           1,062,043           8,798,319           1,062,043
Operating supplies and expenses                             7,617,796           1,137,956          12,811,587           1,137,956
Insurance                                                   1,124,969             261,500           2,295,497             261,500
Depreciation and amortization expense                       2,369,259             816,188           5,361,344             816,188
General and administrative expense                          1,832,973             422,922           3,598,348             690,988
                                                     -----------------   -----------------   -----------------   -----------------
                                                     -----------------   -----------------   -----------------   -----------------
     Total operating expenses                              53,038,293          10,389,976         110,990,963          10,658,042
                                                     -----------------   -----------------   -----------------   -----------------

     Operating income                                       2,886,865             469,257           6,772,886             201,191
Interest expense                                            1,622,763             414,269           3,293,897             414,269
                                                     -----------------   -----------------   -----------------   -----------------

Continuing operations:
   Income (loss) from continuing operations
      before income taxes                                   1,264,102              54,988           3,478,989            (213,078)
   Income taxes attributable to continuing
     operations                                                42,944              42,830             251,953              42,830
                                                     -----------------   -----------------   -----------------   -----------------
   Income (loss) from continuing operations                 1,221,158              12,158           3,227,036            (255,908)

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

  Net income (loss)                                         1,221,158              12,158           3,227,036         (13,826,282)
Preferred stock dividend requirement                            -----               -----               -----            (385,000)
                                                     -----------------   -----------------   -----------------   -----------------

Income (loss) to common shareholders                 $      1,221,158    $         12,158    $      3,227,036    $    (14,211,282)
                                                     =================   =================   =================   =================

Income (loss) per basic common share
  Continuing operations                              $           0.05    $           0.00    $           0.15    $          (0.08)
  Loss from discontinued operations                              0.00                0.00                0.00               (1.61)
                                                     -----------------   -----------------   -----------------   -----------------

        Net income (loss) per basic
          common share                               $           0.05    $           0.00    $           0.15    $          (1.69)
                                                     =================   =================   =================   =================
<PAGE>
Income (loss) per diluted common share
  Continuing operations                              $           0.05    $           0.00    $           0.14    $          (0.08)
  Loss from discontinued operations                              0.00                0.00                0.00               (1.61)
                                                     -----------------   -----------------   -----------------   -----------------

        Net income (loss) per diluted
          common share                               $           0.05    $           0.00    $           0.14    $          (1.69)
                                                     =================   =================   =================   =================

Weighted average number of common shares
  outstanding - basic                                      23,363,430          15,337,933          21,980,326           8,421,113
                                                     =================   =================   =================   =================

Weighted average number of common shares
  outstanding - diluted                                    24,545,902          17,037,417          23,300,019           8,421,113
                                                     =================   =================   =================   =================
</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> 
Balance at December 31, 1997      $      185,770     $   50,650,534      $     (675,000)    $ (31,444,630)     $   18,716,674

Stock issued for acquisitions             30,359         14,990,724               -----             -----          15,021,083

Stock no longer subject

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

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

Accrued interest                           -----              -----             (54,383)            -----             (54,383)

Note secured by stock                      -----              -----            (400,000)            -----            (400,000)

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

Net income                                 -----              -----               -----         3,227,036           3,227,036

                                  ===============    ===============     ===============   ===============     ===============
Balance at September 30, 1998     $      221,110     $   67,493,765      $   (1,129,383)   $  (28,217,594)     $   38,367,898
                                  ===============    ===============     ===============   ===============     ===============
</TABLE>
           See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                           
                                                 TRANSIT GROUP, INC.
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)

                                                                              Nine months ended September 30,
                                                                         ---------------------------------------
                                                                               1998                   1997
                                                                         ----------------       ----------------
<S>                                                                      <C>                    <C> 
Cash flows from operating activities:
  Income (loss) from continuing operations                               $     3,227,036        $      (255,908)
                                                                         ----------------       ----------------

    Adjustments  to  reconcile  income  (loss)  to cash  provided  by (used in)
      operating activities:
      Depreciation and amortization                                            5,361,344                816,188
      Gain on sale of equipment                                                 (264,655)                 -----
    Changes in assets and liabilities
      Decrease (increase) in accounts receivable                                 214,340                633,883
      Decrease (increase) in other assets                                       (108,940)              (316,069)
      Decrease in accounts payable and accrued expenses                       (2,638,935)              (263,329)
      Other                                                                      550,751                142,184
                                                                         ----------------       ----------------
           Total adjustments                                                   3,113,905              1,012,857
                                                                         ----------------       ----------------

          Net cash provided by continuing operations                           6,340,941                756,949
          Net cash used by discontinued operations                              (200,679)            (3,020,194)
                                                                         ----------------       ----------------

              Net cash provided by (used by) operating activities              6,140,262             (2,263,245)
                                                                         ----------------       ----------------

Cash flows from investing activities:
  Business combinations, net of cash acquired                                 (4,470,212)            (3,897,691)
  Proceeds from disposal of equipment                                          3,725,434                220,043
  Purchase of equipment                                                       (4,826,828)              (232,337)
                                                                         ----------------       ----------------

               Net cash used by investing activities                          (5,571,606)            (3,909,985)
                                                                         ----------------       ----------------

Cash flows from financing activities:
  Repayment of capital lease obligations and long-term debt                  (15,083,926)            (2,727,101)
  Increase in borrowings                                                      14,963,585              4,999,356
  Exercise of stock options                                                       35,888                  -----
  Retirement of stock                                                            (75,000)                 -----
  Proceeds from issuance of common stock                                           -----              6,075,014
  Dividends paid on preferred stock                                                -----               (666,750)
  Decrease in bank overdraft                                                       -----               (679,383)
                                                                         ----------------       ----------------

               Net cash (used by) provided by financing activities              (159,453)             7,001,136
                                                                         ----------------       ----------------

Increase in cash                                                                 409,203                827,906
Cash, beginning of period                                                        789,791                  6,455
                                                                         ----------------       ----------------
Cash, end of period                                                      $     1,198,994        $       834,361
                                                                         ================       ================
<PAGE>
Supplemental cash flow data:
   Cash paid for interest                                                $     3,642,613        $       861,183
                                                                         ================       ================

Business combinations:
  Fair value of assets acquired                                          $    56,638,333        $    74,168,000
  Fair value of liabilities assumed                                          (36,097,250)           (49,838,000)
  Common stock issued                                                        (15,021,083)           (20,630,000)
                                                                         ----------------       ----------------
               Net cash payments                                         $     5,520,000        $     3,700,000
                                                                         ================       ================
</TABLE>
   See accompanying notes to consolidated financial statements.
<PAGE>
                               TRANSIT GROUP, INC.
                   Notes to Consolidated Financial Statements

The  information  presented  herein as of September 30, 1998, and for the three
and nine month  periods ended  September  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 September 30, 1998, its consolidated statements of operations,
for the three and nine month periods ended  September 30, 1998 and 1997 and its
consolidated statements of cash flows for the nine month period ended September
30, 1997 reflect the disposal of the parcel delivery and courier operations and
the acquisition of eleven truckload carriers.

These  financial  statements  include  the  consolidated  balance  sheets of the
Company and it's eleven 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,   Inc.   ("Rainbow"),   Transportation   Resource
Management,   Inc.  ("TRM"),   Certified  Transport,   Inc.  ("Certified"),   KJ
Transportation,  Inc. ("KJ"), Network Transport,  Inc. ("Network"),  Diversified
Trucking  Corporation  ("Diversified"),   and  Northstar  Transportation,   Inc.
("Northstar") at September 30, 1998 and the results of operations and cash flows
for the periods since acquisition.  The companies were acquired on the following
dates:

     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
     Network                                         July 13, 1998
     Diversified                                     August 5, 1998
     Northstar                                       August 11, 1998

The Company's consolidated statement of operations for the three and nine month
periods ended September 30, 1997 and it's consolidated  statement of cash flows
for the nine month  period  ended  September  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 nine month
periods ended  September 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, two companies in the second quarter of 1998 and three companies
in the third  quarter of 1998.  On January 30, 1998 the  Company  acquired  Fort
Wayne,  Indiana based TRM in exchange for $200,000 in cash and 365,957 shares of
Transit  Group  common  stock.  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 (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.  On July 13,
1998 the Company  acquired  Network of Toronto,  Canada for $250,000 in cash and
191,491  shares of Transit  Group  common  stock.  On August 5, 1998 the Company
acquired  all of the  outstanding  shares  of  Diversified  (based  in  Opelika,
Alabama) in  exchange  for  178,519 of its common  shares and a cash  payment of
$70,000. On August 11, 1998 the Company acquired Dothan, Alabama based Northstar
in  exchange  for  349,091 of its common  shares.  In October  1998 the  Company
announced  that it had  signed a letter of intent to  acquire a  privately  held
truckload carrier in Mississippi.

The  Company  accounts  for  its  acquisitions  under  the  purchase  method  of
accounting.  Accordingly,  the operating  results of the acquired  companies are
included  in  the  Company's   consolidated   financial  statements  from  their
respective dates of acquisition.  The purchase price is 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  exceeds the fair value of net assets by approximately  $46.1 million,
which is being amortized on a  straight-line  basis over 40 years. In connection
with  these  acquisitions,  the  company  also  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 amount charged to the accrual  through  September 30, 1998 is not
considered  significant.  The following unaudited pro forma consolidated results
of  operations  of the  Company  for the  three  and nine  month  periods  ended
September  30, 1998 and 1997 account for the Company's  five 1997  acquisitions,
the six  acquisitions  in 1998,  the  acquisition  which is to take place in the
fourth  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 other adjustments.
<TABLE>
<CAPTION>
                                    Unaudited Pro Forma Combined Results of Operations

                                              Three months ended September 30,       Nine months ended September 30,
                                                   1998               1997               1998               1997
                                                   ----               ----               ----               ----
     <S>                                      <C>                <C>               <C>                <C> 
     Revenues                                 $   63,277,000     $  62,639,000     $  197,097,000     $  194,173,000
                                              ===============    ==============    ===============    ===============
     Income from continuing
     operations available to                  $    1,588,000     $     817,000     $    6,175,000     $    3,224,000
     common shareholders
                                              ===============    ==============    ===============    ===============
     Income per basic common share            $          .06     $         .03     $          .25     $          .17
                                              ===============    ==============    ===============    ===============
     Income per diluted common share          $          .06     $         .03     $          .24     $          .15
                                              ===============    ==============    ===============    ===============
     Weighted average number of basic
     common shares outstanding                    24,748,473        23,605,288         24,570,745         19,189,305
                                              ===============    ==============    ===============    ===============
     Weighted average number of diluted
     common shares outstanding                    25,930,945        25,304,722         25,890,438         20,888,739
                                              ===============    ==============     ===============    ===============
</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  acquisitions been
made on January 1, 1998 or 1997, nor are they indicative of future results.

4.  Income Taxes

At  September  30, 1998,  the Company has  approximately  $26.6  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.  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 parties  have  reached and
executed a  settlement  agreement  which  resulted in no  liability  to Transit
Group.

                      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.

In July  1997 the  Company  was  reorganized  into an  Atlanta,  Georgia  based
"holding  company".  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 mid-size trucking companies,  primarily with annual revenues between $5
million and $100  million,  and 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 11 companies as of September 30, 1998.
<PAGE>
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  September 30, 1998, the Company
had  accumulated a deficit from operating  losses of $26.9 million and has paid
dividends on its preferred stock of approximately $1.3 million. As of September
30, 1998, the Company had raised $72.3 million, net of notes receivable secured
by  stock  in the  amount  of $1.1  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 11 truckload  carriers.  As a result of equity  placements,
dividends on preferred stock and cumulative losses,  shareholders' equity as of
September 30, 1998, was $38.4  million,  and common stock issued subject to put
arrangements was $5.7 million.

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 September  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.

In November 1998 the Company  increased  the capacity of its  revolving  line of
credit from $20 million to $30 million. The facility bears interest at a rate of
2.25%  over LIBOR 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  September  30,  1998
$4,400,000 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 Company plans to use $20-$25 million of
the facility to restructure the financing of certain existing equipment and use
the remainder to support future  equipment  purchases.  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  will bear  interest at rates
between 5.50% and 6.00%.  Interest rates on future  fundings will be subject to
changes to 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.

The Company  believes that the amounts  available  from  operating  cash flows,
funds  available  under  its new  credit  facility  with  AmSouth  and  planned
borrowings  will be sufficient to meet the Company's  expected  operating needs
and planned capital expenditures for the foreseeable future.
<PAGE>
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  September  30,  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 $1.7 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.

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.

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 did not consent to the sale of KJ Transportation to the Company
and further, demanded payment in full on approximately eleven Notes aggregating
$6.6 million.  The Company refinanced these loans under its new credit facility
discussed above and is not in default under its new credit facility.

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 nine months ended September 30, 1998
---------------------------------------------------------------------

The  following  table  sets  forth  items  in  the  Consolidated  Statement  of
Operations for the three and nine months ended September 30, 1998 and 1997 as a
percentage of operating revenue.
<PAGE>
<TABLE>
<CAPTION>
                                                                 Percentage of Operating Revenues
                                                          Three months ended          Nine months ended
                                                             September 30,               September 30,
                                                             -------------               -------------
                                                        1998            1997         1998             1997
                                                        ----            ----         ----             ----
          <S>                                           <C>            <C>             <C>              <C> 
          Revenues and other income                     100.0%         100.0%          100.0%           100.0%
                                                   -----------    -----------     -----------      -----------

          Operating expenses:
             Purchased transportation                    40.7           38.1            43.7             38.1
             Salaries, wages and benefits                23.5           23.5            22.7             23.4
             Fuel                                         7.5            9.8             7.5              9.8
             Operating supplies and expenses             13.6           10.5            10.9             10.5
             Insurance                                    2.0            2.4             1.9              2.4
             Depreciation and amortization expense        4.2            7.5             4.6              7.5
             General and administrative expense           3.3            3.9             3.0              6.4
                                                   -----------    -----------     -----------      -----------


                Total operating expenses                 94.8           95.7            94.3             98.1
                                                   -----------    -----------     -----------      -----------

                Operating income                          5.1            4.3             5.7              1.9
          Interest expense                                2.9            3.8             2.8             (3.8)
                                                   -----------    -----------     -----------      -----------

                Income from continuing
          operations
                   before income taxes                    2.3            0.5             2.9             (1.9)
          Income taxes attributable to continuing
               Operations                                 0.1            0.4             0.2             (0.4)
                                                   -----------    ------------    -----------      -----------

          Income from continuing operations               2.2%           0.1%            2.7%            (2.3)%
                                                   ===========    ============    ===========      ===========
</TABLE>
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.

Because  substantially  all  of  the  acquisitions  took  place  subsequent  to
September 30, 1997 the above tables are not  comparative.  (Certain  items have
been reclassified to conform to the current format)

The Company is continuing the process of implementing its centralization policy
on a  regional  basis,  which  will  result in two to three  primary  operating
regions - the Southeast Region,  the Northeast Region,  and the Midwest Region.
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

Revenues attributable to the discontinued businesses were $14.7 million for the
nine months ended September 30, 1997.
<PAGE>
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  and  were  represented  to  be  compliant  with  Year  2000  issues  at
acquisition  in 1996.  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 first quarter of 1999. 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 quarter of 1998, the Company began  contacting
third parties with which it has material relationships,  including its material
customers, 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 parties have reached and
executed a settlement agreement which resulted in no liability to Transit Group.

Item 6 - Exhibits and Reports on Form 8-K

   (a)   Exhibits

           Exhibit 10 - Material Contracts

           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 third quarter of 1998:

         (i)      A Current  Report on Form 8-K/A dated August 27, 1998,  filed
                  on  August  31,  1998  reporting  the  financial  information
                  regarding the acquisition of KJ  Transportation  Inc. and J&L
                  Leasing Inc.

         (ii)     A Current  Report on Form 8-K dated July 10,  1998,  filed on
                  July 31,  1998  reporting  the  Company's  sale of its common
                  stock pursuant to Regualtion S contained under the Securities
                  Act of 1933.

         (iii)    A Current Report on Form 8-K/A dated July 17, 1998,  filed on
                  July 20, 1998 reporting the financial  information  regarding
                  the  acquisition  of  certified  Transport,  Inc. and Venture
                  Logistics, 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: November 13, 1998

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