<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K
(Mark One)
[X]         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the fiscal year ended December 31, 1998

                                       OR

[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the transition period from___________ to_______________

                        Commission File Number 000-23341

                          MOTOR CARGO INDUSTRIES, INC.
           (Exact Name of the Registrant as Specified in its Charter)

              Utah                                            87-0406479
---------------------------------                        -----------------------
(State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                        Identification No.)

                             845 West Center Street
                           North Salt Lake, Utah 84054
                                 (801) 292-1111
          (Address of principal executive offices and telephone number)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:

                           Common Stock, no par value
                           --------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X]  NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 17, 1999, the aggregate market value of the Registrant's voting
Common Stock held by non-affiliates of the Registrant based upon the last sale
price reported for such date on the Nasdaq National Market System was
approximately $13,029,286.

The number of shares of the Registrant's Common Stock outstanding as of March
17, 1999 was 6,947,220.


                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
1999 Annual Meeting of Shareholders of the Registrant is incorporated by
reference into Part III of this Form 10-K.

================================================================================

<PAGE>   2
        This report contains certain forward-looking statements that involve
risks and uncertainties, including statements regarding the Company's plans,
objectives, goals, strategies and financial performance. The Company's actual
results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Forward-Looking Information" and elsewhere
in this report.

                                     PART I

ITEM 1. BUSINESS

GENERAL

        Motor Cargo Industries, Inc. (the "Company") is a regional
less-than-truckload ("LTL") carrier which provides transportation and logistics
services to shippers within the Company's core service region. The Company's
core service region is the western United States, including Arizona, California,
Colorado, Idaho, New Mexico, Oregon, western Texas, Utah and Washington. The
Company transports general commodities, including consumer goods, packaged
foodstuffs, electronics, computer equipment, apparel, hardware, industrial goods
and auto parts for a diversified customer base. The Company offers a broad range
of services, including expedited scheduling and full temperature-controlled
service. Through its wholly-owned subsidiary, MC Distribution Services, Inc.
("MCDS"), the Company also provides customized logistics, warehousing and
distribution management services.

     The Company utilizes 23 strategically located service centers (also
referred to as "terminals") to serve major markets within the Company's core
service region. In addition, the Company provides service to smaller markets
within its core service region pursuant to agreements with 20 independent
agents, most of which act as exclusive agents for the Company. See Item 1
"Business - Operations."

     In 1997, the Company initiated a program to establish market and operations
presence in several major business economic areas ("BEAs") outside of the
Company's core service region. Unlike more traditional inter-regional expansion
models, the Company intends only to solicit tonnage from these markets moving
west into its core service region. The Company intends to utilize third-party
truckload carriers to transport freight from these markets to its core service
region. The Company anticipates that this strategy of selling into the region
will improve lane, route and service center densities in its core service region
without requiring the Company to incur the costs associated with building an
inter-regional terminal network. The Company opened its BEA expansion facilities
in Dallas and Chicago in October 1997 and April 1998, respectively. The next BEA
expansion facility is scheduled to open in Cincinnati, Ohio in mid-1999. The
Company intends to continue to evaluate other major distribution centers for
additional BEA expansion facilities.

THE LTL INDUSTRY

        The Company transports primarily LTL shipments. LTL shipments are
defined as shipments weighing less than 10,000 pounds. Generally, LTL carriers
transport freight from multiple shippers to multiple consignees on a scheduled
basis. Unlike truckload carriers, LTL carriers typically do not transport full
trailer loads directly from origin to destination. LTL operations require the
handling of shipments in several coordinated stages.

        Typically, LTL carriers transport freight along scheduled routes from
multiple shippers to multiple consignees utilizing a network of terminals,
together with fleets of linehaul and pickup and delivery tractors and trailers.
Freight is picked up from customers by local drivers and consolidated for
shipment. The freight is then loaded into inter-city trailers and transported to
other terminals by linehaul drivers. Large LTL carriers have traditionally
employed a series of hub and spoke terminals. This method improves truck
utilization but requires both multiple cargo rehandlings, which are expensive,
and a fixed network of pickup, breakbulk and destination terminals, which is
capital intensive and requires a large staff of freight handlers. At each
breakbulk terminal, freight is unloaded and reloaded with other freight destined
for locations in the same general direction of another breakbulk terminal, where
the truck is sent for further unloading and loading, until the freight arrives
at a destination terminal located nearest the region of the consignee. At the
destination terminal, freight is then loaded



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onto a local truck for final delivery. The Company emphasizes direct loading
between the originating and destination service centers in order to avoid the
costly and time-consuming use of breakbulk terminals.

        LTL companies are generally categorized as regional, inter-regional or
national carriers, based upon length of haul and service territory. Carriers
with average lengths of haul less than 500 miles are referred to as regional
carriers and generally provide either overnight or second day service. Regional
LTL carriers usually are able to load freight for direct transport to a
destination terminal, thereby avoiding the costly and time-consuming use of
breakbulk terminals (where freight is rehandled and reloaded for delivery to its
ultimate destination). Carriers with average lengths of haul between 500 and
1,000 miles are generally referred to as inter-regional carriers. National
carriers, with average lengths of haul greater than 1,000 miles, generally
operate coast-to-coast relying on networks of breakbulk and satellite terminals.
Due to the geographical size of the western United States and the length of haul
associated with the Company's BEA expansion facilities, the Company has a longer
average length of haul than most other regional carriers. For the year ended
December 31, 1998, the Company had an average length of haul of approximately
700 miles.

        In general, the more freight volume an LTL carrier has within a given
geographical area, the lower its incremental operating costs. This is
particularly true with respect to its pickup and delivery operations where
increased freight volumes generally result in less distance between stops and
more shipments per stop ("route density"). As route density increases, an LTL
carrier is able to make more deliveries on shorter routes, thereby increasing
the number of shipments that can be delivered within a defined period and
lowering overall labor costs for each shipment. Similarly, the more business a
carrier experiences in a given traffic lane from one service center to another
("lane density") the lower its incremental costs. As lane density increases, a
carrier experiences improved load factors resulting in increased revenue per
mile, reduced empty miles and reduced costs associated with intermediate
shipment handling and reconsolidation. A carrier's incremental costs are also
improved as the amount of freight handled at a given service center location
("service center density") increases. As service center density improves, a
carrier experiences higher revenues, while maintaining the same fixed cost
structure, thereby improving asset utilization.

OPERATIONS

        The Company picks up freight with pickup and delivery trucks during the
day and transports the freight to Company service centers by early evening.
Pick-ups and deliveries are typically made within a 70 mile radius of each
service center. Upon arrival at a service center, freight is unloaded, logged
onto the Company's computerized tracing system, and reloaded onto trailers
destined for the Company's other service centers. Trucks depart later in the
evening for their destination service centers. In order to ensure prompt
service, the Company enforces established time schedules for linehaul service
between service centers and utilizes an advanced computer system to track and
coordinate deliveries. Through the Company's wide-area computer network, all
vital information relating to shipments is available to each service center on a
real-time basis. Before the cargo arrives at its destination service center, a
manifest showing the contents of each trailer and the sequence in which it is
loaded, along with the delivery bills, is generated by the Company's
computerized tracing system and is available to the destination service center
manager via the Company's computer network. Upon arrival at the destination
service center, the freight is unloaded, sorted and delivered to its final
destination by local delivery trucks.

        Instead of utilizing a "hub and spoke" system, which is typically used
by large, national LTL carriers, the Company emphasizes direct loading of
freight between service centers with no intermediate handling on most shipments.
Hub and spoke systems generally require shipments to be loaded and unloaded
several times at a number of service centers and breakbulk facilities prior to
delivery. Direct loading allows shipments to be transported directly from the
originating service center to the destination service center without
intermediate handling. Direct loading reduces the Company's costs because it
requires less loading and unloading of freight and requires fewer terminals and
breakbulk facilities.

        The Company uses a single service center, rather than multiple satellite
terminals, in each of the major cities it serves. Single service centers reduce
rehandling of freight, shorten delivery times and thereby reduce the risk of
freight damage or loss.



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        In addition to the Company's 23 service centers, the Company also
utilizes 20 independent agents in smaller markets in which the Company does not
operate service centers. These agents are independent businesses which operate
within a specific area as the Company's pick-up and delivery agent. Shipments
are coordinated through these agents in the same manner as the Company's service
centers. Agents are compensated based upon a percentage of freight bill revenue
and are required to maintain standards established by the Company. The Company
believes that its utilization of agents in smaller markets helps the Company
maintain a lower fixed cost structure and emphasize variable costs while
improving the level of local market presence and allowing the Company to provide
its customer base with broader geographical coverage. The table indicates the
location of each of the Company's service centers and agents within its core
service region:


<TABLE>
<CAPTION>
                     SERVICE CENTERS                   AGENTS
                     ---------------                  -------
<S>                                               <C>
               Albuquerque, New Mexico            Battle Mountain, Nevada
               Bakersfield, California            Beatty, Nevada
               Benicia, California                Bishop, California
               Colorado Springs, Colorado         Boise, Idaho
               Denver, Colorado                   Cedar City, Utah
               El Paso, Texas                     Elko, Nevada
               Fresno, California                 Ely, Nevada
               Grand Junction, Colorado           Eugene, Oregon
               Kent, Washington                   Flagstaff, Arizona
               Las Vegas, Nevada                  Hawthorne, Nevada
               Medford, Oregon                    Hermiston, Oregon
               Newark, California                 Kingman, Arizona
               North Salt Lake, Utah              Las Vegas, New Mexico
               Oxnard, California                 Lovelock, Nevada
               Phoenix, Arizona                   Redding, California
               Pico Rivera, California            Ridgecrest, California
               Portland, Oregon                   Tonopah, Nevada
               Reno, Nevada                       Wells, Nevada
               Rialto, California                 Wendover, Utah
               Sacramento, California             Winnemucca, Nevada
               San Diego, California
               Spokane, Washington
               Tucson, Arizona
</TABLE>

        The Company also maintains BEA expansion facilities in Dallas and
Chicago. These facilities function similarly to the Company's other service
centers with respect to pick-up and shipping operations; however, the Company
does not regularly transport freight from its other service centers to these
facilities for delivery. The Company transports freight from the BEA expansion
facilities to service centers within its core service region using primarily
purchased linehaul transportation.

        Approximately 40% of the Company's shipments are currently delivered
overnight. The Company uses two-man "sleeper" teams to transport the remaining
second and third day deliveries to outlying service centers and agents. Over 80%
of the Company's shipments are currently delivered within two days. When
necessary, the Company contracts with third parties for transportation services
("purchased linehaul transportation") to supplement peak demand periods and
address lane imbalances. The Company obtains purchased linehaul transportation
from several sources, including truckload carriers and independent contractors.
By utilizing purchased linehaul transportation, the Company is able to reduce
"empty miles" and improve load factors.

        The Company selectively solicits business from customers to reduce
operational inefficiencies by improving the mix of shipment and lane density,
shipment size and lane flow. During the year ended December 31,



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1998, the Company handled an average of approximately 3,440 shipments per day
with an average weight per shipment of approximately 1,147 lbs. and average
revenue per bill of approximately $125.31. The Company's revenue per
hundredweight was $10.92 for the year ended December 31, 1998.

        The Company's rates for LTL shipments are typically based on weight and
volume characteristics and the distance traveled. The Company periodically
publishes base rates that are generally applicable to customer shipments. The
Company typically offers special rates to customers based on tonnage levels and
other factors. In certain instances, the Company competes with other carriers
for business by participating in competitive bidding. Customers generally
solicit bids for relatively large shipment and tonnage volumes over a one or two
year period. These customers often enter into contractual relationships with a
limited number of carriers based upon price and service.

SPECIALIZED SERVICES

        The Company offers a broad range of services, including service
capabilities beyond the scope of most LTL carriers. These services include
Priority+Plus, an expedited time-definite service; Protective+Plus, a full
temperature-controlled service for LTL shipments within the Company's core
service region; and Canadian+Plus, full points coverage into all major Canadian
markets through an exclusive regional marketing partnership with one of Canada's
leading LTL carriers. In November 1997, the Company began providing
less-than-container load service to Hawaii. The Company consolidates shipments,
loads containers and tenders them to a major transoceanic carrier for transport
to Hawaii. The shipments are then delivered by a local carrier in Hawaii
pursuant to an agreement between the carrier and the Company. The Company
intends to continue to evaluate additional niche service offerings which
complement existing operating systems.

        In addition to the service offerings described above, the Company offers
customized services tailored to the ongoing needs of a particular customer.
These customized services often involve a high level of coordination between the
Company and the customer and may include time definite delivery, highly
specialized reporting requirements and electronic data interchange, full time
on-site loading by Company employees, return goods consolidation and management,
and specialized handling and equipment requirements.

        Through a program referred to as "Motor Cargo USA," the Company also
provides customers with service to points outside its core service region. The
Company enters into interline agreements with other carriers to provide delivery
of freight outside of the Company's core service region.

        In 1995, the Company began providing customized logistics, warehousing
and distribution management services through its subsidiary MCDS. MCDS currently
provides "just-in-time" delivery services for a small number of specialty
retailers. One customer currently accounts for more than 77% of the operating
revenues of MCDS. For the year ended December 31, 1998, $3.1 million or 2.7% of
the Company's revenues were generated by MCDS.

CUSTOMERS AND MARKETING

        The Company has approximately 3,500 regular customers with an average
monthly revenue billing of $1,000 or more. The Company's customers are not
concentrated in any one area or industry and no one customer accounts for over
6% of total revenues.

        The Company has positioned itself in the high service end of the
regional LTL market. The Company targets prospective customers that require high
levels of customized service and are not inclined to select a carrier solely on
the basis of price. The Company emphasizes its ability to provide specialized or
customized services to shippers, including (i) highly flexible scheduling, (ii)
consistent and expedited transit commitments, (iii) strong management
information systems and electronic data interchange capabilities, (iv)
commitment to customer service and responsiveness and (v) a willingness to
provide transportation programs outside the scope of the traditional LTL
industry.



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<PAGE>   6
        The Company has written contracts with most of its large customers.
These contracts specify rate levels and eliminate the need to negotiate rates
for individual shipments. The Company's contracts typically do not provide for
guaranteed volumes. Although the Company's contracts typically run for a
specified term of one year, they generally may be terminated by either party
upon 30 days' notice. The Company has pricing agreements with substantially all
of its customers which are not covered by contracts. These pricing agreements
specify rate levels but do not require minimum tonnage commitments on the part
of the customer. Pricing agreements may generally be terminated by either party
upon five days' notice.

        The Company's senior management is actively involved in the Company's
sales and marketing activities. In order to attract new customers, the Company
relies on its ability to provide quality service and on selective targeting of
potential accounts. The Company's account executives are managed by five
regional directors of sales. The account executives are responsible for
developing new business and maintaining relations with existing customers. The
Company also employs three corporate account managers in its corporate account
office in Chicago. These corporate account managers solicit business from
corporate level decision-makers who are responsible for freight shipments to
locations within the Company's core service region.

        The Company has designed and implemented a sales force automation system
which provides for improved contact and opportunity management, improved sales
forecasting and simplified reporting. The Company maintains comprehensive
customer base profiles of existing and prospective customers. Using this
database, key strategic and account development information is updated daily by
the Company's sales force using automated processes. The Company utilizes this
resource to track emerging opportunities and direct highly targeted and
precisely timed marketing messages to existing and prospective customers.

DRIVERS, INDEPENDENT CONTRACTORS AND OTHER PERSONNEL

        At December 31, 1998, the Company employed 1,571 persons in the
following categories:

<TABLE>
<CAPTION>
                    CATEGORY                          NO. OF EMPLOYEES
                    --------                          ----------------
<S>                                                   <C>
         Full time drivers                                  487
         Part time drivers and dock workers                 581
         Salaried and clerical                              371
         Warehousemen                                        11
         Mechanics                                           61
         Sales and sales management                          60
</TABLE>

        At December 31, 1998, the Company employed 110 linehaul drivers and 522
pick-up and delivery drivers. The Company selects its drivers based upon
experience and driving records. Pursuant to DOT regulations, drivers are
required to pass drug tests prior to employment and periodically thereafter. The
trucking industry experiences driver shortages from time to time; however, the
Company has maintained an adequate and qualified driver force. The Company
compensates linehaul drivers on a per mile basis. Pick-up and delivery drivers
are compensated on an hourly basis.

        In addition to its employee drivers, the Company utilized approximately
90 linehaul drivers, as of December 31, 1998, pursuant to an agreement with FHF
Transportation, Inc. ("FHF"). These drivers operate tractors owned by the
Company but are not employees of the Company. The Company makes payments to FHF
based upon mileage.

        The Company supplements its linehaul fleet with the use of approximately
75 independent contractors. Because independent contractors provide their own
tractor, independent contractors provide the Company with an alternative method
of obtaining the use of additional revenue equipment with reduced capital
investment. This approach reduces costs and maximizes flexibility by quickly
providing additional linehaul capacity during periods of peak demand. Further,
because independent contractors are compensated at a contracted rate per mile,
the use of independent contractors helps the Company reduce fixed overhead and
improve asset utilization. Independent contractors also allow the Company to
better adjust to seasonal fluctuations in shipping volumes.



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<PAGE>   7
        Approximately 5% of the Company's employees are covered by two separate
collective bargaining agreements relating to employees at the Company's North
Salt Lake, Utah and Reno, Nevada service centers. Although the employees covered
by these contracts are members of the International Brotherhood of Teamsters,
the contracts are not tied to the Teamsters National Master Contract. The
Company's agreement with North Salt Lake employees expires on November 30, 1999,
and the Company's Agreement with Reno employees expires on November 30, 2000.
Both agreements provide for automatic renewal from year to year after
expiration, subject to the right of either party to cancel or terminate the
agreement upon at least 60 days' notice prior to the date of expiration.

SAFETY AND INSURANCE

        The Company emphasizes safety in all aspects of its operations. The
Company employs a Director of Safety and Compliance who has over 25 years of
safety-related experience with the Company. Each of the Company's terminals
conducts its own safety program and all tractors in use are inspected daily by
Company personnel. The Company has also established guidelines for hauling
hazardous materials. The Company earned the highest DOT safety and fitness
rating of "satisfactory" during its last audit.

        The Company currently maintains liability insurance for bodily injury
and property damage in the amount of $30 million, with a self retention amount
of $250,000 per incident, and cargo insurance in the amount of $1 million, with
a self retention amount of $100,000, per load. The Company is self-insured with
respect to physical damage to its properties. The Company also maintains
workers' compensation insurance, with a deductible of $250,000 in Nevada, and
without a deductible in Washington. The Company is responsible for workers'
compensation claims in other states in which the Company operates up to an
aggregate of approximately $1.9 million per year, and the Company maintains
insurance for workers' compensation payments in excess of such amount.

REVENUE EQUIPMENT

        At December 31, 1998, the Company operated a fleet of 629 tractors and
trucks and 2,361 trailers. The Company uses new linehaul tractors in linehaul
operations for approximately five years. After five years of use, the Company
trades-in used linehaul tractors and purchases new linehaul tractors. The table
below reflects, as of December 31, 1998, the average age of the type of
equipment, and the number of respective units:

<TABLE>
<CAPTION>
                                                         NUMBER     AVERAGE
       TYPE OF EQUIPMENT (CATEGORIZED BY PRIMARY USE)   OF UNITS     AGE
       ----------------------------------------------   --------    -------
<S>                                                     <C>         <C>
      Linehaul tractors                                     171      2.1
      Pick-up and delivery tractors                         362      2.8
      Pick-up and delivery trucks                            96      4.8
      Trailers                                            2,361      7.8
</TABLE>

        The Company lowers its cost structure through the use of 28 foot
trailers in doubles combinations and, where permitted by state regulations,
triples combinations in its linehaul operations. These 28 foot trailers allow
for more direct loading and minimize handling costs and exposure. In addition,
the Company improves linehaul trailer utilization and reduces potential damages
and subsequent cargo claims expenses by using logistic deck trailers and pallet
decks. This specialized equipment minimizes damage and maximizes trailer
utilization.

        The Company maintains its revenue equipment through the use of its own
maintenance facilities as well as outside vendors. The Company's service centers
in Pico Rivera, Las Vegas, Reno, Denver, Portland and North Salt Lake have
maintenance facilities. In addition to scheduled maintenance on its equipment,
the Company also performs occasional equipment modifications which are designed
to improve operating performance and reduce operating costs of equipment. All
data regarding equipment costs, depreciation, mileage and maintenance are
recorded on the Company's computer system, allowing management to access
equipment records quickly and plan scheduled maintenance efficiently.



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<PAGE>   8
        The Company purchases all of its parts through nationally-recognized
vendors. To enable management to better control inventory and costs, all orders
are placed through the Company's central purchasing unit at the Company's
headquarters.

FUEL AVAILABILITY AND COST

        Fuel comprises 1.5% to 3% of the Company's total operating expenses.
Generally, in order to obtain lower fuel costs and greater flexibility in
fueling its fleet, the Company purchases its own fuel in bulk and requires its
drivers to fuel at Company terminals. The Company emphasizes fuel economy
through the use of modern, fuel-efficient equipment, driver and mechanic
training programs and aerodynamic improvements. Although fuel constitutes a much
lower percentage of costs to the Company than it would to a full truckload
carrier, increases in fuel prices or fuel taxes, shortages of fuel or rationing
of petroleum products could have a material adverse effect on the operations and
profitability of the Company.

        Generally, in times of sharp fuel price increases, the Company
implements fuel surcharges. The Company presently has a sliding scale fuel
surcharge which is based on a fuel price index for the west coast. The fuel
surcharge currently has no effect due to low fuel prices. Because of the highly
competitive nature of the market for LTL services, the Company generally must
wait for larger carriers to implement fuel surcharges before the Company can
effectively implement fuel surcharges.

COMPETITION

        The transportation industry is highly competitive on the basis of both
price and service. The Company competes with regional, inter-regional and
national LTL carriers and, to a lesser extent, with truckload carriers,
railroads and overnight delivery companies. Several large LTL carriers operate
within the Company's core service region. Some of the Company's competitors are
divisions or subsidiaries of larger trucking companies. Many of the Company's
competitors have greater financial resources, more equipment and greater freight
capacity than the Company. Certain carriers occasionally experience periods of
over capacity during which these carriers reduce prices in order to increase
utilization of revenue equipment. The Company believes that it is able to
compete effectively in its markets by providing high quality customized service
at competitive prices.

REGULATION

        The Motor Carrier Act of 1980 significantly deregulated the trucking
industry and increased competition among motor carriers. Following enactment of
the Motor Carrier Act, applicants have obtained operating authority more easily,
and interstate motor carriers such as the Company are able to change their rates
and services with less regulatory oversight and delay. The Motor Carrier Act
also removed many route and commodity restrictions on transportation of freight.

        Effective January 1, 1995, Section 601 of the Federal Aviation
Administrative Authorization Act and the Trucking Industry Regulatory Reform Act
("TIRRA") substantially deregulated intrastate operating authority. Prior to
TIRRA, the Company maintained intrastate authority in California, Nevada and
Utah. Subsequent to TIRRA, the Company obtained intrastate authority in
Colorado, Oregon, New Mexico, Washington and Texas.

        The Company was regulated by the ICC until the ICC Termination Act of
1995 abolished the ICC effective January 1, 1996. The Surface Transportation
Board, an independent entity within the DOT, assumed many of the
responsibilities of the ICC. The Company is also regulated by various state
agencies. These regulatory authorities have broad powers, generally governing
matters such as authority to engage in motor carrier operations, rates, certain
mergers, consolidations and acquisitions, and periodic financial reporting. The
trucking industry is subject to regulatory and legislative changes that can
affect the economics of the industry by requiring changes in operating practices
or influencing the demand for, and the costs of providing services to, shippers.

        Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. The use of triple trailers is



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<PAGE>   9
subject to state regulation and is prohibited by several states within the
Company's core service region. The Company is subject to federal, state and
local environmental laws and regulations governing the management of hazardous
wastes, other discharge of pollutants into the air and surface and underground
waters, and the disposal of certain substances. These regulations extend to the
Company's above-ground and underground fuel storage tanks. The Company has
completed modifications of underground storage tanks at several of its
facilities in order to comply with new federal regulations which became
effective at the end of 1998. In most cases, the Company replaced its
underground storage tanks with above-ground tanks. The Company believes that all
of its fuel storage tanks are in compliance with the new regulations. The
Company also believes that it is in material compliance with all other
applicable environmental laws and regulations and does not believe that the cost
of future compliance should have a material adverse effect on the Company's
operations or financial condition.

ITEM 2. PROPERTIES

        The Company owns its executive offices, located in North Salt Lake,
Utah, consisting of a two-story building of approximately 21,377 square feet. Of
the 23 service centers used by the Company within its core service region as of
December 31, 1998, eight were owned, 13 were leased and two had multiple
facilities that were partially owned and partially leased by the Company. These
facilities range in size according to the markets served. The Company has not
experienced and does not anticipate difficulties in renewing existing leases on
favorable terms or obtaining new facilities as and when required. The following
table sets forth the location of each service center owned or leased by the
Company as of December 31, 1998.

<TABLE>
<CAPTION>
                                      # OF    OWNED OR        LEASE   
                  LOCATION            DOORS    LEASED      EXPIRATION  
                  --------            -----   --------     ----------
<S>                                   <C>     <C>         <C>
              Pico Rivera, CA           102     Leased    December 2013
              Rialto, CA                 78     Owned      
              North Salt Lake, UT        77     Owned
              Denver, CO
                Building 1               43     Leased    November 2000
                Building 2               36     Owned
              Newark, CA                 35     Owned
              Portland, OR               34     Owned
              Reno, NV                   32     Leased    December 1999
              Sacramento, CA             30     Owned      
              Kent, WA                   30     Owned      
              Benicia, CA                28     Leased    August 2001
              Phoenix, AZ                                  
                Building 1               24     Leased    February 1999
                Building 2               14     Leased    Month-to-month
              El Paso, TX                20     Owned      
              Las Vegas, NV              20     Owned
              San Diego, CA              20     Leased    May 2001
              Fresno, CA                 20     Leased    October 2001
              Albuquerque, NM            12     Leased    October 2001
              Oxnard, CA                  9     Leased    May 2000
              Bakersfield, CA             9     Leased    October 2000
              Tucson, AZ                  8     Leased    August 2000
              Medford, OR                 8     Leased    July 2001
              Spokane, WA                 8     Leased    Month-to-month
              Colorado Springs, CO        7     Leased    August 2001
              Grand Junction, CO          3     Leased    May 1999
</TABLE>

        The Company also maintains BEA expansion facilities in Dallas and
Chicago. The Dallas facility has 23 doors and is leased by the Company pursuant
to a lease which expires in May 2000. The Chicago location has 20 doors and the
Company's lease expires in November 2001.



                                       9
<PAGE>   10
        In addition to the service center facilities leased by the Company as
described above, the Company also leases a sales office in Chicago pursuant to a
lease which expires in November 2001. The Company's subsidiary, MCDS, leases an
aggregate of 161,286 square feet of warehouse space in southern California
pursuant to two leases which expire in January 2001 and February 2001. In
addition, MCDS leases 60,000 square feet of warehouse space in York,
Pennsylvania, pursuant to a lease that expires in June 2001, and 5,800 square
feet of warehouse space in Las Vegas, Nevada pursuant to a month-to-month lease.

ITEM 3. LEGAL PROCEEDINGS

        The Company is routinely a party to litigation incidental to its
business, primarily involving claims for personal injury or property damage
incurred in the transportation of freight. The Company maintains insurance to
cover liabilities in excess of self-insured amounts. The Company's management is
not aware of any claims or threatened claims that it believes are likely to
exceed insurance limits or have a materially adverse effect upon the Company's
operations or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

        The Company did not submit any matter to a vote of security holders
during the fourth quarter of 1998.


ITEM 10.   EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth certain information with respect to the
present executive officers and certain key employees of the Company:


<TABLE>
<CAPTION>
NAME                             AGE                POSITION
----                             ---                --------
<S>                              <C>   <C>
Harold R. Tate                   72    Chairman of the Board, Director
Marshall L. Tate                 36    President and Chief Executive Officer, Director
William J. Mahan                 53    Executive Vice President and Chief Operating
                                       Officer
Louis V. Holdener                60    Vice President, President of Motor Cargo
Marvin L. Friedland              56    Vice President and General Counsel, Secretary,
                                       Director
Lynn H. Wheeler                  57    Vice President and Chief Financial Officer
R. Scott Price                   35    Vice President of Sales and Marketing
Steven E. Wynn(1)                49    Vice President of Human Resources (Motor Cargo)
Kevin L. Avery(1)                41    Vice President of Traffic (Motor Cargo)
Jim D. Matt(1)                   44    Vice President of Sales (Motor Cargo)
</TABLE>

(1)     Messers Wynn, Avery and Matt are officers of the Company's principal
        operating subsidiary, Motor Cargo, and are not officers of the Company.



                                       10
<PAGE>   11
        Harold R. Tate has over 50 years of experience in the trucking industry
and has served as Chairman of the Board of the Company and its predecessors
since 1947. Mr. Tate served as Chief Executive Officer of the Company and its
predecessors from 1947 to March 1997. Mr. Tate also serves as a member of the
Board of Trustees of the Buffalo Bill Historical Center. Harold R. Tate is the
father of Marshall L. Tate, President and Chief Executive Officer of the
Company.

        Marshall L. Tate has over 14 years experience in the trucking industry.
Mr. Tate has been employed by the Company since 1984, has served as its
President and Chief Executive Officer since March 1997, and was appointed to the
Board of Directors of the Company in 1996. Prior to becoming the Company's
President and Chief Executive Officer, Mr. Tate served in various divisional
positions as well as Vice President of Sales and Marketing and Executive Vice
President of Corporate Development for Motor Cargo. In 1995, Mr. Tate directed
the start-up of the Company's logistics warehousing and distribution management
services subsidiary, MC Distribution Services. Marshall L. Tate is the son of
Harold R. Tate, the majority shareholder and Chairman of the Board of Directors
of the Company.

        William J. Mahan has over 30 years experience in the trucking industry.
Mr. Mahan joined the Company in February 1999 as Executive Vice President and
Chief Operating Officer. Prior to joining the Company, Mr. Mahan held a series
of positions with Viking Freight, a subsidiary of FDX Corp., including Vice
President of Operations, Senior Vice President of Operations, President of
Spartan Express (a Viking Freight subsidiary) and, most recently, Executive Vice
President of Viking Freight.

        Louis V. Holdener has over 33 years experience in the trucking industry.
Mr. Holdener has been employed by the Company since 1965, has served as
President of Motor Cargo, the Company's primary operating subsidiary, since
1991, and was named Vice President of the Company in 1997. Prior to 1991, Mr.
Holdener served in various positions with the Company, including Vice President
of Operations of Motor Cargo.

        Marvin L. Friedland has served as Vice President and General Counsel of
the Company and its predecessors since 1982. Prior to joining the Company,
Mr. Friedland was an attorney in private practice. Mr. Friedland was appointed
to the Board of Directors in 1996. Mr. Friedland is a Certified Public
Accountant and a member of the California Bar and the Utah Bar.

        Lynn H. Wheeler has been employed by the Company since 1983 and has
served as Vice President of Finance of Motor Cargo since 1988. Mr. Wheeler was
appointed Vice President and Chief Financial Officer of the Company in March
1997. Mr. Wheeler is a Certified Public Accountant, a Certified Internal Auditor
and a member of the American Institute of Certified Public Accountants.

        R. Scott Price joined the Company in 1986 and has served as a Vice
President of Sales and Marketing of the Company since February 1999. From
October 1997 to February 1999, Mr. Price served as a Vice President of the
Company responsible for overseeing MCDS. From 1995 to 1997, Mr. Price served as
Vice President of Sales of Motor Cargo. From 1986 to 1995, Mr. Price held
various positions with Motor Cargo, including Service Center Manager and
Director of Corporate Accounts.

        Steven E. Wynn has been employed by Motor Cargo since 1973 and has
served as Vice President of Human Resources of Motor Cargo since February 1999.
From 1991 to 1999, Mr. Wynn served as Vice President of Operations of Motor
Cargo. From 1973 to 1991, Mr. Wynn served in various positions, including
Director of Linehaul Operations and Director of Operations for Motor Cargo.

        Kevin L. Avery joined the Company in 1985 and has served as Vice
President of Traffic of Motor Cargo since 1992. From 1985 to 1992, Mr. Avery
served in various positions, including Director of Pricing, Rate Department
Manager and Director of Quality Assurance for Motor Cargo.

        Jim D. Matt joined the Company in October 1997 as Vice President of
Sales for Motor Cargo. Prior to joining the Company, Mr. Matt was Vice President
of Sales for the Midwestern and Eastern divisions of Viking



                                       11
<PAGE>   12
Freight Incorporated from 1996 to 1997, Vice President of Sales and Marketing
for Spartan Express from 1995 to 1996 and Vice President of Sales and Marketing
for Spartan Central from 1992 to 1995.


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS

        The Company's Common Stock is traded on the Nasdaq Stock Market
(National Market) under the symbol "CRGO". At March 17, 1999, there were
approximately 400 holders of the common stock, including 21 shareholders of
record.

        Prior to the Company's initial public offering there was no established
trading market for the Company's Common Stock. The Company's Common Stock began
trading on the Nasdaq Stock Market on November 25, 1997. The following table
sets forth the high and low sales prices for the Company's common stock as
reported by the Nasdaq National Market System for the period from November 25,
1997 through December 31, 1997, and by quarter for the year ended December 31,
1998.

<TABLE>
<CAPTION>
                                                     YEAR ENDED
                               --------------------------------------------------------
                                  DECEMBER 31, 1998                   DECEMBER 31, 1997
        QUARTER                -----------------------          -----------------------
         ENDED                  HIGH            LOW                HIGH            LOW
         -----                 -------        --------          --------          -----
<S>                            <C>            <C>               <C>              <C>
         3/31                  $13.750        $10.750
         6/30                    13.00          10.00
         9/30                   12.125          7.875
        12/31(1)                  9.50           6.50             $12.125        $11.50
</TABLE>
     

(1)     The Company's Common Stock commenced trading on November 25, 1997.

        The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future.


ITEM 6. SELECTED FINANCIAL DATA

        The following selected financial data have been summarized from the
Company's consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," under Item 7 below.



                                       12
<PAGE>   13
                      SELECTED CONSOLIDATED FINANCIAL DATA
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                           ------------------------------------------------------------------
                                                             1994          1995          1996           1997           1998 
                                                           --------      --------      --------      ---------      ---------
<S>                                                        <C>           <C>           <C>           <C>              <C>    
STATEMENT OF EARNINGS DATA:
    Operating revenues                                     $ 82,984      $ 80,808      $ 92,310      $ 105,381        114,725
    Operating expenses
       Salaries, wages and benefits                          36,055        35,495        39,666         45,247         51,747
       Operating supplies and expenses                       12,145        12,669        14,947         15,706         15,974
       Purchased transportation                              12,238        11,532        14,164         15,389         17,974
       Operating taxes and licenses                           3,068         3,178         3,531          3,519          3,885
       Insurance and claims                                   2,685         1,842         2,785          4,478          3,651
       Depreciation and amortization                          4,974         5,930         6,578          6,998          7,928
       Communications and utilities                           1,314         1,521         1,784          1,896          1,924
       Building rents                                         1,093         1,274         1,540          1,745          2,365
                                                           --------      --------      --------      ---------      ---------
          Total operating expenses                           73,572        73,441        84,995         94,978        105,448
                                                           --------      --------      --------      ---------      ---------
          Operating income                                    9,412         7,367         7,315         10,403          9,277
    Other income (expense)
          Interest expense                                   (1,392)       (1,500)       (1,430)        (1,051)          (154)
          Other, net                                            104           107           (32)           221            326
                                                           --------      --------      --------      ---------      ---------
    Earnings before income taxes                              8,124         5,974         5,853          9,573          9,449
    Income taxes                                              2,943         2,094         2,118          3,805          3,660
                                                           --------      --------      --------      ---------      ---------
    Net earnings                                           $  5,181      $  3,880      $  3,735      $   5,768      $   5,789
                                                           ========      ========      ========      =========      =========

    Earnings per common share - basic and diluted                                                                   $     .83
    Weighted-average shares outstanding - diluted                                                                       6,992

    Pro forma (1)
       Earnings before income taxes                        $  8,124      $  5,974      $   5,853     $    9,573
       Income taxes                                           3,125         2,303          2,256          3,952
                                                           --------      --------      ---------      ---------
       Net earnings                                        $  4,999      $  3,671      $   3,597     $    5,621
                                                           ========      ========      =========      =========
       Earnings per common share - basic                   $   0.86      $   0.63      $    0.62      $    0.95
                                                           ========      ========      =========      =========
       Weighted-average shares outstanding - basic            5,820         5,820          5,820          5,939
                                                           ========      ========      =========      =========
       Earnings per common share - diluted                 $   0.86      $   0.63      $    0.62      $    0.95
                                                           ========      ========      =========      =========
       Weighted-average shares outstanding - diluted          5,820         5,820          5,820          5,939
                                                           ========      ========      =========      =========
</TABLE>



<TABLE>
<CAPTION>
                                                                                 December 31,
                                                       ------------------------------------------------------
                                                          1994        1995        1996        1997       1998 
                                                       -------     -------     -------     -------     ------
<S>                                                    <C>         <C>         <C>         <C>         <C>   
BALANCE SHEET DATA:
    Current assets                                     $18,741     $20,233     $23,197     $26,965     26,775
    Current liabilities                                 13,414      14,752      15,752      11,597     10,741
    Total assets                                        49,391      59,507      63,834      68,069     72,660
    Long-term obligations, less current maturities      14,044      17,724      16,820       6,492      5,390
    Total liabilities                                   30,631      36,784      37,794      24,618     23,386
    Stockholders' equity                                18,760      22,723      26,040      43,451     49,275
</TABLE>

(1)     Effective August 28, 1997, the Company acquired the membership interests
        of Ute, a Utah limited liability company. A limited liability company
        passes through to its members essentially all taxable earnings and
        losses and pays no tax at the company level. Accordingly, for
        comparative purposes, a pro forma provision for income taxes using an
        effective income tax rate of 38% has been determined assuming Ute had
        been taxed as a C corporation for all periods presented.



                                       13
<PAGE>   14
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

        The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and results of
operations. This analysis should be read in conjunction with the consolidated
financial statements and related notes which appear elsewhere in this report.
This section contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding the Company's plans, objectives,
goals, strategies and financial performance. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of factors set forth under "Cautionary Statement for
Forward-Looking Information" below and elsewhere in this report.

OVERVIEW

        The Company's results of operations for 1996, 1997 and 1998 reflect
fluctuations within the motor carrier industry and significant changes within
the Company's operations. In the second half of 1995 the Company initiated a
significant expansion of its terminal network in order to increase coverage
within its core service region. As part of this expansion, the Company opened
new service centers in Rialto, California; Oxnard, California; Bakersfield,
California; Fresno, California; and Grand Junction, Colorado. Costs associated
with the Company's new service centers continued to affect earnings in 1996 as
several of these service centers were in the early stages of operation. Earnings
in 1996 were also adversely affected by sluggish demand for LTL carrier services
throughout the year, which resulted in severe pricing pressures, and by
escalating fuel prices in the latter half of 1996.

        In 1997 the Company began to experience favorable results associated
with its terminal network expansion. Revenues produced by the Company's new
service centers during the year ended December 31, 1997 were more consistent
with the revenues of the Company's other service centers than in prior periods.
Higher demand for carrier services also contributed to a more stable pricing
environment during 1997. The Company's results of operations for the year ended
December 31, 1997 were also significantly affected by an aggressive account
rationalization program initiated by the Company in late 1996 to improve revenue
quality. By analyzing each account based upon revenue quality characteristics
such as revenue per bill and revenue per hundredweight, the Company was able to
identify accounts providing inadequate profit margins. While revenue growth was
negatively affected by this account rationalization, the Company's earnings for
the year ended December 31, 1997 were positively affected by the elimination of
certain business and tonnage which did not meet the Company's margin
requirements.

        During 1998, the Company experienced moderate revenue growth resulting
from an increased volume of freight within the Company's core service region, as
well as new freight from the Company's BEA expansion facilities in Dallas and
Chicago. The Company's operating income decreased in 1998, however, due to
increased costs associated with efforts to optimize and reorganize linehaul
operations, as well as staffing increases to provide for higher quality of
service and expansion of the BEA facilities in Dallas and Chicago. As a result,
the Company experienced only a slight increase in net earnings during 1998,
compared to 1997.

        The Company's management believes that its expanded terminal network
provides the Company with the necessary infrastructure for continued growth
within its core service region. With an established terminal network in place to
provide high quality service throughout its core service region, the Company
intends to continue its focus on improving route, lane and service center
densities by increasing the amount of business handled by the Company within its
core service region. The Company intends to achieve this growth by increasing
the amount of business generated by existing customers within its core service
region and acquiring new customers outside its core service region for the
purpose of soliciting new business into its core service region. The Company
intends to continue its rigorous analysis of costs and profitability associated
with each customer, lane and shipment.



                                       14
<PAGE>   15
RESULTS OF OPERATIONS

        The following table sets forth the percentage relationship of certain
items to revenues for the periods indicated:


<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                           --------------------------------------
                                            1996            1997            1998
                                           ------          ------          ------
<S>                                         <C>             <C>             <C>   
Operating revenues                          100.0%          100.0%          100.0%
Operating expenses
    Salaries, wages and benefits             43.0            42.9            45.1
    Operating supplies and expenses          16.2            14.9            13.9
    Purchased transportation                 15.3            14.6            15.7
    Depreciation and  amortization            7.1             6.6             6.9
    Insurance and claims                      3.0             4.2             3.2
    Operating taxes and licenses              3.9             3.3             3.4
    Communications and utilities              1.9             1.9             1.7
    Building rents                            1.7             1.7             2.0
                                           ------          ------          ------
          Total operating expenses           92.1            90.1            91.9
                                           ------          ------          ------

Operating income                              7.9             9.9             8.1
Other income (expense)
    Interest expense                         (1.6)           (1.0)           (0.1)
    Other, net                                0.0             0.2             0.3
                                           ------          ------          ------
Earnings before income taxes                  6.3             9.1             8.3
Income taxes                                  2.3             3.6             3.2
                                           ------          ------          ------
Net earnings                                  4.0%            5.5%            5.1%
                                           ======          ======          ======
</TABLE>


Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

        Operating revenues increased 8.9% in 1998 to $114.7 million from $105.4
million in 1997. The increase was attributable to new freight from the Company's
BEA expansion facilities in Dallas, Texas and Chicago, Illinois, as well as
increased freight volume within the Company's core service region. The number of
shipments during 1998 increased by 9.5% to 893,957, compared to 816,567 for
1997. Revenue per hundred weight decreased to $10.92 in 1998 from $10.96 for
1997.

        The Company's warehousing and distribution management company, MCDS,
contributed $3.1 million of the $114.7 million in operating revenues for the
year ended December 31, 1998 compared to $3.4 million for the year ended
December 31, 1997. The decrease was due primarily to the termination of a
contract with one customer in the first quarter of 1998, which resulted in lower
revenues for the first and second quarters of 1998. Revenues from MCDS increased
during the third and fourth quarters of 1998 due to the expanding of service to
an existing customer.

        Tonnage increased by 10.0% to 512,705 in 1998, compared to 466,131 in
1997. Average revenue per bill increased .1% to $125.31 in 1998 compared to
$125.15 in 1997. Demand for freight was sluggish during 1998 limiting the growth
in revenue and increasing the stress on margins.

        As a percentage of operating revenues, salaries, wages, and benefits
increased to 45.1% for the year ended December 31, 1998 from 42.9% for 1997.
Salaries and wage rates increased approximately 4% in 1998. In addition,
staffing increases were made to provide for new facilities in Chicago, Illinois
and Benecia, California, along with staffing increases at other service centers
to maximize quality of service. The Company also incurred additional labor costs
in connection with the Company's efforts to optimize and reorganize linehaul
operations.

        Operating supplies and expenses, which include agent commissions, tires,
parts, repairs and fuel and other general operating expenses, decreased in 1998
to 13.9% of operating revenue compared to 14.9% for 1997. The decrease was
primarily due to lower fuel costs and decreased agent commissions. Purchased
transportation increased to 15.7% of operating revenues in 1998 from 14.6% for
1997. This increase was primarily attributable to



                                       15
<PAGE>   16
the use of purchased transportation providing one-way hauling of freight from
the Company's BEA expansion facilities in Dallas and Chicago into the Company's
core service region for delivery.

        Insurance and claims decreased to 3.2% of revenue for 1998 compared to
4.2% for 1997. Insurance and claims expenses were higher in 1997 due to an
increase in insurance reserves in 1997 for two accidents which occurred in prior
years.

        Interest expense decreased to .1% as a percentage of operating revenues
in 1998 compared to 1.0% for 1997. The decrease was attributable to lower debt
levels. Approximately $7.3 million of the Company's debt was paid off in
December 1997 with proceeds from the Company's initial public offering. Strong
operating cash flows also contributed to lower debt levels during 1998. At
December 31, 1998, total obligations were $5.5 million compared to $6.6 million
at December 31, 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

        Operating revenues increased 14.2% in 1997 to $105.4 million from $92.3
million for 1996. The increase was attributable to the Company's efforts
beginning in the third quarter of 1996 to improve significantly the yield of its
revenue base, the addition of new customers and, to a lesser extent, expansions
within the Company's operating region. The number of shipments during 1997
increased by 9.3% to 816,567 compared to 747,024 for 1996. Revenue per hundred
weight increased to $10.96 in 1997 from $10.74 for 1996.

        Of the $13.1 million increase in operating revenues for the year ended
December 31, 1997, $1.7 million was attributable to the Company's warehousing
and distribution management company, MCDS. The increase in revenues for MCDS
resulted primarily from the addition of a single large distribution management
project for a large retail company.

        As a result of the Company's focus on revenue quality, tonnage grew by
9.4% to 466,131 in 1997, compared to 426,109 tons for 1996, while total
shipments increased 9.3% to 816,567 for 1997 compared to 747,024 for 1996.
Average revenue per bill increased 2.1% to $125.15 in 1997 compared to $122.54
for 1996. Lower margin yields resulting from a difficult freight market in early
1996 and sluggish demand throughout the year contributed to lower revenues in
1996. Revenues for the year ended December 31, 1997 were adversely affected by
the Company's decision to discontinue service to certain customers whose
business volumes did not meet minimum margin yield requirements.

        As a percentage of operating revenues, salaries, wages and benefits
decreased to 42.9% for the year ended December 31, 1997 from 43.0% for 1996.
While salary and wage rates increased approximately 4.0% in 1997, salaries and
wages decreased as a percentage of revenues due to improved quality of revenue
as well as improved utilization of labor. Workers compensation costs increased
1.1% in 1997 due to a workers compensation credit which eliminated workers
compensation expense for the same period in 1996. Pension costs decreased 0.2%
in 1997 compared to 1996 due to a better rate of return on invested pension
assets.

        Operating supplies and expenses, which includes agent commissions,
tires, parts, repairs and fuel and other general operating expenses, decreased
in 1997 to 14.9% of operating revenues compared to 16.2% for 1996. This decrease
was due to lower fuel prices and agent commissions, partially offset by
increased general, marketing and employee related expense. Purchased
transportation decreased to 14.6% of operating revenues for 1997 from 15.3% for
1996. This decrease was primarily due to improved linehaul load factors and
higher revenue per operating mile.

        Insurance and claims increased to 4.2% of operating revenues for the
year ended December 31, 1997, from 3.0% in 1996. This increase was a result of
the Company and its insurance carrier increasing the insurance reserves in 1997
for two accidents which occurred in prior years.

        As a percentage of operating revenues, depreciation and amortization
decreased to 6.6% for the year ended December 31, 1997 compared to 7.1% for
1996. This decrease was due largely to increased revenue levels and continued
improvement in asset utilization.



                                       16
<PAGE>   17
        As a percentage of operating revenues, interest expense decreased to
1.0% in 1997, compared to 1.6% for 1996. This decrease was due primarily to
lower debt levels resulting from strong operating cash flows and continued
improvement in cash management techniques. In addition, approximately $7.3
million of the Company's debt was paid off in December 1997 with proceeds from
the Company's initial public offering. At December 31, 1997, total obligations
were $6.6 million compared to $23.7 million at December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's primary sources of liquidity have been funds provided by
operations and bank borrowings. Net cash provided by operating activities was
approximately $10.2 million, $12.6 million and $12.6 million in 1996, 1997 and
1998, respectively. Net cash provided by operating activities is primarily
attributable to the Company's earnings before depreciation and amortization
expense.

        Capital expenditures totaled approximately $9.7 million, $7.9 million
and $13.7 million during 1996, 1997 and 1998, respectively. The majority of the
Company's capital expenditures are financed with cash provided by operating
activities and long-term debt. The Company's budget for total capital
expenditures is approximately $14 million for 1999. These capital expenditures
will consist primarily of the acquisition of new revenue equipment and
construction of terminal facilities.

        Net cash used in financing activities was $0.6 million, $5.4 million and
$1.1 million in 1996, 1997 and 1998, respectively. At December 31, 1998, the
Company had outstanding long-term obligations (including current maturities)
consisting of approximately $5.5 million, most of which comprised obligations
for the purchase of revenue equipment. See Note F to the Company's Consolidated
Financial Statements.

        The Company leases a small portion of the revenue equipment used in its
operations. At December 31, 1998, the Company's future minimum lease payments
under operating leases relating to equipment amounted to $2.9 million. See Note
D to the Company's Consolidated Financial Statements.

        The Company is a party to a loan agreement with Zions First National
Bank ("Zions") that provides for a revolving line of credit in an amount not
exceeding $5 million. The loan agreement provides for the issuance of letters of
credit and may be used for this purpose, as well as to fund the working capital
needs of the Company. As of December 31, 1998, there was no outstanding balance
under this revolving line of credit.

        Zions has also provided a second revolving line of credit to the Company
in an amount not to exceed $20 million. The Company intends to use amounts
available under this credit facility, if necessary, primarily to purchase
equipment used in operations. As of December 31, 1998, the Company had $4
million in loans outstanding under this facility.

        All amounts outstanding under the two loan facilities described above
accrue interest at a variable rate established from time to time by Zions. The
Company does have the option, however, to request that specific advances accrue
interest at a fixed rate quoted by Zions subject to certain prepayment
restrictions. All amounts outstanding under the two loan facilities are
collateralized by the Company's inventory, chattel paper, accounts receivable
and equipment now owned or hereafter acquired by the Company.

INFLATION

        Inflation has had a minimal effect upon the Company's profitability in
recent years. Most of the Company's operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operation. Although the
Company historically has been able to pass through most increases in fuel prices
and taxes to customers in the form of fuel surcharges or higher rates, the
Company generally must wait for larger carriers to implement fuel surcharges
before the Company can effectively implement fuel surcharges. See Item 1
"Business-Fuel Availability and Cost." The Company expects that inflation will
affect its costs no more than it affects those of other regional LTL carriers.



                                       17
<PAGE>   18
SEASONALITY

        The Company experiences some seasonal fluctuations in freight volume.
Historically, the Company's shipments decrease during the winter months. In
addition, the Company's operating expenses historically have been higher in the
winter months due to decreased fuel efficiency and increased maintenance costs
for revenue equipment in colder weather. The Company's operating revenue and net
earnings may vary as a result of seasonal factors, and accordingly, results of
operations are subject to fluctuation, and results in any period should not be
considered indicative of the results to be expected for any future period.

THE YEAR 2000 ISSUE

        The Company utilizes computer hardware and software in its operations.
Certain computer applications could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). The Company has
performed an analysis and has implemented procedures to address the Year 2000
Issue. The Company regularly upgrades its computer hardware and believes that it
will not incur any additional expenses to modify computer hardware due to the
Year 2000 Issue. In addition, the Company has received commitments from software
vendors that will allow the Company to upgrade third-party software programs
with minimal expense to the Company. The Company anticipates, however, that it
will incur expenses of approximately $100,000 to upgrade and test certain
proprietary software developed for the Company. As of December 31, 1998,
approximately $60,000 of these expenses had been incurred. The Company has
completed the modification of its proprietary software and will begin testing
such software in early 1999. The Company is also contacting vendors and
customers to determine the extent to which the Company may be vulnerable to
third party year 2000 issues. Based upon current information, the Company
believes that all hardware and software modifications necessary to operate and
effectively manage the Company will be performed by the year 2000 and that
related costs will not have a material impact on the results of operations, cash
flow, or financial condition of the Company.

CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION

        Certain information set forth in this Annual Report on Form 10-K
contains "forward-looking statements" within the meaning of federal securities
laws. Forward looking statements include statements concerning plans,
objectives, goals, strategies, future events, future revenues or performance,
capital expenditures, financing needs, plans or intentions relating to
acquisitions by the Company and other information that is not historical
information. When used in this report, the words "estimates," "expects,"
"anticipates," "forecasts," "plans," "intends," "believes" and variations of
such words or similar expressions are intended to identify forward-looking
statements. Additional forward-looking statements may be made by the Company
from time to time. All such subsequent forward-looking statements, whether
written or oral and whether made by or on behalf of the Company, are also
expressly qualified by these cautionary statements.

        The Company's forward-looking statements are based upon the Company's
current expectations and various assumptions. The Company's expectations,
beliefs and projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs and projections will result or
be achieved or accomplished. The Company's forward-looking statements apply only
as of the date made. The Company undertakes no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.

        There are a number of risks and uncertainties that could cause actual
results to differ materially from those set forth in, contemplated by or
underlying the forward-looking statements contained in this report. In addition
to the other factors and matters discussed elsewhere in this report, the
following factors are among the factors that could cause actual results to
differ materially from the forward-looking statements. Any forward-looking
statements made by or on behalf of the Company should be considered in light of
these factors.



                                       18
<PAGE>   19
     Economic Factors and Fuel Price Fluctuations

        The availability and price of fuel, insurance costs, interest rates,
fluctuations in customers' business cycles and national and regional economic
conditions are economic factors over which the Company has little or no control.
Significant increases in fuel prices, interest rates or increases in insurance
costs, to the extent not offset by increases in freight rates, or disruptions in
fuel supply, would adversely affect the Company's results of operations. A
significant downturn in customers' businesses, temporary inventory imbalances
(resulting from a recession or otherwise), or decreased demand for LTL carrier
services could also have a material adverse affect on the Company.

     Availability of Employee Drivers and Independent Contractors

        The Company utilizes the services of both employee drivers and
independent contractors. Competition for employee drivers and independent
contractors is intense in the trucking industry, and the Company occasionally
experiences difficulty attracting or retaining enough qualified employee drivers
and independent contractors. There can be no assurance that the Company will not
be affected by a shortage of qualified employee drivers or independent
contractors in the future, which could result in temporary underutilization of
revenue equipment, difficulty in meeting shipper demands and increased
compensation levels. Prolonged difficulty in attracting or retaining qualified
employee drivers or independent contractors could have a materially adverse
effect on the Company's operations.

     Risks Associated with Geographic Expansion

        As part of the Company's growth strategy, the Company has established
market and operational presence in certain metropolitan areas outside its core
service region. The Company is also considering other major distribution centers
for additional facilities. Unlike more traditional inter-regional expansion
models, the Company intends only to solicit tonnage from these markets moving
west into its core service region. The Company has limited experience with this
new operating concept, and no assurance can be given that such operations will
be successful in the long-term.

     Capital Requirements

        The trucking industry is very capital intensive. If in the future the
Company were unable to borrow sufficient funds, enter into acceptable operating
lease arrangements, or raise additional equity, the resulting capital shortage
would impair the Company's ability to acquire additional revenue equipment and
adversely affect the Company's growth and profitability.

     Claims Exposure and Insurance Costs

        Trucking companies, including the Company, face multiple claims for
personal injury and property damage relating to accidents, cargo damage and
workers' compensation. To the extent that the Company experiences a material
increase in the frequency or severity of accidents or workers' compensation
claims, or an unfavorable development on existing claims, the Company's
operating results and financial condition could be materially adversely
affected. Significant increases in the Company's claims and insurance costs, to
the extent not offset by rate increases, would reduce the Company's
profitability.

     Competition

        The trucking industry is highly competitive and fragmented. Competition
for freight transported by the Company is based primarily on service and
efficiency and on freight rates. The Company competes with regional,
inter-regional and national LTL carriers of varying sizes and, to a lesser
extent with truckload carriers, railroads and overnight delivery companies. Some
of the Company's competitors are divisions or subsidiaries of larger trucking
companies. Many of the Company's competitors have greater financial resources,
more equipment and greater freight capacity than the Company.



                                       19
<PAGE>   20
     Environmental Hazards

        The Company's operations are subject to various environmental laws and
regulations dealing with the transportation, storage, presence, use, disposal,
and handling of hazardous materials and hazardous wastes, discharge of
stormwater, and underground fuel storage tanks. The Company transports certain
commodities that are or may be deemed hazardous substances. The Company also
currently maintains above-ground and underground fuel storage tanks on several
of its properties. The Company is not aware of any fuel spills or hazardous
substance contamination on its properties that would have a material adverse
effect on the Company and the Company believes that its operations are in
material compliance with existing environmental laws and regulations. If,
however, the Company should be involved in a fuel spill, or a spill or other
accident involving hazardous substances, if any such substances were found on
the Company's properties, or if the Company were found to be in violation of
applicable laws and regulations, the Company could be responsible for clean-up
costs, property damage, and fines or other penalties, any one of which could
have a materially adverse effect on the Company.

     Other Factors

        In addition to the factors described above, the Company may be impacted
by a number of other matters and uncertainties, including: (i) changes in demand
for LTL carrier services; (ii) potential legislation and regulatory changes;
(iii) the ability of the Company and those with which it conducts business to
timely resolve Year 2000 issues; (iv) changes in competitive conditions in the
Company's core service region; and (v) increases in the cost of compliance with
regulations, including environmental regulations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company does not use financial instruments for trading purposes and
is not a party to any derivative financial instruments or derivative commodity
instruments. The Company is exposed to a variety of market risks, including the
effects of changes in interest rates and fuel prices. The Company's short-term
and long-term financing is generally at variable rates; however, these
obligations may be repaid or converted to a fixed rate at the Company's option.
For more information regarding the Company's debt obligations see Note F to the
Company's consolidated financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.




                                       20
<PAGE>   21
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information to be included under the caption "Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A of the Exchange Act in connection with the
1999 annual meeting of shareholders of the Company (the "Proxy Statement") is
incorporated herein by reference. In addition, reference is made to Item 10 in
Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

          The information to be included under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information to be included under the caption "Present Beneficial
Ownership of Common Stock" in the Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information to be included under the caption "Executive
Compensation--Certain Relationships and Related Transactions" in the Proxy
Statement is incorporated herein by reference.


                                     PART IV

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

<TABLE>
<S>           <C>                                                   <C>
(a)(1)        Consolidated Financial Statements

              Report of Independent Certified Public                
              Accountants                                           F-1 

              Consolidated Balance Sheets at December 31,               
              1998 and 1997                                         F-2 

              Consolidated Statements of Earnings for the               
              years ended December 31, 1998, 1997 and 1996          

              Consolidated Statement of Stockholders'               F-4 
              Equity for the years ended December 31,               
              1998, 1997 and 1996                                   F-5     

              Consolidated Statements of Cash Flows for                 
              the years ended December 31, 1998, 1997 and            
              1996                                                  F-6

              Notes to Consolidated Financial Statements            F-8 
</TABLE>
                                                                    



                                       21
<PAGE>   22
(a)(2)    Financial Statement Schedules

          Schedules are omitted because they are not required or are not
          applicable or the required information is shown in the financial
          statements or notes thereto

(a)(3)    The following exhibits are filed herewith or incorporated by 
          reference:

<TABLE>
<CAPTION>
Exhibit
Number                          Exhibit
------                          -------
<S>            <C>   
3.1            Articles of Incorporation of the Company (filed as Exhibit 3.1 to
               the Company's Registration Statement on Form S-1 (File No.
               333-37211) and incorporated herein by reference). 

3.2            Bylaws of the Company (filed as Exhibit 3.2 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).

10.1           Loan Agreement, dated November 25, 1998, between the Company,
               Motor Cargo and Zions First National Bank.*

10.2           $20,000,000 Promissory Note, dated November 26, 1998, to the
               order of Zions First National Bank.*

10.3           1997 Stock Option Plan (filed as Exhibit 10.2 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).(1)

10.4           Pension Plan of Employees of Motor Cargo and Trust Agreement
               (filed as Exhibit 10.3 to the Company's Registration Statement on
               Form S-1 (File No. 333-37211) and incorporated herein by
               reference).(1)

10.5           Motor Cargo Profit Sharing Plan (filed as Exhibit 10.4 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).(1)

10.6           Restricted Stock Agreement, dated October 2, 1997, between the
               Company and Louis V. Holdener (filed as Exhibit 10.5 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).(1)

10.7           Agreement to Purchase and Sell Leasehold Interest dated October
               2, 1990 between Leonard L. Gumport and Motor Cargo (filed as
               Exhibit 10.6 to the Company's Registration Statement on Form S-1
               (File No. 333-37211) and incorporated herein by reference).

10.8           Lease Agreement dated December 23, 1996 between Channing, Inc.
               and Motor Cargo (filed as Exhibit 10.7 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).

10.9           Lease Agreement dated as of January 1, 1989 between Andrea
               Tacchino Company and Motor Cargo (filed as Exhibit 10.8 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).

10.10          First Amendment to Lease dated March 1, 1990 between Andrea
               Tacchino Company and Motor Cargo (filed as Exhibit 10.9 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).
</TABLE>



                                       22
<PAGE>   23
<TABLE>
<S>            <C>   
10.11          Lease Agreement dated October 31, 1995 between Pete Aardema and
               Motor Cargo (filed as Exhibit 10.10 to the Company's Registration
               Statement on Form S-1 (File No. 333-37211) and incorporated
               herein by reference).

10.12          Lease Agreement dated September 29, 1995 among Colburn R.
               Thomason, Michael Tolladay, Kevin Tweed and Motor Cargo (filed as
               Exhibit 10.11 to the Company's Registration Statement on Form S-1
               (File No. 333-37211) and incorporated herein by reference).

10.13          Form of Salary Continuation Agreement (filed as Exhibit 10.12 to
               the Company's Registration Statement on Form S-1 (File No.
               333-37211) and incorporated herein by reference).(1)

10.14          Management Agreement between the Company and FHF Transportation,
               Inc. (filed as Exhibit 10.18 to the Company's Registration
               Statement on Form S-1 (file No. 333-37211 and incorporated herein
               by reference).

11             Pro Forma Earnings Per Share Calculation*

21             Subsidiaries of the Company (filed as Exhibit 21 to the Company's
               Registration Statement on Form S-1 (file No. 333-37211 and
               incorporated herein by reference).

23             Consent of Grant Thornton LLP.*

27             Financial Data Schedule.*
</TABLE>

--------------

(1)   Management contracts and compensatory plans and arrangements identified
      pursuant to Item 14(a)(3) of Form 10-K.

 *    Filed with this report.


(b)   Reports on Form 8-K

      Not Applicable.



                                       23
<PAGE>   24
                                   SIGNATURES

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

                                  MOTOR CARGO INDUSTRIES, INC.



Date: March 24, 1999              By  /s/ Lynn H. Wheeler
                                    -----------------------------
                                    Lynn H. Wheeler
                                    Vice President and Chief Financial Officer

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


Date: March 24, 1999              By   /s/ Harold R. Tate
                                     ----------------------------
                                     Harold R. Tate, Director and
                                     Chairman of the Board


Date: March 24, 1999              By   /s/ Marshall L. Tate
                                     -----------------------------
                                     Marshall L. Tate, Director
                                     (Principal Executive Officer)


Date: March 24, 1999              By  /s/ Lynn H. Wheeler
                                    -----------------------------
                                    Lynn H. Wheeler, Chief Financial Officer
                                    (Principal Financial and Accounting
                                    Officer)


Date: March 24, 1999              By  /s/ Marvin L. Friedland
                                    -----------------------------
                                    Marvin L. Friedland, Director


Date: March 24, 1999              By  /s/ Robert Anderson
                                    -----------------------------
                                    Robert Anderson, Director


Date: March 24, 1999              By  /s/ James Clayburn La Force, Jr.
                                    -----------------------------
                                    James Clayburn La Force, Jr., Director


                                       24
<PAGE>   25
                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Motor Cargo Industries, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of Motor Cargo
Industries, Inc. and Subsidiaries (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Motor Cargo
Industries, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.


Grant Thornton LLP

Salt Lake City, Utah
February 5, 1999



                                      F-1
<PAGE>   26
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,



                                     ASSETS

<TABLE>
<CAPTION>
                                                           1998               1997
                                                       -----------        -----------
<S>                                                    <C>                <C>        
CURRENT ASSETS
   Cash and cash equivalents (Notes E and M)           $ 7,514,654        $ 8,616,702
   Receivables (Notes B and E)                          14,182,974         13,171,720
   Prepaid expenses                                      2,630,416          2,409,524
   Supplies inventory (Note E)                             459,711            503,498
   Deferred income taxes (Note G)                        1,365,000          1,581,000
   Income taxes receivable                                 622,648            683,033
                                                       -----------        -----------
         Total current assets                           26,775,403         26,965,477

PROPERTY AND EQUIPMENT, AT COST
  (Notes C, E, and F)                                   85,954,356         75,901,875

   Less accumulated depreciation
     and amortization                                   40,560,113         35,242,661
                                                       -----------        -----------
                                                        45,394,243         40,659,214


Other assets
   Deferred charges                                        426,461            374,417
   Unrecognized net pension obligation (Note H)             63,861             69,651
                                                       -----------        -----------
                                                           490,322            444,068
                                                       -----------        -----------
                                                       $72,659,968        $68,068,759
                                                       ===========        ===========
</TABLE>


        The accompanying notes are an integral part of these statements.



                                      F-2
<PAGE>   27
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS - CONTINUED

                                  December 31,


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      1998               1997
                                                                  -----------        -----------
<S>                                                               <C>                <C>        
CURRENT LIABILITIES
   Current maturities of long-term obligations (Note F)           $    99,990        $    89,557
   Accounts payable                                                 4,237,515          4,123,703
   Accrued liabilities (Note O)                                     5,021,286          4,426,519
   Accrued claims (Note P)                                          1,382,085          2,956,911
                                                                  -----------        -----------
         Total current liabilities                                 10,740,876         11,596,690

LONG-TERM OBLIGATIONS, less current
  maturities (Note F)                                               5,389,852          6,491,882

DEFERRED INCOME TAXES
  (Note G)                                                          7,255,000          6,529,000

COMMITMENTS AND CONTINGENCIES
  (Notes D, E, H, K, and L)                                                --                 --

STOCKHOLDERS' EQUITY (Notes F, I and N)
   Preferred stock, no par value; Authorized -
     25,000,000 shares - none issued                                       --                 --
   Common stock, no par value; Authorized -
     100,000,000 shares - issued and outstanding
     6,987,820 shares in 1998 and 6,990,000 shares in 1997         12,135,490         12,101,298
   Retained earnings                                               37,138,750         31,349,889
                                                                  -----------        -----------
                                                                   49,274,240         43,451,187
                                                                  -----------        -----------
                                                                  $72,659,968        $68,068,759
                                                                  ===========        ===========
</TABLE>



        The accompanying notes are an integral part of these statements.



                                      F-3
<PAGE>   28
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                            1998                  1997                  1996
                                                        -------------         -------------         -------------
<S>                                                     <C>                   <C>                   <C>          
Operating revenues                                      $ 114,724,798         $ 105,381,447         $  92,310,142
                                                        -------------         -------------         -------------
Operating expenses
   Salaries, wages and benefits                            51,746,567            45,247,186            39,666,468
   Operating supplies and expenses                         15,973,557            15,706,124            14,947,069
   Purchased transportation                                17,975,515            15,388,965            14,164,292
   Operating taxes and licenses                             3,884,923             3,519,313             3,531,244
   Insurance and claims                                     3,651,217             4,477,747             2,784,489
   Depreciation and amortization                            7,927,663             6,997,498             6,577,569
   Communications and utilities                             1,923,707             1,896,379             1,783,797
   Building rents                                           2,365,006             1,744,877             1,540,407
                                                        -------------         -------------         -------------
         Total operating expenses                         105,448,155            94,978,089            84,995,335
                                                        -------------         -------------         -------------
         Operating income                                   9,276,643            10,403,358             7,314,807
Other income (expense)
   Interest expense                                          (153,673)           (1,050,791)           (1,429,843)
   Other, net                                                 325,891               220,909               (32,073)
                                                        -------------         -------------         -------------
                                                              172,218              (829,882)           (1,461,916)
                                                        -------------         -------------         -------------
         Earnings before income taxes                       9,448,861             9,573,476             5,852,891
Income taxes (Note G)                                       3,660,000             3,805,000             2,118,000
                                                        -------------         -------------         -------------

         NET EARNINGS                                   $   5,788,861         $   5,768,476         $   3,734,891
                                                        =============         =============         =============
Pro forma (Note A14)

   Earnings before income taxes                                               $   9,573,476         $   5,852,891

   Income taxes                                                                   3,952,000             2,256,000
                                                                              -------------         -------------

   NET EARNINGS                                                               $   5,621,476         $   3,596,891
                                                                              =============         =============

   Earnings per common share - basic                    $        0.83         $        0.95         $        0.62
                                                        =============         =============         =============

   Weighted-average shares outstanding - basic              6,987,820             5,938,602             5,820,000
                                                        =============         =============         =============

   Earnings per common share - diluted                  $        0.83         $        0.95         $        0.62
                                                        =============         =============         =============

   Weighted-average shares outstanding - diluted            6,991,820             5,938,602             5,820,000
                                                        =============         =============         =============
</TABLE>



        The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>   29
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 1998, 1997 and 1996




<TABLE>
<CAPTION>
                                    Preferred Stock                Common Stock
                                   -----------------      ----------------------------
                                    Number                Number
                                     of                     of                                   Retained
                                   Shares    Amount       Shares               Amount            earnings                Total
                                   -------   ------      ---------          -----------          --------                -----
<S>                                <C>       <C>         <C>               <C>                 <C>                  <C>
Balance, January 1, 1996              --     $  --       5,820,000         $      1,000        $                    $ 22,723,423

Net distributions to LLC
  members                             --        --               --                   --            (417,900)            (417,900)

Net earnings for the year             --        --               --                   --           3,734,891            3,734,891
                                      --        --     ------------         ------------        ------------         ------------
Balance, December 31, 1996            --        --        5,820,000                1,000          26,039,414           26,040,414

Distributions to LLC members          --        --               --                   --            (458,001)            (458,001)

Public sale of common stock                     --        1,150,000           12,100,298                               12,100,298

Issuance of 20,000 shares
  pursuant to Restricted Stock
  Agreement (Note N)                  --        --           20,000                   --                  --                   --

Net earnings for the year             --        --               --                   --           5,768,476            5,768,476
                                      --        --     ------------         ------------        ------------         ------------
Balance, December 31, 1997            --        --        6,990,000           12,101,298          31,349,889           43,451,187

Vesting of shares pursuant to
  Restricted Stock Agreement
  (Note N)                            --        --           (2,180)              34,192                  --               34,192

Net earnings for the year             --        --               --                   --           5,788,861            5,788,861
                                      --        --     ------------         ------------        ------------         ------------
Balance, December 31, 1998            --     $  --        6,987,820         $ 12,135,490        $ 37,138,750         $ 49,274,240
                                      ==     =====     ============         ============        ============         ============
</TABLE>



         The accompanying notes are an integral part of this statement.




                                      F-5
<PAGE>   30
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                1998                 1997                 1996
                                                            ------------         ------------         ------------
<S>                                                         <C>                  <C>                  <C>         
Increase (decrease) in cash and cash equivalents
   Cash flows from operating activities
      Net earnings                                          $  5,788,861         $  5,768,476         $  3,734,891
                                                            ------------         ------------         ------------
      Adjustments to reconcile net earnings
        to net cash provided by operating activities
         Depreciation and amortization                         7,927,663            6,997,498            6,577,569
         Provision for losses on receivables                     217,500              220,000              286,000
         Loss (gain) on disposition of
           property and equipment                               (103,110)            (156,914)              72,458
         Amortization of unrecognized
           pension obligation (benefit)                            5,790                5,790                5,790
         Charge associated with stock
           issuance to an officer                                 60,625                   --                   --
         Deferred income taxes                                   942,000              800,971              891,000
         Changes in assets and liabilities
           Receivables                                        (1,228,754)          (2,633,264)          (1,448,305)
           Prepaid expenses                                     (220,892)            (323,335)             (37,444)
           Supplies inventory                                     43,787             (164,668)              28,682
           Income taxes receivable                                60,385             (516,050)            (100,525)
           Other assets                                          (52,044)              (6,862)            (107,172)
           Accounts payable                                      113,812            1,142,106              252,404
           Accrued liabilities and claims                     (1,006,492)           1,457,923               36,446
                                                            ------------         ------------         ------------

               Total adjustments                               6,760,270            6,823,195            6,456,903
                                                            ------------         ------------         ------------

               Net cash provided by
                 operating activities                         12,549,131           12,591,671           10,191,794
                                                            ------------         ------------         ------------

Cash flows from investing activities
   Purchase of property and equipment                        (13,720,140)          (7,935,965)          (9,712,567)
   Proceeds from disposition of property
     and equipment                                             1,160,558              630,080            1,800,989
                                                            ------------         ------------         ------------

               Net cash used in
                 investing activities                        (12,559,582)          (7,305,885)          (7,911,578)
                                                            ------------         ------------         ------------
</TABLE>



                                   (Continued)


                                      F-6
<PAGE>   31
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                          1998                 1997                 1996
                                                      ------------         ------------         ------------
<S>                                                   <C>                  <C>                  <C>         
Cash flows from financing activities
   Distributions to LLC members                                 --             (458,001)            (524,000)
   Contributions from LLC members                               --                   --              106,100
   Proceeds from public sale of common stock                    --           12,100,298                   --
   Proceeds from issuance of long-term
     obligations                                                --           48,385,000           55,564,002
   Principal payments on long-term
     obligations                                        (1,091,597)         (65,468,268)         (55,756,549)
                                                      ------------         ------------         ------------

               Net cash used in
                 financing activities                   (1,091,597)          (5,440,971)            (610,447)
                                                      ------------         ------------         ------------

               Net increase (decrease) in
                 cash and cash equivalents              (1,102,048)            (155,185)           1,669,769

Cash and cash equivalents at beginning of year           8,616,702            8,771,887            7,102,118
                                                      ------------         ------------         ------------

Cash and cash equivalents at end of year              $  7,514,654         $  8,616,702         $  8,771,887
                                                      ============         ============         ============

Supplemental cash flow information

Cash paid during the year for
   Interest                                           $    154,751         $  1,102,819         $  1,459,189
   Income taxes                                          2,537,933            2,811,000            2,077,215
</TABLE>



Noncash investing and financing activities

During 1998, in connection with the shares issued per the restricted stock
agreement, 2,180 shares valued at $26,433 were withheld by the Company as tax
withholdings.




        The accompanying notes are an integral part of these statements.



                                      F-7
<PAGE>   32
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      A summary of significant accounting policies consistently applied in the
      preparation of the accompanying consolidated financial statements follows.

      1.  Financial statement presentation

      The accounting and reporting policies of Motor Cargo Industries, Inc. and
      Subsidiaries (the Company) conform with generally accepted accounting
      principles and with general practices in the motor carrier industry. In
      preparing the Company's financial statements, management is required to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities, the disclosure of contingent assets and liabilities at
      the date of the financial statements, and the reported amounts of revenues
      and expenses during the reporting period. Actual results could differ
      significantly from those estimates. Significant estimates include accrued
      claims and allowance for doubtful accounts.

      2.  Principles of consolidation

      The consolidated financial statements include the accounts of Motor Cargo
      Industries, Inc. (MCI) and its wholly-owned subsidiaries, Ute Trucking and
      Leasing, LLC (Ute) and Motor Cargo and its wholly-owned subsidiaries, MC
      Leasing, Inc., MC Distribution Services, Inc., and ICC, Inc. All
      significant intercompany accounts and transactions have been eliminated.

      3.  Business activity

      Motor Cargo is a regulated motor carrier which hauls commercial
      commodities both intrastate and interstate.

      4.  Cash equivalents

      The Company considers all highly liquid debt instruments with a maturity
      of three months or less when purchased to be cash equivalents.

      5.  Supplies inventory

      Supplies inventory consists primarily of fuel and equipment parts and is
      stated at the lower of cost (first-in, first-out method) or market.



                                      F-8
<PAGE>   33
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      6.  Depreciation and amortization

      Depreciation of property and equipment is provided on the straight-line
      method over the estimated useful lives of the assets. Accelerated methods
      of depreciation of property and equipment are used for income tax
      purposes.

      Leasehold improvements are amortized over the lesser of the useful life of
      the asset or term of the lease.

      Maintenance, repairs, and renewals which neither materially add to the
      value of the property nor appreciably prolong its life are charged to
      expense as incurred. Gains or losses on dispositions of property and
      equipment are included in earnings.

      7.  Income taxes

      The Company utilizes the liability method of accounting for income taxes.
      Under the liability method, deferred income tax assets and liabilities are
      provided based on the difference between the financial statement and tax
      bases of assets and liabilities as measured by the currently enacted tax
      rates in effect for the years in which these differences are expected to
      reverse. Deferred tax expense or benefit is the result of changes in
      deferred tax assets and liabilities.

      8.  Insurance coverage and accrued claims

      The Company is self-insured for health costs, cargo damage claims, and
      automobile and general liability claims up to $70,000, $100,000, and
      $250,000 respectively, per single occurrence. The Company also maintains
      workers' compensation insurance, with a deductible of $250,000 in Nevada,
      and without a deductible in Washington. The Company is responsible for
      workers' compensation claims in other states in which the Company operates
      up to an aggregate of approximately $1.9 million per year. Liabilities in
      excess of these amounts are assumed by insurance companies up to
      applicable policy limits.

      The Company estimates and accrues a liability for its share of final
      settlements using all available information including the services of a
      third-party insurance risk claims administrator to assist in establishing
      reserve levels for each occurrence based on the facts and circumstances of
      the incident coupled with the Company's past history of such claims. The
      Company accrues for workers' compensation and automobile liabilities when
      reported, usually the same day as the occurrence. Additionally, the
      Company accrues an estimated liability for incurred but not reported
      claims. Expense depends upon actual loss experience and changes in
      estimates of settlement amounts for open claims which have not been fully
      resolved. The Company provides for adverse loss developments in the period
      when new information becomes available.



                                      F-9
<PAGE>   34
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      9. Revenue recognition

      Freight charges are generally recognized as revenue in the period relative
      to the transit time for that period and operating expense when incurred.

      10. Prepaid tires

      The Company capitalizes tires purchased with new equipment and depreciates
      them over the estimated useful life of the equipment (5 - 10 years).
      Replacement tires are expensed upon placement into service.

      11. Pro forma earnings per share

      Pro forma basic earnings per common share are based upon the
      weighted-average number of common shares outstanding during each period
      presented. Pro forma diluted earnings per common share are based on shares
      outstanding (computed as under basic EPS) and dilutive potential common
      shares. Potential common shares include the options to acquire 291,500 and
      249,500 shares of common stock for 1998 and 1997, respectively.

      12. Fair value of financial instruments

      The fair value of the Company's cash and cash equivalents, receivables,
      accounts payable and accrued liabilities approximate carrying value due to
      the short-term maturity of the instruments. The fair value of long-term
      obligations approximate carrying value based on their effective interest
      rates compared to current market prices.

      13. Certain reclassifications

      Certain nonmaterial reclassifications have been made to the 1997 and 1996
      financial statements to conform to the 1998 presentation.



                                      F-10
<PAGE>   35
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      14. Pro forma financial information (unaudited)

      Effective August 28, 1997, MCI acquired the membership interests of Ute
      (Note N). A limited liability company passes through to its members
      essentially all taxable earnings and losses and pays no tax at the company
      level. Accordingly, for comparative purposes, a pro forma provision for
      income taxes using an effective income tax rate of 38 percent has been
      determined assuming Ute had been taxed as a C Corporation for 1997 and
      1996.


NOTE B - RECEIVABLES

      Receivables consist of the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                     ---------------------------------
                                                        1998                 1997
                                                     ------------         ------------
<S>                                                  <C>                  <C>         
         Trade receivables                           $ 14,570,942         $ 13,540,800
         Other receivables                                253,296              203,721
                                                     ------------         ------------
                                                       14,824,238           13,744,521
         Less allowance for doubtful accounts            (641,264)            (572,801)
                                                     ------------         ------------
                                                     $ 14,182,974         $ 13,171,720
                                                     ============         ============
</TABLE>

      The history of the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                              1998              1997              1996
                                           ---------         ---------         ---------
<S>                                        <C>               <C>               <C>      
         Balance, beginning of year        $ 572,801         $ 505,794         $ 855,000
         Provisions for losses               217,500           220,000           286,000
         Write-offs, net                    (149,037)         (152,993)         (635,206)
                                           ---------         ---------         ---------
         Balance, end of year              $ 641,264         $ 572,801         $ 505,794
                                           =========         =========         =========
</TABLE>



                                      F-11
<PAGE>   36

                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE C - PROPERTY AND EQUIPMENT

      Cost of property and equipment and estimated useful lives are as follows:

<TABLE>
<CAPTION>
                                                                December 31,
                                              --------------------------------------------
                                                  1998              1997            Years
                                              -----------        -----------       -------
<S>                                           <C>                <C>               <C>
         Land                                 $ 5,155,289        $ 4,984,268          --
         Buildings                              9,751,496          9,838,846        20-45
         Revenue equipment                     53,379,665         49,286,334        5-10
         Service cars and equipment               620,279            562,108        3-10
         Shop and garage equipment                153,350            140,355        3-10
         Office furniture and fixtures          2,301,104          2,125,858        3-10
         Other property and equipment           8,151,580          6,414,403        3-10
         Leasehold improvements                 2,375,771          2,149,953        4-5
         Construction in progress               4,065,822            399,750          --
                                              -----------        -----------
                                              $85,954,356        $75,901,875
                                              ===========        ===========
</TABLE>


NOTE D - LEASES

      The Company leases buildings and revenue equipment under operating lease
      agreements. The following is a schedule of future minimum lease payments
      under operating leases:


<TABLE>
<CAPTION>
                                                                                      Total
                                                     Buildings       Equipment       leases
                                                    -----------     ----------    ------------
<S>                                                <C>             <C>            <C>        
       Year ending December 31,
          1999                                      $ 2,317,241     $  617,300     $ 2,934,541
          2000                                        1,958,917        617,300       2,576,217
          2001                                        1,366,767        570,190       1,936,957
          2002                                          861,685        430,755       1,292,440
          2003                                          885,685        430,755       1,316,440
          Thereafter                                  5,520,000        288,614       5,808,614
                                                    -----------     ----------     ----------- 
                Total minimum lease payments        $12,910,295     $2,954,914     $15,865,209
                                                    ===========     ==========     ===========
</TABLE>


      The leases generally provide that property taxes, insurance, and
      maintenance expenses are obligations of the Company. It is expected that
      in the normal course of business, operating leases that expire will be
      renewed or replaced by leases on other properties. The total rent expense
      for the years ended December 31, 1998, 1997, and 1996, was approximately
      $2,220,000, $1,714,000 and $1,541,000, respectively.



                                      F-12
<PAGE>   37
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE E - REVOLVING BANK LOAN

      The Company has a revolving bank loan. Under the loan agreement,
      borrowings are limited to the lesser of 70 percent of allowable trade
      receivables, or $5,000,000. Any outstanding amounts accrue interest at
      .25 percentage points below the lending institution's prime rate, and is
      payable monthly. No principal payments are required until maturity (April
      2000) as long as the loan does not exceed the required limits. The
      agreement is collateralized by cash and cash equivalents, receivables,
      supplies inventory, and all documents, instruments, and chattel paper now
      owned or hereafter acquired by the Company. At December 31, 1998 and 1997,
      there were no draws against the loan.

      The Company also has a line of credit with a limit of $20,000,000 as of
      December 31, 1998. This line is collateralized by revenue equipment. As of
      December 31, 1998, there was $4,000,000 drawn against the line (Note F).


NOTE F - LONG-TERM OBLIGATIONS

      Long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                       ----------------------------
                                                                                          1998              1997
                                                                                       ----------        ----------
<S>                                                                                    <C>               <C>       
         Prime less .25% (7.5% at December 31, 1998) note payable on a line of
           credit (up to $20,000,000) to a bank, due in 2000, interest payments
           due monthly and unpaid balance of principal due in
           2000, collateralized by revenue equipment (Note E)                          $4,000,000        $5,000,000

         8.75-8.85% notes payable to a corporation, due in 2003, payable in
           monthly installments of $18,964, including interest, balloon payment
           of $955,868 due at maturity, collateralized by real property                 1,489,842         1,581,439
                                                                                       ----------        ----------
                                                                                        5,489,842         6,581,439
         Less current maturities                                                           99,990            89,557
                                                                                       ----------        ----------
                                                                                       $5,389,852        $6,491,882
                                                                                       ==========        ==========
</TABLE>



                                      F-13
<PAGE>   38
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE F - LONG-TERM OBLIGATIONS - CONTINUED

      Maturities of long-term obligations are as follows:

<TABLE>
<CAPTION>
           Year ending December 31,
           ------------------------
<S>                                                             <C>      
              1999                                              $   99,990
              2000                                               4,109,131
              2001                                                 119,152
              2002                                                 130,089
              2003                                               1,031,480
              Thereafter                                                --
                                                                ----------
                                                                $5,489,842
                                                                ==========
</TABLE>

      The line of credit agreements contain various restrictive covenants
      including provisions relating to the maintenance of net worth, earnings to
      debt ratio, and liability insurance coverage. As of December 31, 1998, the
      Company was in compliance with all covenants under the line of credit
      agreements.


NOTE G - INCOME TAXES

      Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                            December 31,
                           -----------------------------------------------
                              1998              1997              1996
                           ----------        ----------         ----------
<S>                        <C>               <C>               <C>       
         Current
            Federal        $2,280,862        $2,507,112        $1,009,000
            State             437,138           496,917           218,000
                           ----------        ----------        ----------
                            2,718,000         3,004,029         1,227,000
                           ----------        ----------        ----------
         Deferred
            Federal           781,860           664,806           743,985
            State             160,140           136,165           147,015
                           ----------        ----------        ----------
                              942,000           800,971           891,000
                           ----------        ----------        ----------
                           $3,660,000        $3,805,000        $2,118,000
                           ==========        ==========        ==========
</TABLE>



                                      F-14
<PAGE>   39
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE G - INCOME TAXES - CONTINUED

      The income tax provision reconciled to the tax computed at the federal
      statutory rate of 34 percent is as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                       --------------------------------------------------
                                                           1998              1997                1996
                                                       -----------        -----------         -----------
<S>                                                    <C>                <C>                 <C>        
         Federal income taxes at statutory rate        $ 3,212,000        $ 3,255,000         $ 1,990,000
         State income taxes, net of federal tax            392,000            402,000             248,800
           benefit
         One time charge attributed to Ute (1)                  --            238,000                  --
         Income taxes attributed to Ute                         --           (147,000)           (138,000)
         All other                                          56,000             57,000              17,200
                                                       -----------        -----------         -----------
                                                       $ 3,660,000        $ 3,805,000         $ 2,118,000
                                                       ===========        ===========         ===========
</TABLE>

      Deferred tax assets and liabilities consist of the following:


<TABLE>
<CAPTION>
                                                                      December 31,
                                                            -------------------------------
                                                                1998                1997
                                                            -----------         -----------
<S>                                                         <C>                 <C>        
         Current deferred tax assets (liabilities)
            Allowance for doubtful accounts                 $   245,000         $   219,000
            Vacation accrual                                    508,000             407,000
            Reserve for claims                                  477,000             955,000
            Deferred revenue                                    135,000                  --
                                                            -----------         -----------
         Net current deferred tax assets                    $ 1,365,000         $ 1,581,000
                                                            ===========         ===========

         Long-term deferred tax assets (liabilities)
            Unfunded pension                                   (120,000)           (197,000)
            Accrued compensation                                 88,000              68,000
            Equipment temporary differences                  (7,223,000)         (6,400,000)
                                                            -----------         -----------
         Net deferred tax liability                         $(7,255,000)        $(6,529,000)
                                                            ===========         ===========
</TABLE>




                                      F-15
<PAGE>   40
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE G - INCOME TAXES - CONTINUED

      (1)     Effective August 28, 1997, Ute was acquired by MCI and became a
              taxable entity (Note N). Previously, its earnings and losses were
              included in the personal tax returns of the members, and Ute did
              not record an income tax provision. Effective with the change in
              ownership, in accordance with Statement of Financial Accounting
              Standards (SFAS) No. 109, "Accounting for Income Taxes," income
              taxes will be provided for the tax effects of transactions
              reported in the financial statements and consist of taxes
              currently due plus deferred taxes related primarily to differences
              between the bases of property and equipment for financial and
              income tax reporting. The deferred tax liability represents the
              future tax return consequences of these differences, which will be
              taxable when the liabilities are settled. Accordingly, a deferred
              tax liability at the date of the change of approximately $238,000
              was recorded through a one time non-cash charge to the deferred
              tax provision.


NOTE H - PENSION AND PROFIT-SHARING PLANS

      1.  Pension plan

      The Company participates in a defined benefit pension plan covering
      substantially all of its employees. The benefits are based on years of
      service and hours of service in the current year. A participant is fully
      vested after five years. Contributions are intended to provide not only
      for benefits attributed to service to date, but also for those expected
      benefits to be earned in the future. Information pertaining to the
      activity in the plan is as follows:

<TABLE>
<CAPTION>
                                                                            Pension Benefits
                                                        ---------------------------------------------------
                                                            1998                1997                1996
                                                        -----------         -----------         -----------
<S>                                                     <C>                 <C>                 <C>        
         Change in benefit obligation
         Benefit obligation at beginning of year        $ 4,413,501         $ 4,111,673         $ 3,606,505
         Service cost                                       268,884             248,967             238,559
         Interest cost                                      346,433             318,316             288,520
         Actuarial loss                                     586,993                  --              96,781
         Benefit paid                                      (166,188)           (265,455)           (118,692)
                                                        -----------         -----------         -----------
         Benefit obligation at end of year              $ 5,449,623         $ 4,413,501         $ 4,111,673
                                                        ===========         ===========         ===========
</TABLE>



                                      F-16
<PAGE>   41
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE H - PENSION AND PROFIT-SHARING PLANS - CONTINUED

<TABLE>
<CAPTION>
                                                                                   Pension Benefits
                                                                ---------------------------------------------------
                                                                    1998                1997                1996
                                                                -----------         -----------         -----------
<S>                                                             <C>                 <C>                 <C>        
         Change in plan assets
         Fair value of plan assets at beginning  of year        $ 4,929,225         $ 4,125,240         $ 3,423,488

         Actual return on plan assets                               440,189             769,440             497,698
         Employer contribution                                      125,000             300,000             322,746
         Benefits paid                                             (166,188)           (265,455)           (118,692)
                                                                -----------         -----------         ----------- 
         Fair value of plan assets at end of year               $ 5,328,226         $ 4,929,225         $ 4,125,240
                                                                ===========         ===========         ===========

         Funded status                                          $  (121,397)        $    77,685         $    13,567
         Unrecognized net actuarial loss                           (206,611)           (365,767)           (379,979)
         Unrecognized net transition amount                          63,861              69,651              75,441
                                                                -----------         -----------         ----------- 
         Accrued pension cost                                   $  (264,147)        $  (209,431)        $  (290,971)
                                                                ===========         ===========         ===========
</TABLE>


        The components of net periodic pension cost are as follows:

<TABLE>
<S>                                                             <C>                <C>                <C>
         Service cost                                           $ 268,884          $ 248,967          $ 238,559
         Interest cost                                            346,433            318,316            288,520
         Actual return on plan assets                            (440,189)          (769,440)          (497,698)
         Amortization of prior service cost                         4,588            420,617            199,300
                                                                ---------          ---------          ---------
         Net periodic pension cost                              $ 179,716          $ 218,460          $ 228,681
                                                                =========          =========          =========

         Weighted-average assumptions as of December 31,

         Discount rate                                               6.50%              8.00%              8.00%
         Expected return on plan assets                              6.50               8.00               8.00
         Rate of compensation increase                                 --                 --                 --
</TABLE>



                                      F-17
<PAGE>   42
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE H - PENSION AND PROFIT-SHARING PLANS - CONTINUED

      2.  401(k) profit-sharing plan

      The Company has a qualified 401(k) profit-sharing plan (the Plan) in which
      substantially all of its employees participate. All employees who have
      completed one year of service with the Company are eligible to participate
      in the Plan. Under the Plan, employees are allowed to make contributions
      of between 1 percent and 15 percent of their annual compensation. The
      Company matches certain percentages of employee contributions up to 6
      percent, depending on the Company's operating ratio. All amounts
      contributed by a participant are fully vested at all times. A participant
      becomes vested over time and is fully vested in any Company matching
      contributions after 7 years of service. Expenses for Company contributions
      approximated $475,000, $525,000 and $310,000, for the years ended December
      31, 1998, 1997 and 1996, respectively.


NOTE I - STOCK OPTIONS

      In October 1997, the Company's Board of Directors and stockholders adopted
      the Motor Cargo Industries, Inc. 1997 Stock Option Plan (the Option Plan).
      The Company reserved 500,000 shares of common stock under the Option Plan.
      Accordingly, the Board of Directors has approved the granting of options
      under the Option Plan as follows:

      Directors, officers and key employees have been granted options to acquire
      291,500 shares of common stock. The options were granted at $12.00 -
      $12.50 per share, which was the market price of the Company's shares on
      the date granted. The options vest periodically through January of 2002.
      The options expire upon the earlier of an expiration date fixed by the
      committee responsible for the administering of the Plan or 10 years from
      the date of the grant.

      Fair market value of options granted

      The Company has adopted only the disclosure provisions of Financial
      Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
      (FAS 123). Therefore, the Company accounts for stock based compensation
      under Accounting Principles Board Opinion No. 25, under which no
      significant compensation cost has been recognized. Had the compensation
      cost for the stock based compensation been determined based upon the fair
      value of the options at the grant date consistent with the methodology
      prescribed by FAS 123, the Company's net earnings and earnings per share
      would have been reduced to the following pro forma amounts:



                                      F-18
<PAGE>   43
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE I - STOCK OPTIONS - CONTINUED

      Fair market value of options granted - continued

<TABLE>
<CAPTION>
                                                                      1998        1997
                                                                   ----------   ---------

<S>                                               <C>             <C>             <C>
        Pro forma net earnings                    As reported     $  5,826,486    $ 5,621,476
                                                  Pro forma          5,337,141      5,580,655

        Net earnings per common share - basic
           Net earnings                                           $      0.83     $      0.95
           Pro forma                                                     0.76            0.94

        Net earnings per common share - assuming dilution
           Net earnings                                           $      0.83     $     0.95
           Pro forma                                                     0.76           0.94
</TABLE>


      The fair value of these options was estimated at the date of grant using
      the Black-Scholes American option-pricing model with the following
      weighted-average assumptions for 1998 and 1997: expected volatility of 67
      and 36 percent; risk-free interest rate of 5.65 and 6.66 percent; and
      expected life of 7.5 and 7.5 years. The weighted-average fair value of
      options granted was $8.90 and $6.44 in 1998 and 1997, respectively.

      Option pricing models require the input of highly sensitive assumptions,
      including the expected stock price volatility. Also, the Company's stock
      options have characteristics significantly different from those of traded
      options, and changes in the subjective input assumptions can materially
      affect the fair value estimate. Management believes the best input
      assumptions available were used to value the options and that the
      resulting option values are reasonable.



                                      F-19
<PAGE>   44
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE I - STOCK OPTIONS - CONTINUED

      Fair market value of options granted- continued

      Information with respect to the Company's stock options at December 31,
1998:

<TABLE>
<CAPTION>
                                                                            Weighted-average
                                      Stock options     Exercise price       Exercise price
                                      -------------     --------------       --------------
<S>                                   <C>               <C>                 <C>
      Outstanding at January 1, 1997         --           $    --                 $  --
         Granted                           249,500             12.00                 12.00
         Exercised                           --                --                    --
         Canceled/expired                    --                --                    --
                                          --------                                --------
      Outstanding at December 31, 1997     249,500             12.00                 12.00
         Granted                            42,000             12.50                 12.50
         Exercised                           --                --                    --
         Canceled/expired                    --                --                    --
                                          --------                                --------
      Outstanding at December 31, 1998     291,500        $12.00 to 12.50           $12.07
                                          ========        ===============           ======
      Exercisable at December 31, 1998      62,375            $12.00                $12.00
                                          ========        ===============           ======
</TABLE>

      Additional information about stock options outstanding and exercisable at
      December 31, 1998:

      Options outstanding

<TABLE>
<CAPTION>
                                                                Weighted-average
                             Number        Weighted-average   remaining contractual 
     Exercise price       outstanding       exercise price        life (years)
     --------------       -----------      ----------------   ---------------------
<S>                       <C>              <C>                <C>
         $12.00             249,500           $12.00                  8.9
          12.50              42,000            12.50                  9.1
                           --------
                            291,500
                            =======
</TABLE>

      Options exercisable

<TABLE>
<CAPTION>
                                 Number           Weighted-average
       Exercise price          exercisable          exercise price
       --------------          -----------        ----------------
<S>                            <C>                <C>
          $12.00                  63,375               $12.00
                                  ------
                                  63,375
                                  ======
</TABLE>



                                      F-20
<PAGE>   45
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE J - RELATED PARTY TRANSACTIONS

      Related parties include the Company's officers, directors, stockholders
      and other entities under their common control.

      During the years ended December 31, 1997 and 1996 the Company made
      payments for consulting services of $160,000 and $480,000, respectively,
      to an entity in which the Company's Chairman is a 50 percent owner. The
      agreement terminated April 1997 and was not renewed.

      Guaranteed payments to members of Ute were $140,000 and $140,000 for the
      years ended December 31, 1997 and 1996.


NOTE K - DEFERRED COMPENSATION

      The Company has salary continuation agreements with certain key management
      employees. Under the agreements, the Company is obligated to provide for
      each such employee or his beneficiaries, during a period of not more than
      ten years after the employee's death, disability, or retirement, annual
      benefits ranging from $17,000 to $23,000. The Company has purchased
      universal life insurance policies on the lives of these participants.
      These insurance policies, which remain the sole property of the Company,
      are payable to the Company upon the death of the participant or maturity
      of the insurance policy.

      The Company separately contracts with the participants to pay stated
      benefits substantially equivalent to those received or available under the
      insurance policies upon retirement, death, or permanent disability. The
      expense incurred for the years ended December 31, 1998, 1997 and 1996, was
      approximately $54,000, $36,000 and $62,660, respectively.


NOTE L - COMMITMENTS AND CONTINGENCIES

1.      Letters of credit

      At December 31, 1998, the Company had outstanding letters of credit
      totaling $1,530,000 ($2,010,000 at December 31, 1997). There were no draws
      against these letters of credit during any of the periods presented.



                                      F-21
<PAGE>   46
                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE L - COMMITMENTS AND CONTINGENCIES - CONTINUED

      2.  Litigation

      The Company is involved in litigation arising in the normal course of
      business. It is not possible to state the ultimate liability, if any, in
      these matters. In the opinion of management, such litigation will have no
      material effect on the financial position and results of operations of the
      Company, in excess of amounts accrued.

      3.  Purchase commitments

      At December 31, 1998, the Company has commitments to purchase property and
      equipment in the amount of approximately $3,266,000.


NOTE M - CONCENTRATION OF CREDIT RISK

      The Company maintains cash and cash equivalents at several financial
      institutions. At December 31, 1998, uninsured amounts held in these
      financial institutions totaled approximately $8,187,000, (approximately
      $10,427,000 as of December 31, 1997).


NOTE N - CAPITAL TRANSACTIONS

      Effective August 28, 1997, the membership interests of Ute were acquired
      in exchange for 700,000 shares of common stock of the Company. Because of
      the common ownership of the two entities, this transaction was accounted
      for in a manner similar to a pooling of interests. Ute is included in the
      consolidated financial statements for all periods presented as a
      wholly-owned subsidiary of MCI. All revenue generated in Ute is from the
      renting and contracting, under an independent operating agreement, of
      revenue equipment to Motor Cargo. Therefore, Ute's related operations are
      eliminated in the consolidated financial statements.


                                      F-22
<PAGE>   47

                  MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE N - CAPITAL TRANSACTIONS - CONTINUED

      In October 1997, the Company's Board of Directors awarded an officer of
      the Company 20,000 shares of the Company's common stock. The award was
      made pursuant to a Restricted Stock Agreement which states that 20,000
      shares of the Company's common stock will be issued in the officer's name.
      The Company will hold the certificates for the shares, which will be
      released in four installments, each consisting of 25 percent of the shares
      issued based on the officer's continued employment. In the event the
      officer voluntarily ceases his employment with the Company or the Company
      terminates his employment for cause, the shares not previously released
      will be forfeited. Termination of employment by the Company without cause,
      or termination due to disability or death will result in the prompt
      release of some or all shares not previously released, depending upon the
      date of the relevant event. During 1998, 5,000 shares vested resulting in
      compensation expense in the amount of $60,625. Of the 5,000 shares vested,
      2,180 shares were simultaneously redeemed by the Company. The remaining
      2,820 shares were released to the officer.


NOTE O - ACCRUED LIABILITIES

      Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                      1998              1997
                                                   ----------        ----------
<S>                                                <C>               <C>       
         Salaries, wages, and payroll taxes        $2,573,792        $2,430,614
         Accrued employee benefits                    855,889           769,063
         Vacation accrual                           1,333,469         1,064,935
         All other                                    258,136           161,907
                                                   ----------        ----------
                                                   $5,021,286        $4,426,519
                                                   ==========        ==========
</TABLE>


NOTE P - ACCRUED CLAIMS

      The history of accrued claims is as follows:

<TABLE>
<CAPTION>
                                                 1998                1997                1996
                                             -----------         -----------         -----------
<S>                                          <C>                 <C>                 <C>        
         Balance at beginning of year        $ 2,956,911         $ 2,028,631         $ 1,675,118
         Provision                             4,703,340           4,148,866           2,385,923
         Claims                               (6,278,166)         (3,220,586)         (2,032,410)
                                             -----------         -----------         -----------
         Balance at end of year              $ 1,382,085         $ 2,956,911         $ 2,028,631
                                             ===========         ===========         ===========
</TABLE>



                                      F-23
<PAGE>   48
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibits
--------
<S>            <C>
3.1            Articles of Incorporation of the Company (filed as Exhibit 3.1 to
               the Company's Registration Statement on Form S-1 (File No.
               333-37211) and incorporated herein by reference). 

3.2            Bylaws of the Company (filed as Exhibit 3.2 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).

10.1           Loan Agreement, dated November 25, 1998, between the Company,
               Motor Cargo and Zions First National Bank.*

10.2           $20,000,000 Promissory Note, dated November 26, 1998, to the
               order of Zions First National Bank.*

10.3           1997 Stock Option Plan (filed as Exhibit 10.2 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).(1)

10.4           Pension Plan of Employees of Motor Cargo and Trust Agreement
               (filed as Exhibit 10.3 to the Company's Registration Statement on
               Form S-1 (File No. 333-37211) and incorporated herein by
               reference).(1)

10.5           Motor Cargo Profit Sharing Plan (filed as Exhibit 10.4 to the
               Company's Registration Statement on Form S-1 (Filed No.
               333-37211) and incorporated herein by reference).(1)

10.6           Restricted Stock Agreement, dated October 2, 1997, between the
               Company and Louis V. Holdener (filed as Exhibit 10.5 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).(1)

10.7           Agreement to Purchase and Sell Leasehold Interest dated October
               2, 1990 between Leonard L. Gumport and Motor Cargo (filed as
               Exhibit 10.6 to the Company's Registration Statement on Form S-1
               (File No. 333-37211) and incorporated herein by reference).

10.8           Lease Agreement dated December 23, 1996 between Channing, Inc.
               and Motor Cargo (filed as Exhibit 10.7 to the Company's
               Registration Statement on Form S-1 (File No. 333-37211) and
               incorporated herein by reference).

10.9           Lease Agreement dated as of January 1, 1989 between Andrea
               Tacchino Company and Motor Cargo (filed as Exhibit 10.8 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).

10.10          First Amendment to Lease dated March 1, 1990 between Andrea
               Tacchino Company and Motor Cargo (filed as Exhibit 10.9 to the
               Company's Registration Statement on Form S-1 (File No. 333-37211)
               and incorporated herein by reference).

10.11          Lease Agreement dated October 31, 1995 between Pete Aardema and
               Motor Cargo (filed as Exhibit 10.10 to the Company's Registration
               Statement on Form S-1 (File No. 333-37211) and incorporated
               herein by reference).

10.12          Lease Agreement dated September 29, 1995 among Colburn R.
               Thomason, Michael Tolladay, Kevin Tweed and Motor Cargo (filed as
               Exhibit 10.11 to the Company's Registration Statement on Form S-1
               (File No. 333-37211) and incorporated herein by reference).
</TABLE>

<PAGE>   49
<TABLE>
<S>            <C>
10.13          Form of Salary Continuation Agreement (filed as Exhibit 10.12 to
               the Company's Registration Statement on Form S-1 (File No.
               333-37211) and incorporated herein by reference).(1)

10.14          Management Agreement between the Company and FHF Transportation,
               Inc. (filed as Exhibit 10.18 to the Company's Registration
               Statement on Form S-1 (file No. 333-37211 and incorporated herein
               by reference).

11             Pro Forma Earnings Per Share Calculation*

21             Subsidiaries of the Company (filed as Exhibit 21 to the Company's
               Registration Statement on Form S-1 (file No. 333-37211 and
               incorporated herein by reference).

23             Consent of Grant Thornton LLP.*

27             Financial Data Schedule.*
</TABLE>

----------

(1)   Management contracts and compensatory plans and arrangements identified
      pursuant to Item 14(a)(3) of Form 10-K.

 *    Filed with this report.