**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


For
      the
      fiscal year ended June 30, 2005




OR




o
            **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: 0-23192







**CELADON
      GROUP, INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            **13-3361050**(State
                or other jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or organization)
            Identification
                Number)**9503
                East 33****rd****Street****Indianapolis,
                IN**
            **46235**(Address
                of principal executive offices)
            (Zip
                Code)





Registrant’s
      telephone number, including area code: **(317)
      972-7000**





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





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


**Common
      Stock ($0.033 par value)**


**Series
      A Junior Participating Preferred Stock Purchase Rights**





Indicate
      by check mark whether the registrant (1) has filed all reports required 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
xNo 
o





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. o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act).


Yes
xNo 
o





On
      June
      30, 2005, the last business day of the registrant’s most recently completed
      fiscal year, the aggregate market value of the registrant’s common stock ($0.033
      par value) held by non-affiliates (9,080,377 shares) **** was
      approximately $147.1 million, based upon the reported last sale price of the
      common stock on that date. The exclusion from such amount of the market value
      of
      shares of common stock owned by any person shall not be deemed an admission
      by
      the registrant that such person is an affiliate of the registrant.





The
      number of outstanding shares of the registrant’s common stock as of the close of
      business on August 22, 2005 was 10,050,449.





Documents
      Incorporated by Reference


Part
      III
      of Form 10-K - Portions of Definitive Proxy Statement for the 2005 Annual
      Meeting of Stockholders





**CELADON
      GROUP, INC.**


**FORM
      10-K**





**TABLE
      OF CONTENTS**





**Page****PART
                I****Item
                1.**
            Business
            3**Item
                2.**
            Properties
            9**Item
                3.**
            Legal
                Proceedings
            9**Item
                4.**
            Submission
                of Matters to a Vote of Security Holders
            9**PART
                II****Item
                5.**
            Market
                for Registrant’s Common Stock and Related Stockholder
                Matters
            10**Item
                6.**
            Selected
                Financial Data
            11**Item
                7.**
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12**Item
                7A.**
            Quantitative
                and Qualitative Disclosures About Market Risk
            27**Item
                8.**
            Financial
                Statements and Supplementary Data
            28**Item
                9.**
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            53**Item
                9A.**
            Controls
                and Procedures
            53**PART
                III****Item
                10.**
            Directors
                and Executive Officers of the Registrant
            55**Item
                11.**
            Executive
                Compensation
            55**Item
                12.**
            Security
                Ownership of Certain Beneficial Owners And Management and Related
                Stockholder Matters
            55**Item
                13.**
            Certain
                Relationships and Related Transactions
            55**Item
                14.**
            Principal
                Accountant Fees and Services
            56**PART
                IV****Item
                15.**
            Exhibits,
                Financial Statement Schedules and Reports On Form 8-K
            57**SIGNATURES**
            60**Reports
                of Independent Registered Public Accounting Firm**
            29Consolidated
                Balance Sheets
            32Consolidated
                Statements of Operations
            33Consolidated
                Statements of Cash Flows
            34Consolidated
                Statements of Stockholders’ Equity
            35Notes
                to Consolidated Financial Statements
            36





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**PART
      I**





**Disclosure
      Regarding Forward Looking Statements**





The
      Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
      forward-looking statements. Certain information in Items 1, 3, 7, 7A and 8
      of
      this Form 10-K constitutes forward-looking statements within the meaning of
      the
      Private Securities Litigation Reform Act of 1995 and, as such, involve known
      and
      unknown risks, uncertainties and other factors which may cause the actual
      results, events, performance or achievements of the Company to be materially
      different from any future results, events, performance or achievements expressed
      or implied by such forward-looking statements. Words such as
“anticipates,”“estimates,”“expects,”“projects,”“intends,”“plans,”“believes,” and
      words or terms of similar substance used in connection with any discussion
      of
      future operating results, financial performance, or business plans identify
      forward-looking statements. All forward-looking statements reflect our
      management’s present expectation of future events and are subject to a number of
      important factors and uncertainties that could cause actual results to differ
      materially from those described in the forward-looking statements. While it
      is
      impossible to identify all factors that may cause actual results to differ,
      the
      risks and uncertainties that may affect the Company's business, performance
      and
      results of operations include the factors discussed in Item 7 of this report.
      Subsequent written and oral forward-looking statements attributable to the
      Company or persons acting on its behalf are expressly qualified in their
      entirety by the cautionary statements in this paragraph and elsewhere in this
      Form 10-K.





All
      such
      forward-looking statements speak only as of the date of this Form 10-K. The
      Company expressly disclaims any obligation or undertaking to release publicly
      any updates or revisions to any forward-looking statements contained herein
      to
      reflect any change in the Company’s expectations with regard thereto or any
      change in events, conditions or circumstances on which any such statement is
      based.





For
      these
      statements, we claim the protection of the safe harbor for forward-looking
      statements contained in Section 27A of the Securities Act of 1933, as amended,
      and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), as
      amended.





References
      to the “Company”, “Celadon”, “we”, “us”, “our” and words of similar import refer
      to Celadon Group, Inc. and its consolidated subsidiaries.





**Item
      1.** **Business**





**Introduction**





We
      are
      one of North America’s fifteen largest truckload carriers as measured by
      revenue. We generated $436.8 million in operating revenue during our
      fiscal
      year ended June 30, 2005. We have grown significantly since our incorporation
      in
      1986 through internal growth and a series of acquisitions since 1995. As a
      dry
      van truckload carrier, we generally transport full trailer loads of freight
      from
      origin to destination without intermediate stops or handling. Our customer
      base
      includes Fortune 500 shippers such as DaimlerChrysler, General Electric,
      Wal-Mart, Philip Morris, Procter & Gamble, Dana Corporation, Lear
      Corporation, Navistar International, PPG Industries, Avery Dennison, and
      Target.





In
      our
      international operations, we offer time-sensitive transportation in and between
      the United States and its two largest trading partners, Mexico and Canada.
      We
      generated approximately one-half of our revenue in fiscal 2005 from
      international movements, and we believe our annual border crossings make us
      the
      largest provider of international truckload movements in North America. We
      believe that our strategically located terminals and experience with the
      language, culture, and border crossing requirements of each North American
      country provide a competitive advantage in the international trucking
      marketplace.





We
      believe our international operations, particularly those involving Mexico,
      offer
      an attractive business niche for several reasons. The additional complexity
      and
      the need to establish cross-border business partners and to develop a strong
      organization and an adequate infrastructure in Mexico afford some barriers
      to
      competition that are not present in traditional U.S. truckload service. In
      addition, the expected continued growth of Mexico’s economy, particularly
      exports to the U.S., positions us to capitalize on our cross-border expertise.





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Our
      success is dependent upon the success of our operations in Mexico and Canada,
      and we are subject to risks of doing business internationally, including
      fluctuations in foreign currencies, changes in the economic strength of the
      countries in which we do business, difficulties in enforcing contractual
      obligations and intellectual property rights, burdens of complying with a wide
      variety of international and United States export and import laws and social,
      political, and economic instability. Additional risks associated with our
      foreign operations, including restrictive trade policies and imposition of
      duties, taxes or government royalties by foreign governments, are present but
      largely mitigated by the terms of NAFTA. Information regarding our revenue
      derived from foreign external customers and long-lived assets located in foreign
      countries is set forth in Note 11 to the consolidated financial statements
      filed
      as part of this report.





In
      addition to our international business, we offer a broad range of truckload
      transportation services within the United States, including long-haul, regional,
      dedicated, and logistics. With the acquisitions of certain assets of Highway
      Express in August 2003 and CX Roberson in January 2005, we expanded our
      operations and service offerings within the United States and significantly
      improved our lane density, freight mix, and customer diversity. The Highway
      Express and CX Roberson acquisitions were particularly important to us, and
      we
      believe they have contributed to our recent operating improvements.





We
      also
      operate TruckersB2B, Inc., a profitable marketing business that affords volume
      purchasing power for items such as fuel, tires, and equipment to approximately
      19,000 member trucking fleets representing approximately 450,000 tractors.
      TruckersB2B represents a separate operating segment under generally accepted
      accounting principles. Information regarding revenue, profits and losses, and
      total assets of our transportation and e-commerce (TruckersB2B) operating
      segments is set forth in Note 11 to the consolidated financial statements filed
      as part of this report.





**Operating
      and Sales Strategy**





We
      approach our trucking operations as an integrated effort of marketing, customer
      service, and fleet management. As a part of our strategic plan implemented
      in
      2001, we identified as priorities: increasing our freight rates; decreasing
      our
      reliance on DaimlerChrysler and other automotive industry customers; raising
      our
      service standards; rebalancing lane flows to enhance asset utilization; and
      identifying and acquiring suitable acquisition candidates and successfully
      integrating acquired operations. To accomplish these objectives, we have sought
      to instill high levels of discipline, cooperation, and trust between our
      operations and sales departments. As a part of this integrated effort, our
      operations and sales departments have developed the following strategies, goals,
      and objectives:





·
            *Seeking
                high yielding freight from targeted industries, customers, regions,
                and
                lanes that improves our overall network density and diversifies our
                customer and freight mix.*We
                believe that by focusing our sales resources on targeted regions
                and lanes
                with emphasis on cross-border or international moves and a north
                - south
                direction, we can improve our lane density and equipment utilization,
                increase our average revenue per mile, and lower our average cost
                per
                mile. Each piece of business has rate and productivity goals that
                are
                designed to improve our yield management. We believe that by increasing
                the business we do with less cyclical shippers and reducing our dependency
                on the automotive industry, our ability to improve rate per mile
                increases.·
            *Focusing
                on asset productivity.*Our
                primary productivity measure is revenue per tractor per week. Within
                revenue per tractor we examine rates, non-revenue miles, and loaded
                miles
                per tractor. We actively analyze customers and freight movements
                in an
                effort to enhance the revenue production of our tractors. We also
                attempt
                to concentrate our equipment in defined operating lanes to create
                more
                predictable movements, reduce non-revenue miles, and shorten turn
                times
                between loads. Automotive parts now comprise a significantly lower
                proportion of our overall freight mix than they have historically,
                having
                been replaced primarily by consumer non-durables and other retail
                products.


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·
            *Operating
                a modern fleet to reduce maintenance costs and improve safety and
                driver
                retention.*We
                believe that updating our tractor and trailer fleets will produce
                several
                benefits, including lower maintenance expenses, and enhanced safety,
                driver recruitment and retention. We have taken two important steps
                towards modernizing our fleet. First, we are shortening the replacement
                cycle for our tractors from four years to three years. Second, we
                replaced
                all of the remaining 48-foot trailers in our fleet with new 53-foot
                trailers during fiscal year 2004. These changes could produce significant
                benefits because maintenance and tire expenses increase significantly
                for
                tractors beyond the fourth year of operation and for trailers beyond
                the
                seventh year of operation, as wear and tear increases and some warranties
                expire. In addition, we anticipate our adoption of a uniform fleet
                of
                53-foot trailers will allow us to operate fewer total
                trailers.·
            *Continuing
                our emphasis on service, safety, and technology.*We
                offer just-in-time, time-definite, and other premium transportation
                services to meet the expectations of our service-oriented customers.
                We
                believe that targeting premium service freight permits us to obtain
                higher
                rates, build long-term, service-based customer relationships, and
                avoid
                competition from railroad, intermodal, and trucking companies that
                compete
                primarily on the basis of price. We believe our recent safety record
                has
                been among the best in our industry. In March 2005 and 2003, we were
                awarded first place in fleet safety among all truckload fleets that
                log
                more than 100 million miles per year at the Truckload Carriers
                Association Annual Conference. We have made significant investments
                in
                technologies that are intended to reduce costs, afford a competitive
                advantage with service-sensitive customers, and promote economies
                of
                scale. Examples of these technologies are Qualcomm satellite-based
                tracking and communications systems, our proprietary CelaTrac system
                that
                enables customers to track shipments and access other information
                via the
                Internet, and document imaging.·
            *Maintaining
                our leading position in cross-border truckload shipments while offering
                diversified, nationwide transportation services in the U.S.*We
                believe our strategically located terminals and experience with the
                languages, cultures, and border crossing requirements of all three
                North
                American countries provide us with competitive advantages in the
                international trucking marketplace. As a result of these advantages,
                we
                believe we are the industry leader in cross-border movements between
                North
                American countries. We supplement these cross-border shipments, which
                comprised over 64% of our revenue in fiscal 2005, with domestic
                freight from service-sensitive customers.·
            *Seeking
                strategic acquisitions to broaden our existing domestic operations.*We
                have made eight trucking company acquisitions since 1995 (including
                our
                acquisition of Cheetah Transportation, Inc. which we disposed of
                in June
                2001), and continue to evaluate acquisition candidates. Our current
                acquisition strategy, as evidenced by our purchases of Highway Express
                in
                2003 and certain assets of CX Roberson in 2005, is focused on broadening
                our domestic operations through the addition of carriers that improve
                our
                lane density, customer diversity, and service
                offerings.





**Other
      Services**





*TruckersB2B.* Our
      TruckersB2B subsidiary is a profitable marketing business that affords volume
      purchasing power for items such as fuel, tires, insurance, and other products
      and services to small and medium-sized trucking companies through its website,
      www.truckersb2b.com. TruckersB2B provides small and medium-sized trucking
      company members with the ability to cut costs and thereby compete more
      effectively and profitably with the larger fleets. TruckersB2B has approximately
      19,000 member trucking fleets representing approximately 450,000 tractors.
      Over
      the past five years, TruckersB2B has improved to $7.8 million in revenue and
      an
      operating profit of $1.6 million in fiscal 2005, from $4.4 million
      in
      revenue and an operating loss of $2.3 million in fiscal 2001. TruckersB2B
      continues to introduce complementary products and services to drive its growth
      and attract new fleets.





*Celadon
      Dedicated Services.* Through
      Celadon Dedicated Services, we provide warehousing and trucking services to
      three Fortune 500 companies. Our warehouse facilities are located near
      our
      customers’ manufacturing plants. We also transport the manufacturing component
      parts to our warehouses and sequence those parts for our customers. We then
      transport completed units from our customers’ plants.





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**Industry
      and Competition**





The
      full
      truckload market is defined by the quantity of goods, generally over 10,000
      pounds, shipped by a single customer point-to-point and is divided into several
      segments by the type of trailer used to transport the goods. These segments
      include van, temperature-controlled, flatbed, and tank carriers. We participate
      in the North American van truckload market. The markets within the United
      States, Canada, and Mexico are fragmented, with thousands of competitors, none
      of whom dominates the market. We believe that the current economic pressures
      will continue to force many smaller and private fleets into mergers or to exit
      the industry.





Transportation
      of goods by truck between the United States, Canada, and Mexico is subject
      to
      the provisions of NAFTA. United States and Canadian based carriers may operate
      within both countries. United States and Canadian carriers are not allowed
      to
      operate within Mexico, and Mexican carriers are not allowed to operate within
      the United States and Canada, in each case except for a 26-kilometer, or
      approximately 16 miles, band along either side of the Mexican border. Trailers
      may cross all borders. We are one of a limited number of trucking companies
      that
      participates in all three segments of this cross border market, providing true
      door-to-door carriage.





Transportation
      of goods between the United States or Canada and Mexico consists of three
      components: (i) transport from the point of origin to the Mexican border, (ii)
      drayage, which is transportation across the border, and (iii) transportation
      from the border to the final destination. While the truckload industry is highly
      competitive and fragmented, we are one of a limited number of companies that
      is
      able to provide or arrange for door-to-door transport service between points
      in
      the United States, Canada and Mexico. Although both service and price drive
      competition in the premium long haul, time sensitive portion of the market,
      we
      rely primarily on our high level of service to attract customers. This strategy
      requires us to focus on market segments that employ just-in-time inventory
      systems and other premium services. Our competitors for freight include other
      long-haul truckload carriers and, to a lesser extent, medium-haul truckload
      carriers and railroads. We also compete with other trucking companies for the
      services of drivers. Some of the truckload carriers with which we compete have
      greater financial resources, operate more revenue equipment, and carry a larger
      total volume of freight than us.





TruckersB2B
      is a business-to-business savings program, for small and mid-sized fleets.
      Competitors include other large trucking companies and other
      business-to-business buying programs.





**Customers**





We
      target
      large service-sensitive customers with time-definite delivery requirements
      throughout the United States, Canada and Mexico. Our customers frequently ship
      in the north-south lanes (i.e., to and from locations in Mexico and locations
      in
      the United States and Eastern Canada). The sales personnel in our offices work
      to source northbound and southbound transport, in addition to other
      transportation solutions. We currently service in excess of 2,750 trucking
      customers. Our premium service to these customers is enhanced by a high
      trailer-to-tractor ratio, state-of-the-art technology, well-maintained tractors
      and trailers, and 24/7 dispatch and reporting services. The principal types
      of
      freight transported include automotive parts, paper products, manufacturing
      parts, semi-finished products, textiles, appliances, retail and
      toys.





Our
      largest customer is DaimlerChrysler, which accounted for approximately 5%,
      9%,
      and 12% of our total revenue for fiscal 2005, 2004, and 2003, respectively.
      We
      transport DaimlerChrysler original equipment automotive parts primarily between
      the United States and Mexico, and DaimlerChrysler after-market replacement
      parts
      and accessories within the United States. We have an agreement with
      DaimlerChrysler for international freight for the Chrysler division, which
      expires in October 2006. No other customer accounted for more than 5% of our
      total revenue during any of our three most recent fiscal years.





**Drivers
      and Personnel**





At
      June
      30, 2005, we employed 3,210 persons, of whom 2,357 were drivers, 185 were truck
      maintenance personnel, 563 were administrative personnel, and 105 were dedicated
      services personnel and TruckersB2B personnel. None of our U.S. or Canadian
      employees is represented by a union or a collective bargaining unit.





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Driver
      recruitment, retention, and satisfaction are essential components of our
      success. Competition to recruit and retain drivers is intense in the trucking
      industry. There has been and continues to be a shortage of qualified drivers
      in
      the industry. Drivers are selected in accordance with specific guidelines,
      relating primarily to safety records, driving experience, and personal
      evaluations, including a physical examination and mandatory drug testing. Our
      drivers attend an orientation program and ongoing driver efficiency and safety
      programs. An increase in driver turnover can have a negative impact on the
      results of operations.





Independent
      contractors are utilized through a contract with us to supply one or more
      tractors and drivers for our use. Independent contractors must pay their own
      tractor expenses, fuel, maintenance, and driver costs and must meet our
      specified guidelines with respect to safety. A lease-purchase program that
      we
      offer provides independent contractors the opportunity to lease-to-own a tractor
      from us. As of June 30, 2005, there were 293 independent contractor tractors
      and
      85 lease-purchase independent contractor tractors providing a combined 14.7%
      of
      our tractor capacity.





**Revenue
      Equipment**





Our
      equipment strategy is to utilize late-model tractors and high-capacity trailers,
      actively manage equipment throughout its life cycle, and employ a comprehensive
      service and maintenance program.





We
      have
      determined that the average annual cost of maintenance and tires for tractors
      in
      our fleet rises substantially after the first four years due to a combination
      of
      greater wear and tear and the expiration of some warranty coverages. We believe
      these costs rise late in the trade cycle for our trailers as well. We anticipate
      that we will achieve ongoing savings in maintenance and tire expense by
      replacing tractors and trailers more often. In addition, we believe operating
      newer equipment will enhance our driver recruiting and retention efforts.
      Accordingly, we recently have shortened our normal tractor replacement cycle
      to
      three years of service from four years of service.





The
      average age of our owned and leased tractors and trailers was approximately
      1.9
      and 3.6 years, respectively, at June 30, 2005, and approximately 2.1 and 4.6
      years, respectively, at June 30, 2004. We utilize a comprehensive
      maintenance program to minimize downtime and control maintenance costs.
      Centralized purchasing of spare parts and tires, and centralized control of
      over-the-road repairs are also used to control costs.





**Fuel**





We
      purchase the majority of our fuel through a network of over 100 fuel stops
      throughout the United States and Canada. We have negotiated discounted pricing
      based on certain volume commitments with these fuel stops. We maintain
      bulk-fueling facilities in Indianapolis, Laredo, and Kitchener, Ontario to
      further reduce fuel costs.





Shortages
      of fuel, increases in prices or rationing of petroleum products can have a
      materially adverse effect on our operations and profitability. Fuel is subject
      to economic, political and market factors that are outside of our control.
      We
      have historically been able to recover a portion of high fuel prices from
      customers in the form of fuel surcharges. However, a portion of the fuel expense
      increase is not recovered due to several factors, including the base fuel price
      levels, which determine when surcharges are collected, truck idling, empty
      miles
      between freight shipments, and out-of-route miles. We cannot predict whether
      high fuel price levels will occur in the future or the extent to which fuel
      surcharges will be collected to offset such increases.





**Regulation**





Our
      operations are regulated and licensed by various United States federal and
      state, Canadian provincial and Mexican federal agencies. Interstate motor
      carrier operations are subject to safety requirements prescribed by the United
      States Department of Transportation (DOT). Such matters as weight and equipment
      dimensions are also subject to United States federal and state regulation and
      Canadian provincial regulations. We operate in the United States throughout
      the
      48 contiguous states pursuant to operating authority granted by the Federal
      Highway Administration, in various Canadian provinces pursuant to operation
      authority granted by the Ministries of Transportation and Communications in
      such
      provinces, and within Mexico pursuant to operating authority granted by
      Secretaria de Communiciones y Transportes. To the extent that we conduct
      operations outside the United States, we are subject to the Foreign Corrupt
      Practices Act, which generally prohibits United States companies and their
      intermediaries from bribing foreign officials for the purpose of obtaining
      or
      retaining favorable treatment.


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In
      January 2004, new and more restrictive hours of service regulations for drivers
      became effective. After nine months of operation under the revised
      hours-of-service regulations, citizens’ advocacy groups successfully challenged
      the regulations in court, alleging that they were developed without properly
      considering issues of driver health. Pending further action by the courts or
      the
      effectiveness of new rules addressing the issues raised by the appellate court,
      Congress has enacted a law that extends the effectiveness of the revised
      hours-of-service rules until September 30, 2005. We expect that any new rule
      making resulting from the litigation will be no more favorable than existing
      rules. If driving hours are further restricted by new revisions to the
      hours-of-service rules, we could experience a reduction in driver miles that
      may
      adversely affect our business and results of operations.





Our
      operations are subject to various federal, state, and local environmental laws
      and regulations, implemented principally by the EPA and similar state regulatory
      agencies, governing the management of hazardous wastes, other discharge of
      pollutants into the air and surface and underground waters, and the disposal
      of
      certain substances. We do not believe that compliance with these regulations
      has
      a material effect on our capital expenditures, earnings, and competitive
      position.





In
      addition, the engines used in our newer tractors are subject to new emissions
      control regulations. The EPA recently adopted new emissions control regulations,
      which require progressive reductions in exhaust emissions from diesel engines
      through 2007. The new regulations decrease the amount of emissions that can
      be
      released by truck engines. Compliance with such regulations has increased the
      cost of our new tractors and could impair equipment productivity, lower fuel
      mileage, and increase our operating expenses. Some manufacturers have
      significantly increased new equipment prices, in part to meet new engine design
      requirements.





**Cargo
      Liability, Insurance, and Legal Proceedings**





We
      are a
      party to routine litigation incidental to our business, primarily involving
      claims for bodily injury or property damage incurred in the transportation
      of
      freight. We are responsible for the safe delivery of cargo. We have increased
      the self-insured retention portion of our insurance coverage for most claims
      significantly over the past several years. For fiscal 2005, we renewed our
      auto
      liability policy, self-insuring for personal injury and property damage claims
      for amounts up to $2.5 million per occurrence. Management believes its
      uninsured exposure is reasonable for the transportation industry, based on
      previous history.





We
      are
      also responsible for administrative expenses, for each occurrence involving
      personal injury or property damage. We are also self-insured for the full amount
      of all our physical damage losses, for workers’ compensation losses up to $1.5
      million per claim, and for cargo claims up to $100,000 per shipment. Subject
      to these self-insured retention amounts, our current workers’ compensation
      policy provides coverage up to a maximum per claim amount of $10.0 million,
      and our current cargo loss and damage coverage provides coverage up to
      $1.0 million per shipment. We
      maintain separate insurance in Mexico consisting of bodily injury and property
      damage coverage with acceptable deductibles. Management believes our uninsured
      exposure is reasonable for the transportation industry, based on previous
      history.





There
      are
      various claims, lawsuits, and pending actions against us and our subsidiaries
      that arise in the normal course of business. We believe many of these
      proceedings are covered in whole or in part by insurance and that none of these
      matters will have a materially adverse effect on our consolidated financial
      position or results of operations in any given period. Please see Item 3. Legal
      Proceedings for additional information.





**Seasonality**





We
      have
      substantial operations in the Midwestern and Eastern U.S. and Canada. In those
      geographic regions, our tractor productivity may be adversely affected during
      the winter season because inclement weather may impede our operations. Moreover,
      some shippers reduce their shipments during holiday periods as a result of
      curtailed operations or vacation shutdowns. At the same time, operating expenses
      generally increase, with fuel efficiency declining because of engine idling
      and
      harsh weather creating higher accident frequency, increased claims, and more
      equipment repairs.


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**Internet
      Website**





We
      maintain an Internet website where additional information concerning our
      business can be found. The address of that website is www.celadontrucking.com.
      All of our reports filed with or furnished to the Securities and Exchange
      Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act,
      including our annual report on Form 10-K, quarterly reports on Form 10-Q, or
      current reports on Form 8-K, and amendments thereto are made available free
      of
      charge on or through our Internet website as soon as reasonably practicable
      after such reports are electronically filed with or furnished to the SEC.








**Item
      2.** **Properties**





We
      operate a network of 17 terminal locations, including facilities in
      Laredo
      and El Paso, Texas, which are the two largest inland freight gateway
      cities
      between the U.S. and Mexico. Our operating terminals currently are located
      in
      the following cities:





**United
                States**
            
            **Mexico**
            
            **Canada**Baltimore,
                MD (Leased)
            
            Guadalajara
                (Leased)
            
            Kitchener,
                ON (Leased)Dallas,
                TX (Owned)
            
            Mexico
                City (Leased)El Paso,
                TX (Owned)
            
            Monterrey
                (Leased)Greensboro,
                NC (Leased)
            
            Nuevo
                Laredo (Leased)Hampton,
                VA (Leased)
            
            Puebla
                (Leased)Indianapolis,
                IN (Leased)
            
            Queretero
                (Leased)Laredo,
                TX (Owned and Leased)
            
            Tijuana
                (Leased)Louisville,
                KY (Leased)Richmond,
                VA (Leased)





Our
      executive and administrative offices occupy four buildings located on 40 acres
      of property in Indianapolis, Indiana. The Indianapolis, Laredo, and Kitchener
      terminals include administrative functions, lounge facilities for drivers,
      parking, fuel, maintenance, and truck washing facilities. A portion of the
      Indianapolis facility is used for the operations of Truckers B2B. All of our
      other owned and leased facilities are utilized exclusively by our transportation
      segment.








**Item
      3.** **Legal
      Proceedings**





See
      discussion under “Cargo Liability, Insurance, and Legal Proceedings” in Item 1,
      and Note 9 to the consolidated financial statements, “Commitments and
      Contingencies.” In the fourth quarter of fiscal 2004, we were involved in a
      significant accident for which we have reserved $2.5 million, which
      amount
      is comprised of the entire amount of our self-insured retention, or
      $2.5 million.








**Item
      4.** **Submission
      of Matters to a Vote of Security Holders**





No
      matters were submitted for a vote of security holders, through the solicitation
      of proxies or otherwise, during the quarter ended June 30, 2005.





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**PART
      II**





**Item
      5.** **Market
      for Registrant’s Common Stock and Related Stockholder
      Matters**





**Price
      Range of Common Stock**





Our
      common stock is listed on the NASDAQ National Market under the symbol “CLDN.”
      The following table sets forth the range of high and low bid prices as quoted
      on
      the NASDAQ National Market for the periods indicated:





**Fiscal
                2004******
            
            **High**
            
            **Low**Quarter
                ended September 30, 2003
            
            $
            14.48
            
            $
            8.93Quarter
                ended December 31, 2003
            
            $
            14.73
            
            $
            11.55Quarter
                ended March 31, 2004
            
            $
            16.79
            
            $
            12.69Quarter
                ended June 30, 2004
            
            $
            18.00
            
            $
            13.49**Fiscal
                2005******Quarter
                ended September 30, 2004
            
            $
            19.34
            
            $
            15.96Quarter
                ended December 31, 2004
            
            $
            22.60
            
            $
            17.30Quarter
                ended March 31, 2005
            
            $
            24.53
            
            $
            17.35Quarter
                ended June 30, 2005
            
            $
            19.16
            
            $
            15.80





On
      August
      2, 2005, there were approximately 180 holders of our Common Stock based upon
      the
      number of record holders on that date. However, we estimate our actual number
      of
      stockholders is much higher because a substantial number of our shares are
      held
      of record by brokers or dealers for their customers in street
      names.





**Dividend
      Policy**





We
      have
      never paid a cash dividend on our common stock. We currently intend to continue
      to retain earnings to finance the growth of our business and reduce our
      indebtedness rather than to pay dividends. Our ability to pay cash dividends
      currently is prohibited by restrictions contained in our revolving credit
      facility. Future payments of cash dividends will depend on our financial
      condition, results of operations, capital commitments, restrictions under our
      then-existing debt agreements, and other factors our board of directors may
      consider relevant.





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**Item
      6.** **Selected
      Financial Data**





The
      statement of operations data and balance sheet data presented below have been
      derived from our consolidated financial statements and related notes thereto.
      The information set forth below should be read in conjunction with “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” and
      our consolidated financial statements and related notes thereto.





**2005**
            
            **2004**
            
            **2003******
            
            **2002******
            
            **2001******(in
                thousands, except per share data, operating data, and
                percentages)Statement
                of Operations Data:Freight
                revenue(1)
            
            $
            399,656
            
            $
            382,918
            
            $
            355,692
            
            $
            332,630
            
            $
            346,821Fuel
                surcharge revenue
            
            
            37,107
            
            
            15,005
            
            
            11,413
            
            
            4,369
            
            
            4,997Total
                revenue
            
            $
            436,763
            
            $
            397,923
            
            $
            367,105
            
            $
            336,999
            
            $
            351,818Operating
                expense(2)
            
            
            413,355
            
            
            390,852
            
            
            354,371
            
            
            326,454
            
            
            351,162Operating
                income(2)
            
            
            23,408
            
            
            7,071
            
            
            12,734
            
            
            10,545
            
            
            656Interest
                expense, net(3)
            
            
            1,418
            
            
            3,723
            
            
            6,201
            
            
            7,487
            
            
            9,280Other
                expense (income)
            
            
            13
            
            
            180
            
            
            (3
            )
            
            134
            
            
            (331
            )Minority
                interest in subsidiary
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (331
            )Income
                (loss) before income taxes
            
            
            21,977
            
            
            3,168
            
            
            6,536
            
            
            2,924
            
            
            (7,962
            )Provision
                (benefit) for income taxes
            
            
            9,397
            
            
            3,443
            
            
            2,948
            
            
            1,215
            
            
            (2,626
            )Net
                income (loss)(2)(3)
            
            $
            12,580
            
            $
            (275
            )
            $
            3,588
            
            $
            1,709
            
            $
            (5,336
            )Diluted
                earnings (loss) per share(2)
                (3)
            
            $
            1.23
            
            $
            (0.03
            )
            $
            0.45
            
            $
            0.22
            
            $
            (0.70
            )Weighted
                average diluted shares outstanding
            
            
            10,228
            
            
            7,986
            
            
            8,035
            
            
            7,753
            
            
            7,649Balance
                Sheet Data (at end of period):Net
                property and equipment
            
            $
            57,545
            
            $
            61,801
            
            $
            76,967
            
            $
            94,978
            
            $
            101,902Total
                assets
            
            
            159,443
            
            
            151,310
            
            
            162,073
            
            
            190,031
            
            
            194,916Long-term
                debt, revolving lines of credits, and capital lease
              obligations, including current maturities
            
            
            7,344
            
            
            14,494
            
            
            60,794
            
            
            97,022
            
            
            105,245Stockholders’
                equity
            
            
            98,491
            
            
            82,830
            
            
            57,252
            
            
            53,916
            
            
            52,063Operating
                Data:For
                period(4):Average
                revenue per loaded mile(5)
            
            $
            1.424
            
            $
            1.322
            
            $
            1.266
            
            $
            1.232
            
            $
            1.236Average
                revenue per total mile(5)
            
            $
            1.316
            
            $
            1.225
            
            $
            1.169
            
            $
            1.134
            
            $
            1.137Average
                revenue per tractor per week(5)
            
            $
            2,841
            
            $
            2,723
            
            $
            2,546
            
            $
            2,548
            
            $
            2,533Average
                length of haul
            
            
            995
            
            
            994
            
            
            942
            
            
            950
            
            
            987At
                end of period:Total
                tractors(6)
            
            
            2,570
            
            
            2,531
            
            
            2,491
            
            
            2,568
            
            
            2,368Average
                age of company tractors (in years)(7)
            
            
            1.9
            
            
            2.1
            
            
            2.7
            
            
            2.3
            
            
            2.0Total
                trailers(6)
            
            
            7,468
            
            
            6,966
            
            
            7,142
            
            
            6,758
            
            
            6,537Average
                age of company trailers (in years)(7)
            
            
            3.6
            
            
            4.6
            
            
            6.1
            
            
            4.8
            
            
            4.2


__________________________


(1)
            Freight
                revenue is total revenue less fuel surcharges.(2)
            Includes:
                (a) a $0.8 million pretax write-off of deferred initial
                public
                offering costs for TruckersB2B in the year ended June 30,
                2001;
                (b) a $3.7 million pretax loss on disposal of former
                flatbed
                unit in the quarter ended June 30, 2001; and (c) a
                $9.8 million pretax impairment charge relating to the disposition
                of
                our approximately 1,600 remaining 48-foot trailers, in the year ended
                June
                30, 2004.(3)
            Includes
                a $0.9 million pretax write-off of loan origination costs
                relating to
                replacement of a credit facility in the year ended June 30,
                2003.(4)
            Unless
                otherwise indicated, operating data and statistics presented in this
                table
                and elsewhere in this report are for our truckload revenue and operations
                and exclude revenue and operations of TruckersB2B; our Mexican subsidiary,
                Jaguar; and our less-than truckload, local trucking (or “shuttle”),
                brokerage, logistics, and airfreight operations. Operating data and
                statistics for the fiscal year ended June 30, 2001 also exclude the
                revenue and operations of our former flatbed division.(5)
            Excludes
                fuel surcharges.(6)
            Total
                fleet, including equipment operated by independent contractors and
                our
                Mexican subsidiary, Jaguar.(7)
            Total
                company fleet, including equipment operated by our Mexican subsidiary,
                Jaguar.





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**Item
                7.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**





**Overview**





We
      are
      one of North America’s fifteen largest truckload carriers, generating
      approximately $436.8 million in operating revenue for our fiscal year
      ended
      June 30, 2005. We have grown significantly since our incorporation in 1986
      through internal growth and a series of acquisitions since 1995. As a dry van
      truckload carrier, we generally transport full trailer loads of freight from
      origin to destination without intermediate stops or handling. We operate in
      two
      main market sectors. In our international operations, we offer time-sensitive
      transportation in and between the United States and its two largest trading
      partners, Mexico and Canada. We generated approximately one-half of our revenue
      in fiscal 2005 from international movements, and we believe our annual border
      crossings make us the largest provider of international truckload movements
      in
      North America. In addition to our international business, we offer a broad
      range
      of truckload transportation services within the U.S., including regional,
      long-haul, dedicated, and logistics. We also operate TruckersB2B, a profitable
      marketing business that affords volume purchasing power for items such as fuel,
      tires, and equipment to approximately 19,000 member trucking fleets representing
      approximately 450,000 tractors. Under generally accepted accounting principles,
      TruckersB2B constitutes a separate operating segment. Information regarding
      revenue, profits or losses, and total assets of each of our operating segments
      (transportation and e-commerce (TruckersB2B)) is set forth in Note 11 to the
      consolidated financial statements filed as part of this report.





**Recent
      Results and Fiscal Year-End Financial Condition**





For
      the
      year ended June 30, 2005, total revenue increased 9.8%, to $436.8 million from
      $397.9 million during fiscal 2004. Freight revenue, which excludes revenue
      from
      fuel surcharges, increased 4.5%, to $400.0 million in 2005 from $382.9 million
      in 2004. We generated net income of $12.6 million, or $1.23 per diluted share,
      for the year compared with a net loss of $0.3 million, or $(0.03) per diluted
      share, for 2004.





We
      believe the improvements in our profitability were attributable primarily to
      the
      continued execution of our operating strategy, which involves allocating our
      equipment to customers and freight that provide the most favorable returns.
      The
      most significant components of this effort were raising rates, diversifying
      customers and freight mix, and continuing to focus on asset productivity. Our
      efforts were aided by stronger freight demand and a better rate environment
      in
      2005 primarily due to continued growth in the U.S. economy and a favorable
      relationship between demand and trucking capacity. As a result, average freight
      revenue per loaded mile excluding fuel surcharge for 2005 increased $0.102
      per
      mile to $1.424, a 7.7% increase compared with 2004. Average freight revenue
      per
      tractor per week, our main measure of asset productivity, improved by 4.3%
      to
      $2,841 in 2005 compared with $2,723 for 2004. These factors more than offset
      a
      significant increase in costs, primarily attributable to increased costs of
      driver compensation, revenue equipment and fuel. Our operating ratio, improved
      to 94.6% for 2005 compared with 98.2% for 2004.





At
      June
      30, 2005, our total balance sheet debt was $7.3 million and our total
      stockholders’ equity was $98.5 million, for a total debt to capitalization ratio
      of 6.9%. At June 30, 2005, we had $33.8 million of available borrowing capacity
      under our revolving credit facility and $11.1 million of cash on
      hand.




**Stock
      Issuance**





In
      the
      fourth quarter of fiscal 2004, we issued 1.85 million shares of our
      common
      stock in a public offering. The stock issuance resulted in net proceeds to
      us of
      approximately $25.1 million. We used the proceeds to repay all amounts
      outstanding under our revolving credit facility. The balance of the net proceeds
      was used to pay off debt and leases related to equipment.





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**Revenue**





We
      generate substantially all of our revenue by transporting freight for our
      customers. Generally, we are paid by the mile or by the load for our services.
      We also derive revenue from fuel surcharges, loading and unloading activities,
      equipment detention, other trucking related services and from TruckersB2B.
      The
      main factors that affect our revenue are the revenue per mile we receive from
      our customers, the percentage of miles for which we are compensated, the number
      of tractors operating, and the number of miles we generate with our equipment.
      These factors relate to, among other things, the U.S. economy, inventory levels,
      the level of truck capacity in our markets, specific customer demand, the
      percentage of team-driven tractors in our fleet, driver availability, and our
      average length of haul.





We
      also
      derive revenue from fuel surcharges, loading and unloading activities, equipment
      detention, and other accessorial services. Prior to fiscal 2005, we measured
      total revenue, including fuel and accessorial surcharges. In fiscal 2005, we
      disclosed fuel surcharges separately, and our historical financial statements
      have been reclassified to conform to this presentation. We believe that
      eliminating the impact of this sometimes volatile source of revenue affords
      a
      more consistent basis for comparing our results of operations from period to
      period.





**Expenses
      and Profitability**





The
      main
      factors that impact our profitability on the expense side are the variable
      costs
      of transporting freight for our customers. These costs include fuel expense,
      driver-related expenses, such as wages, benefits, training, and recruitment,
      and
      independent contractor costs, which we record as purchased transportation.
      Expenses that have both fixed and variable components include maintenance and
      tire expense and our total cost of insurance and claims. These expenses
      generally vary with the miles we travel, but also have a controllable component
      based on safety, fleet age, efficiency, and other factors. Our main fixed cost
      is the acquisition and financing of long-term assets, primarily revenue
      equipment. We have other mostly fixed costs, such as our non-driver personnel.
      In discussing our expenses as a percentage of revenue, we sometimes discuss
      changes as a percentage of revenue before fuel surcharges, in addition to
      absolute dollar charges, because we believe the high variable cost nature of
      our
      business makes a comparison of changes in expenses as a percentage of revenue
      more meaningful at times than absolute dollar changes.





The
      trucking industry has experienced significant increases in expenses over the
      past three years, in particular those relating to equipment costs, driver
      compensation, insurance, and fuel. As the United States economy has expanded,
      many trucking companies have been able to raise freight rates to cover the
      increased costs. This is primarily due to industry-wide tight capacity of
      drivers. Competition for drivers has become increasingly intense, as the
      expanding economy has provided alternative jobs at the same time as increasing
      freight demand. To obtain capacity, shippers have been willing to accept the
      largest rate increases in recent history. As long as freight demand continues
      to
      exceed truck capacity, we expect increases in driver pay by many carriers,
      including us, and higher freight rates.





**Revenue
      Equipment**





We
      operate 2,570 tractors and 7,468 trailers. Of our tractors at June 30, 2005,
      356
      were owned, 1,836 were acquired under operating leases, and 378 were provided
      by
      independent contractors, who own and drive their own tractors. Of our trailers
      at June 30, 2005, 1,410 were owned and 6,058 were acquired under operating
      and
      capital leases. We recognized pre-tax impairment charges of $9.8 million in
      the
      first quarter of 2004 in relation to the reduced value of our 48 foot trailers.





We
      acquire most of our tractor fleet and our trailer fleet with operating leases.
      These leases generally run for a period of three to four years for tractors
      and
      seven years for trailers. Financing revenue equipment acquisitions with
      operating leases, rather than borrowings or capital leases, moves the interest
      component of our financing activities into “above-the-line” operating expenses
      on our statements of operations.





We
      changed our process on our tractor trade cycle from a period of approximately
      four years to three years. We evaluated the decision based on maintenance costs,
      capital requirements, prices of new and used tractors, and other factors. This
      resulted in lower maintenance expense in 2005.





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Independent
      contractors (owner operators) provide a tractor and a driver and are responsible
      for all operating expenses in exchange for a fixed payment per mile. We do
      not
      have the capital outlay of purchasing the tractor. The payments to independent
      contractors are recorded in purchased transportation and the payments for
      equipment under operating leases are recorded in revenue equipment rentals.
      Expenses associated with owned equipment, such as interest and depreciation,
      are
      not incurred, and for independent contractor tractors, driver compensation,
      fuel, and other expenses are not incurred. Because obtaining equipment from
      independent contractors and under operating leases effectively shifts these
      expenses from interest to “above the line” operating expenses, we evaluate our
      efficiency using operating ratio as well as income before income
      taxes.





**Outlook**





Looking
      forward, our profitability goal is to achieve an operating ratio of
      approximately 90%. We expect this to require additional improvements miles
      per
      tractor per week, rate per mile and decreased non-revenue miles, to overcome
      expected additional cost increases to expand our margins. Because a large
      percentage of our costs are variable, changes in revenue per mile affect our
      profitability to a greater extent than changes in miles per tractor. For 2006,
      the key factors that we expect to have the greatest effect on our profitability
      are our freight revenue per tractor per week, our compensation of drivers,
      our
      cost of revenue equipment, our fuel costs, our insurance and claims expense
      and
      our maintenance expense. To overcome cost increases and improve our margins,
      we
      will need to achieve increases in freight revenue per tractor, particularly
      in
      revenue per mile, which we intend to achieve by increasing rates and continuing
      to shift to more profitable freight. Operationally, we will seek improvements
      in
      safety, driver recruiting and retention. Our success in these areas primarily
      will affect revenue, driver-related expenses, and insurance and claims expense.


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**Results
      of Operations**





The
      following tables set forth the percentage relationship of revenue and expense
      items to operating and freight revenue for the periods indicated.




**Fiscal
                year ended June 30,********2005**
            
            **2004**
            
            **2003**Operating
                revenue
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Operating
                expenses:Salaries,
                wages, and employee benefits
            
            
            30.6
            
            
            31.3
            
            
            30.4Fuel
            
            
            18.7
            
            
            13.6
            
            
            13.0Operations
                and maintenance
            
            
            7.7
            
            
            8.3
            
            
            8.6Insurance
                and claims
            
            
            3.3
            
            
            4.8
            
            
            3.8Depreciation,
                amortization, and impairment charges(1)
            
            
            3.4
            
            
            6.5
            
            
            3.8Revenue
                equipment rentals
            
            
            8.2
            
            
            7.7
            
            
            6.7Purchased
                transportation
            
            
            16.7
            
            
            19.4
            
            
            23.3Cost
                of products and services sold
            
            
            1.1
            
            
            1.2
            
            
            1.2Professional
                and consulting fees
            
            
            0.6
            
            
            0.6
            
            
            0.7Communication
                and utilities
            
            
            1.0
            
            
            1.0
            
            
            1.1Operating
                taxes and licenses
            
            
            1.9
            
            
            2.1
            
            
            2.0General
                and other operating
            
            
            1.4
            
            
            1.7
            
            
            1.9Total
                operating expenses
            
            
            94.6
            
            
            98.2
            
            
            96.5Operating
                income
            
            
            5.4
            
            
            1.8
            
            
            3.5Other
                (income) expense:Interest
                expense, net(2)
            
            
            0.3
            
            
            0.9
            
            
            1.7Other
                (income) expense
            
            
            ---
            
            
            0.1
            
            
            ---Income
                before income taxes
            
            
            5.1
            
            
            0.8
            
            
            1.8Provision
                for income taxes
            
            
            2.2
            
            
            0.9
            
            
            0.8Net
                income (loss)
            
            
            2.9
            %
            
            (0.1
            )%
            
            1.0
            %


_________________________Freight
                revenue(3)
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Operating
                expenses:Salaries,
                wages, and employee benefits
            
            
            33.4
            
            
            32.5
            
            
            31.4Fuel(3)
            
            
            11.1
            
            
            10.2
            
            
            10.2Operations
                and maintenance
            
            
            8.4
            
            
            8.6
            
            
            8.9Insurance
                and claims
            
            
            3.6
            
            
            4.9
            
            
            4.0Depreciation,
                amortization, and impairment charges(1)
            
            
            3.7
            
            
            6.7
            
            
            3.9Revenue
                equipment rentals
            
            
            9.0
            
            
            8.0
            
            
            7.0Purchased
                transportation
            
            
            18.3
            
            
            20.2
            
            
            24.0Cost
                of products and services sold
            
            
            1.2
            
            
            1.3
            
            
            1.3Professional
                and consulting fees
            
            
            0.7
            
            
            0.6
            
            
            0.7Communication
                and utilities
            
            
            1.1
            
            
            1.1
            
            
            1.2Operating
                taxes and licenses
            
            
            2.1
            
            
            2.1
            
            
            2.1General
                and other operating
            
            
            1.5
            
            
            2.0
            
            
            1.7Total
                operating expenses
            
            
            94.1
            
            
            98.2
            
            
            96.4Operating
                income
            
            
            5.9
            
            
            1.8
            
            
            3.6Other
                (income) expense:Interest
                expense, net(2)
            
            
            0.4
            
            
            1.0
            
            
            1.8Other
                (income) expense
            
            
            ---
            
            
            ---
            
            
            ---Income
                before income taxes
            
            
            5.5
            
            
            0.8
            
            
            1.8Provision
                for income taxes
            
            
            2.4
            
            
            0.9
            
            
            0.8Net
                income (loss)
            
            
            3.1
            %
            
            (0.1
            )%
            
            1.0
            %






(1)
            Includes
                a $9.8 million trailer impairment charge in fiscal
                2004.(2)
            Includes
                a $914,000 pretax write-off of unamortized loan origination costs
                for
                refinancing our line of credit in fiscal 2003.(3)
            Freight
                revenue is total revenue less fuel surcharges. In this table, fuel
                surcharges are eliminated from revenue and subtracted from fuel expense.
                The amounts were $37.1 million, $15.0 million, and $11.4 million
                in 2005,
                2004 and 2003, respectively.








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**Fiscal
      year ended June 30, 2005, compared with fiscal year ended June 30,
      2004**





Total
      revenue increased by $38.9 million,
      or 9.8%, to $436.8 million for fisca l
      2005,
      from $397.9 million for fiscal 2004. Freight revenue excludes $37.1
      million
      and $15.0 million of fuel surcharge revenue for fiscal 2005 and 2004,
      respectively.





Freight
      revenue increased by $16.7 million, or 4.4% to $399.6 million for fiscal 2005
      from $382.9 million for fiscal 2004. This increase was primarily attributable
      to
      a 7.7% improvement in average revenue per total mile, excluding fuel surcharge,
      to$1.424 from $1.322. The improvement in average revenue per total mile resulted
      primarily from better overall freight rates in fiscal 2005, a decrease in the
      percentage of our freight comprised of automotive parts and a corresponding
      increase in the percentage of our freight comprised of consumer non-durables.
      Revenue per tractor per week, excluding fuel surcharge, which is our primary
      measure of asset productivity, increased 4.3% to $2,841 in fiscal 2005, from
      $2,723 for fiscal 2004, as a result of an increase in revenue per mile.





Revenue
      for TruckersB2B was $7.8 million in fiscal 2005, compared to
      $8.1 million in fiscal 2004. The TruckersB2B revenue decrease resulted
      from
      a decrease in member usage of various programs, the largest being the tire
      discount programs, due to an industry wide shortage of tires.





Salaries,
      wages, and employee benefits were $133.6 million,
      or 33.4% of
      freight revenue, for fiscal 2005, compared to $124.5 million, or 32.5%
      of
      freight revenue, for fiscal 2004. The increase in the overall dollar amount
      primarily was related to a 5.8% increase in company miles, which in turn
      increased driver wages. The remaining increase in this expense category was
      due
      to an increase in the percentage of our fleet comprised of company trucks,
      and
      an increase in administrative payroll related expenses.





Fuel
      expenses, net of fuel surcharge revenue of $37.1 million and $15.0 million
      for
      fiscal 2005 and 2004, respectively increased to $44.4 million, or 11.1%
      of
      freight revenue, for fiscal 2005, compared to $39.0 million, or 10.2%
      of
      freight revenue, for the same period in fiscal 2004. This increase was primarily
      attributable to a 5.8% increase in company miles and an increase in average
      fuel
      prices of approximately $0.50 per gallon. In addition, fuel expense was reduced
      by a $3.1 million fuel tax refund in 2004, relating to prior years. We expect
      fuel prices may remain at relatively high levels due to low inventory and unrest
      in the Middle East. Higher fuel prices will increase our operating expenses
      to
      the extent we cannot offset them with surcharges.





Operations
      and maintenance consist of direct operating expense, maintenance, and tire
      expense. This category increased to $33.7 million for fiscal 2005, from
      $33.1 million for fiscal 2004. This dollar amount increase was primarily
      the result of increased expenses to repair tractors for trade-in in fiscal
      2005,
      partially offset by decreases in maintenance expense due to our fleet upgrade
      initiative and management changes in our maintenance area. As a percentage
      of
      freight revenue, operations and maintenance decreased to 8.4% of revenue for
      fiscal 2005, compared to 8.6% for fiscal 2004. The decrease in maintenance
      expense as a percentage of revenue in the fiscal 2005 period was primarily
      the
      result of our fleet upgrade initiative, implementing a tractor trade cycle
      change from 4 years to 3 years as well as reducing our trailer fleet to a 7
      year
      trade cycle in fiscal 2005, offset by increased expenses to repair tractors
      for
      trade-in. We expect our maintenance expense will continue to decrease as a
      percentage of revenue due to these initiatives.





Insurance
      and claims expense was $14.4 million, or 3.6% of freight revenue, for fiscal
      2005, compared to $18.9 million, or 4.9% of freight revenue, for fiscal
      2004. The primary reason for the decrease in insurance and claims expense
      relates to one significant accident that occurred and was accrued for in the
      fourth quarter of fiscal 2004. Our insurance expense consists of premiums and
      deductible amounts for liability, physical damage, and cargo damage insurance.
      Our insurance program involves self-insurance at various risk retention levels.
      Claims in excess of these risk levels are covered by insurance in amounts we
      consider to be adequate. We accrue for the uninsured portion of claims based
      on
      known claims and historical experience. Insurance and claims expense will vary
      based primarily on the frequency and severity of claims, the level of
      self-retention and the premium expense.





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Depreciation
      and amortization, consisting primarily of depreciation of revenue equipment,
      decreased to $14.9 million, or 3.7% of freight revenue, in fiscal 2005
      from
      $25.8 million, or 6.7% of freight revenue, for fiscal 2004. This decrease
      was primarily attributable to the pretax impairment charge of $9.8 million,
      or 2.6% of freight revenue, in fiscal 2004 related to the disposal of all
      48-foot trailers in addition to 53-foot trailers over nine years old. We
      disposed of approximately 1,600 1994 -1998 model year trailers and replaced
      them
      with 1,300 2004/2005 model year trailers. In addition, we have increased our
      use
      of operating leases to finance acquisitions of revenue equipment. Revenue
      equipment held under operating leases is not reflected on our balance sheet
      and
      the expenses related to such equipment are reflected on our statements of
      operations in revenue equipment rentals, rather than in depreciation and
      amortization and interest expense, as is the case for revenue equipment that
      is
      financed with borrowings or capital leases. We expect to use available cash
      generated from operations to purchase new tractors and trailers, which will
      increase depreciation, with the remaining additions to be acquired under
      off-balance sheet operating leases.





Revenue
      equipment rentals were $35.8 million, or 9.0% of freight revenue, in
      fiscal
      2005, compared to $30.8 million, or 8.0% of freight revenue, for fiscal
      2004. As of June 30, 2005, we had financed 1,836 tractors and 5,583 trailers
      under operating leases as compared to 1,709 tractors and 3,880 trailers as
      of
      June 2004. This increase was attributable to a higher proportion of our tractor
      and trailer fleet held under operating leases during the 2005 period. As we
      expect to acquire new tractors and trailers with operating leases, we expect
      revenue equipment rentals will increase going forward. However, the rate of
      increase may slow as we generate cash from operations to purchase new tractors
      and trailers.





Purchased
      transportation decreased to $73.0 million, or 18.3% of freight revenue,
      for
      fiscal 2005, from $77.1 million, or 20.2% of freight revenue, for fiscal
      2004. This decrease was primarily related to reduced independent contractor
      expense, as the percentage of our fleet comprised of independent contractors
      decreased to 378 independent contractors at June 30, 2005 from 452 at June
      30,
      2004. This decrease was partially offset due to increased payments to
      independent contractors resulting from fuel surcharges collected due to rising
      fuel costs, which are passed through to our independent contractors on a per
      mile basis. Independent contractors are drivers who cover all their operating
      expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed
      payment per mile. We expect the majority of our equipment additions to come
      in
      our company-operated fleet. As a result, the percentage of our fleet comprised
      of independent contractors may continue to decline, with a corresponding
      decrease in this expense category. It has become difficult to recruit and retain
      independent contractors.





All
      of
      our other operating expenses are relatively minor in amount, and there were
      no
      significant changes in these expenses.





Net
      interest expense decreased to $1.4 million in fiscal 2005, or 0.4% of
      freight revenue, from $3.7 million, or 1.0% of freight revenue, in fiscal
      2004. The decrease was the result of reduced bank borrowings, of which we had
      none at June 30, 2005, compared to $6.0 million at June 30, 2004,
      and
      reduced capital lease obligations, which decreased to $2.0 million at June
      30,
      2005, from $5.3 million at June 30, 2004. The reduction in our
      capital
      lease obligations has resulted largely from our increased use of operating
      leases to make acquisitions of new revenue equipment. The reduction in bank
      borrowings and other debt resulted from the use of the proceeds of our secondary
      offering completed in May 2004 and from increased working capital related to
      our
      increased profitability in fiscal 2005.





Our
      pretax margin, which we believe is a useful measure of our operating performance
      because it is neutral with regard to the method of revenue equipment financing
      that a company uses, improved to 5.5% of freight revenue for fiscal 2005 from
      0.8% for fiscal 2004, including the impact of the $9.8 million pretax
      impairment charge.





In
      addition to other factors described above, Canadian exchange rate fluctuations
      principally impact salaries, wages, and benefits and purchased transportation
      and, therefore, impact our pretax margin and results of operations.





Income
      taxes increased to $9.4 million for fiscal 2005, from $3.4 million
      for
      fiscal 2004. The effective tax rate decreased as a result of the tax effect
      of
      final settlement with the Internal Revenue Service related to all of our
      consolidated federal income tax returns through fiscal year June 30, 2001,
      recorded in fiscal 2004. Due to the non-deductible effects of our driver per
      diem pay structure, our tax rate will fluctuate in future periods as income
      fluctuates.


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**Fiscal
      year ended June 30, 2004, compared with fiscal year ended June 30,
      2003**





Total
      revenue increased by $30.8 million,
      or 8.4%, to $397.9 million for fisca l
      2004,
      from $367.1 million for fiscal 2003. Freight revenue excludes $15.0
      million
      and $11.4 million of fuel surcharge revenue for fiscal 2004 and 2003,
      respectively.





Freight
      revenue increased by $27.2 million, or 7.6% to $382.9 million in fiscal 2004
      from $355.7 million for fiscal 2003. This increase was primarily attributable
      to
      a 4.8% improvement in average revenue per total mile, excluding fuel surcharge,
      from $1.169 to $1.225, a 2.0% increase in average miles per tractor per week,
      from 2,179 to 2,223, and a 4.1% increase in average tractors from 2,172 to
      2,262. The improvement in average revenue per total mile resulted primarily
      from
      better overall freight rates in fiscal 2004, a decrease in the percentage of
      our
      freight comprised of automotive parts and a corresponding increase in the
      percentage of our freight comprised of consumer non-durables, and to a lesser
      extent a reduction in our percentage of non-revenue miles. The increase in
      miles
      per tractor per week was primarily attributable to stronger overall freight
      demand in the 2004 period. Revenue per tractor per week, excluding fuel
      surcharge, which is our primary measure of asset productivity, increased 7.0%
      to
      $2,723 in fiscal 2004, from $2,546 for fiscal 2003, as a result of increases
      in
      revenue per mile and miles per tractor. The increase in average tractors was
      primarily related to our acquisition of certain assets of Highway in the first
      quarter of fiscal 2004.





Revenue
      for TruckersB2B was $8.1 million in fiscal 2004, compared to
      $7.2 million in fiscal 2003. The TruckersB2B revenue increase resulted
      from
      an increase in member usage of various programs, including the fuel and tire
      discount programs.





Salaries,
      wages, and employee benefits were $124.5 million,
      or 32.5% of
      freight revenue, for fiscal 2004, compared to $111.6 million, or 31.4%
      of
      freight revenue, for fiscal 2003. The increase in the overall dollar amount
      primarily was related to a 16.6% increase in company miles, which in turn
      increased driver wages. The **** 11.6%
      increase in this expense category was primarily attributable to an increase
      in
      the percentage of our fleet comprised of company trucks, an increase in driver
      compensation, and an increase in administrative payroll and related expenses
      for
      the Highway Express employees.





Fuel
      expense, net of fuel surcharge of $15.0 million and $11.4 million for fiscal
      2004 and 2003, increased to $39.0 million, or 10.2% of freight revenue,
      for
      fiscal 2004, compared to $36.2 million, or 10.2% of freight revenue,
      for
      the same period in fiscal 2003. This increase was primarily attributable to
      a
      16.6% increase in company miles and an increase in average fuel prices of
      approximately $0.50 per gallon. In addition, fuel expense in 2004 was reduced
      by
      a $3.1 million fuel tax refund relating to prior years. We expect fuel
      prices may remain at relatively high levels due to low inventory and unrest
      in
      the Middle East. Higher fuel prices will increase our operating expenses to
      the
      extent we cannot offset them with surcharges.





Operations
      and maintenance expenses increased to $33.1 million for fiscal 2004,
      from
      $31.7 million for fiscal 2003. This dollar amount increase was primarily
      the result of our larger fleet of company-operated equipment in fiscal 2004.
      As
      a percentage of freight revenue, operations and maintenance decreased to 8.6%
      of
      revenue for fiscal 2004, compared to 8.9% for fiscal 2003. The decrease in
      maintenance expense as a percentage of freight revenue in the fiscal 2004 period
      was primarily the result of our fleet upgrade initiative, as newer tractors
      and
      trailers generally require less maintenance, which was partially offset by
      a
      larger percentage of our fleet being comprised of company-operated equipment
      in
      the fiscal 2004 period. Operations and maintenance consist of direct operating
      expense, maintenance and tire expense.





Insurance
      and claims expense was $18.9 million, or 4.9% of freight revenue, for
      fiscal 2004, compared to $14.1 million, or 4.0% of freight revenue,
      for
      fiscal 2003. The primary reason for the increase in insurance and claims expense
      relates to one significant accident that occurred and was accrued for in the
      fourth quarter of fiscal 2004. Our insurance expenses consist of premiums for
      liability, physical damage, and cargo damage insurance. Our insurance program
      involves self-insurance at various risk retention levels. Claims in excess
      of
      these risk levels are covered by insurance in amounts we consider to be
      adequate. We accrue for the uninsured portion of claims based on known claims
      and historical experience. We regularly evaluate our insurance program in an
      effort to maintain a balance between premium expense and the risk retention
      we
      are willing to assume.





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Depreciation
      and amortization, consisting primarily of depreciation of revenue equipment,
      increased to $25.8 million, or 6.7% of freight revenue, in fiscal 2004
      from
      $13.8 million, or 3.9% of freight revenue, for fiscal 2003. This increase
      was primarily attributable to the pretax impairment charge of $9.8 million,
      or 2.5% of operating revenue in fiscal 2004 related to a plan to dispose of
      all
      48-foot trailers in addition to 53-foot trailers over nine years old. We
      disposed of approximately 1,600 1994-1998 model year trailers and replaced
      them
      with 1,300 2004/2005 model year trailers. We also incurred higher depreciation
      due to the equipment we acquired in the Highway Express acquisition and losses
      on disposition of some of the tractors acquired from Burlington Motor Carriers.
      These items were partially offset by our increased use of operating leases
      to
      finance acquisitions of revenue equipment.





Revenue
      equipment rentals were $30.8 million, or 8.0% of freight revenue, in
      fiscal
      2004, compared to $24.8 million, or 7.0% of freight revenue, for fiscal
      2003. This increase was attributable to a higher proportion of our tractor
      and
      trailer fleet held under operating leases during the 2004 period.





Purchased
      transportation decreased to $77.1 million, or 20.2% of freight revenue,
      for
      fiscal 2004, from $85.3 million, or 24.0% of freight revenue, for fiscal
      2003. This decrease was primarily related to reduced independent contractor
      expense, as the percentage of our fleet comprised of independent contractors
      decreased. Independent contractors are drivers who cover all their operating
      expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed
      payment per mile.





All
      of
      our other operating expenses are relatively minor in amount, and there were
      no
      significant changes in these expenses.





Net
      interest expense decreased to $3.7 million in fiscal 2004, or 1.0% of
      freight revenue, from $6.2 million, or 1.8% of freight revenue, in fiscal
      2003. The decrease was the result of reduced bank borrowings, which decreased
      to
      $6.0 million at June 30, 2004, from $23.1 million at
      June 30, 2003, reduced capital lease obligations, which decreased to
      $5.3 million at June 30, 2004, from $28.2 million at
      June 30, 2003, and a one-time pretax write-off of unamortized loan
      origination costs of approximately $0.9 million related to the refinancing
      of our line of credit in fiscal 2003. The reduction in our capital lease
      obligations has resulted largely from our increased use of operating leases
      to
      finance acquisitions of new revenue equipment. The reduction in bank borrowings
      and other debt resulted from the use of the proceeds of our secondary offering
      completed in May 2004 and from increased working capital related to our
      increased profitability in fiscal 2004.





Our
      pretax margin, which we believe is a useful measure of our operating performance
      because it is neutral with regard to the method of revenue equipment financing
      that a company uses, decreased to 0.8%, for fiscal 2004, including the impact
      of
      the $9.8 million pretax impairment charge, and a $3.1 million fuel tax
      refund, from 1.8% for fiscal 2003, including the impact of a one-time pretax
      write-off of unamortized loan origination costs of approximately
      $0.9 million related to the refinancing of our line of credit. In addition
      to other factors described above, Canadian exchange rate fluctuations
      principally impact salaries, wages, and benefits and purchased transportation
      and, therefore, impact our pretax margin and results of operations.





Income
      taxes increased $0.5 million to $3.4 million for fiscal 2004,
      from
      $2.9 million, for fiscal 2003. The effective tax rate increased as a
      result
      of an increase in non-deductible expenses related to our driver per diem pay
      structure, in addition to the tax effect of final settlement with the Internal
      Revenue Service related to all of the Company’s consolidated federal income tax
      returns through fiscal year June 30, 2001. As per diem charges are partially
      non-deductible for income tax purposes, our tax rate will fluctuate as our
      net
      income fluctuates.





**Liquidity
      and Capital Resources**





Trucking
      is a capital-intensive business. We require cash to fund our operating expenses
      (other than depreciation and amortization), to make capital expenditures and
      acquisitions, and to repay debt, including principal and interest payments.
      Other than ordinary operating expenses, we anticipate that capital expenditures
      for the acquisition of revenue equipment will constitute our primary cash
      requirement over the next twelve months. Our principal sources of liquidity
      are
      cash generated from operations, bank borrowings, capital and operating lease
      financing of revenue equipment, and proceeds from the sale of used revenue
      equipment.





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As
      of
      June 30, 2005, we had on order 1,082 tractors for delivery through 2008. These
      revenue equipment orders represent a capital commitment of approximately $90.1
      million, before considering the proceeds of equipment dispositions. In
      connection with our fleet upgrade, we have financed most of the new tractors
      and
      new trailers we have acquired to date under off-balance sheet operating leases.
      A portion of the used equipment that has been or will be replaced by these
      new
      units was or is owned or held under capital leases and, therefore, carried
      on
      our balance sheet. As a result of our increased use of operating leases to
      make
      acquisitions of revenue equipment, we have reduced our balance sheet debt.
      At
      June 30, 2005, our total balance sheet debt, including capital lease obligations
      and current maturities, was $7.3 million, compared to $14.5 million
      at
      June 30, 2004, and $60.8 million at June 30, 2003. Our
      debt-to-capitalization ratio (total balance sheet debt as a percentage of total
      balance sheet debt plus total stockholders’ equity) decreased to 6.9% at June
      30, 2005, from 14.9% at June 30, 2004, and 51.5% at June 30,
      2003. Net
      of cash on hand at June 30, 2005 of $11.1 million, our debt to capitalization
      ratio was 0%.





We
      believe we will be able to fund our operating expenses, as well as our current
      commitments for the acquisition of revenue equipment, over the next twelve
      months with a combination of cash generated from operations, borrowings
      available under our primary credit facility, and lease financing arrangements.
      Our reduction in outstanding indebtedness with the cash generated from
      operations and application of the net proceeds of our stock offering
      significantly increased the availability under our primary credit facility
      for
      working capital and other purposes. Subject to any required lender approval,
      we
      may make acquisitions, although we do not have any specific acquisition plans
      at
      this time.





We
      will
      continue to have significant capital requirements over the long term, and the
      availability of the needed capital will depend upon our financial condition
      and
      operating results and numerous other factors over which we have limited or
      no
      control, including prevailing market conditions and the market price of our
      common stock. However, based on our improving operating results, anticipated
      future cash flows, current availability under our credit facility, as well
      as
      increased borrowing availability following the application of offering proceeds,
      and sources of equipment lease financing that we expect will be available to
      us,
      we do not expect to experience significant liquidity constraints in the
      foreseeable future.   
 **Cash
        Flows**
 
 We
        generated net cash from operating activities of $28.9 million in fiscal
        2005, $33.1 million in fiscal 2004, and $33.7 million in fiscal
        2003.
        The decrease in net cash provided by operations in fiscal 2005 from fiscal
        2004
        is due primarily to the decrease in income tax payable.
 
 Net
        cash
        used in investing activities was $9.6 million for fiscal 2005, compared
        to
        net cash used in investing activities of $4.6 million for fiscal 2004
        and
        net cash provided by investing activities of $3.2 million in fiscal 2003.
        Approximately $22.7 million of the cash used in investing activities
        for
        fiscal 2005 was related to our purchase of certain assets of CX Roberson
        in
        January of 2005. In addition, cash used in (provided by) investing activities
        includes the net cash effect of acquisitions and dispositions of revenue
        equipment during each year. Capital expenditures totaled $27.7 million
        in
        fiscal 2005, including the value of equipment purchased under capital leases
        and
        excluding the assets purchased from CX Roberson, $23.9 million in fiscal
        2004,
        including the value of equipment purchased under capital leases and excluding
        the assets purchased from Highway Express, and $7.1 million in fiscal
        2003.
        We generated proceeds from the sale of property and equipment of
        $39.8 million in fiscal 2005 (including $7.6 million from the CX Roberson
        acquisition), $22.8 million in fiscal 2004, and $10.3 million in fiscal
        2003.
 
 Net
        cash
        used in financing activities was $8.5 million in fiscal 2005,
        $29.2 million in fiscal 2004, and $36.2 million in fiscal 2003.
        Financing activity represents bank borrowings (new borrowings, net of
        repayments) and payment of the principal component of capital lease obligations.
        In fiscal 2004, we received approximately $25.9 million from the issuance
        of
        common stock.
 
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            20
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  **Off-Balance
        Sheet Arrangements**
 
 Operating
        leases have been an important source of financing for our revenue equipment.
        We
        lease a significant portion of our tractor and trailer fleet using operating
        leases. In connection with substantially all of our operating leases, we
        have
        issued residual value guarantees, which provide that if we do not purchase
        the
        leased equipment from the lessor at the end of the lease term, then we are
        liable to the lessor for an amount equal to the shortage (if any) between
        the
        proceeds from the sale of the equipment and an agreed value. With respect
        to a
        minority of our equipment held under operating leases, we have obtained from
        the
        manufacturers residual value guarantees that meet or exceed the amount of
        our
        guarantee to the lessor. To the extent the expected value at the lease
        termination date is lower than the residual value guarantee, we would accrue
        for
        the difference over the remaining lease term. We currently believe that proceeds
        from the sale of equipment held under operating leases would exceed the amount
        of our residual obligation on all operating leases.
 
 Over
        the
        past several years, we have financed most of our new tractors and trailers
        under
        operating leases, which are not reflected on our balance sheet. The use of
        operating leases also affects our statement of cash flows. For assets subject
        to
        these operating leases, we do not record depreciation as an increase to net
        cash
        provided by operations, nor do we record any entry with respect to investing
        activities or financing activities.
 
 Our
        operating leases include some under which we do not guarantee the value of
        the
        asset at the end of the lease term (“walk-away leases”) and some under which we
        do guarantee the value of the asset at the end of the lease term. We were
        obligated for residual value payments related to operating leases of
        $70.6 million at June 30, 2005 compared to $42.5 million at
        June 30, 2004. A small portion of these amounts is covered by repurchase
        and/or trade agreements we have with the equipment manufacturer. We believe
        that
        any residual payment obligation that are not covered by the manufacturer
        will be
        satisfied, in the aggregate, by the value of the related equipment at the
        end of
        the lease. To the extent the expected value at the lease termination date
        is
        lower than the residual value guarantee, we would accrue for the difference
        over
        the remaining lease term. We anticipate that going forward we will use operating
        leases and cash generated from operations to finance the acquisition of revenue
        equipment.
 
 **Primary
        Credit Agreement**
 
 On
        September 26, 2002, we entered into our current primary credit facility
        with Fleet Capital Corporation, Fleet Capital Canada Corporation and several
        other lenders. This $55.0 million facility consists of revolving loan
        facilities, and a commitment to issue and guaranty letters of credit. Repayment
        of the amounts outstanding under the credit facility is secured by a lien
        on our
        assets, including the stock or other equity interests of our subsidiaries,
        and
        the assets of certain of our subsidiaries. In addition, certain of our
        subsidiaries that are not party to the credit facility have guaranteed repayment
        of the amount outstanding under the credit facility and have granted a lien
        on
        their respective assets to secure such repayment. The credit facility expires
        on
        September 26, 2005. We are currently reviewing credit facility proposals
        and expect to have a new or revised credit facility in place on September
        26,
        2005.
 
 Amounts
        available under the credit facility are determined based on our accounts
        receivable borrowing base. The facility contains restrictive covenants, which,
        among other things, limit our ability to pay cash dividends and make capital
        expenditures and lease payments, and require us to maintain compliance with
        certain financial ratios, including a minimum fixed charge coverage ratio.
        We
        were in compliance with these covenants at June 30, 2005, and expect to remain
        in compliance. At June 30, 2005, none of our credit facility was utilized
        as
        outstanding borrowings and $6.4 million was utilized for standby letters
        of
        credit, and we had approximately $33.8 million in remaining availability
        under the facility.
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  **Contractual
        Obligations and Commitments**
 
 As
        of
        June 30, 2005, our bank loans, capitalized leases, operating leases, other
        debts, and future commitments have stated maturities or minimum annual payments
        as follows:
 
 **Annual
                  Cash Requirements**
                **as
                  of June 30, 2005**
                **(in
                  thousands)**
                **Amounts
                  Due by Period****Total**
              
              **Less
                  than**
                **One
                  Year**
              
              **One
                  to**
                **Three**
                **Years**
              
              **Three**
                **to
                  Five**
                **Years**
              
              **Over**
                **Five**
                **Years**Operating
                  leases
              
              $
              137,804
              
              $
              41,344
              
              $
              55,751
              
              $
              30,673
              
              $
              10,036Lease
                  residual value guarantees
              
              
              70,620
              
              
              9,799
              
              
              28,022
              
              
              8,215
              
              
              24,584Capital
                  lease obligations(1)
              
              
              2,303
              
              
              879
              
              
              657
              
              
              294
              
              
              473Long-term
                  debt(1)
              
              
              6,193
              
              
              1,390
              
              
              3,660
              
              
              1,143
              
              
              ---Sub-total
              
              
              216,920
              
              
              53,412
              
              
              88,090
              
              
              40,325
              
              
              35,093Future
                  purchase of revenue equipment
              
              
              90,127
              
              
              3,025
              
              
              21,451
              
              
              41,376
              
              
              24,275Employment
                  and consulting agreements (2)
              
              
              1,086
              
              
              712
              
              
              158
              
              
              139
              
              
              77Standby
                  letters of credit
              
              
              6,350
              
              
              6,350
              
              
              ---
              
              
              ---
              
              
              ---Total
                  contractual and cash obligations
              
              $
              314,483
              
              $
              63,499
              
              $
              109,699
              
              $
              81,840
              
              $
              59,445
   (1)
              Includes
                  interest.(2)
              The
                  amounts reflected in the table do not include amounts that could
                  become
                  payable to our Chief Executive Officer and Chief Financial Officer,
                  under
                  certain circumstances if their employment by the Company is
                  terminated.
 
 **Inflation**
 
 Many
        of
        our operating expenses, including fuel costs and revenue equipment, are
        sensitive to the effects of inflation, which result in higher operating costs
        and reduced operating income. The effects of inflation on our business during
        the past three years were most significant in fuel. We have limited the effects
        of inflation through increases in freight rates and fuel
        surcharges.
 
 **Critical
        Accounting Policies**
  The
        preparation of our financial statements in conformity with accounting principles
        generally accepted in the United States requires us to make estimates and
        assumptions that impact the amounts reported in our consolidated financial
        statements and accompanying notes. Therefore, the reported amounts of assets,
        liabilities, revenues, expenses and associated disclosures of contingent
        assets
        and liabilities are affected by these estimates and assumptions. We evaluate
        these estimates and assumptions on an ongoing basis, utilizing historical
        experience, consultation with experts, and other methods considered reasonable
        in the particular circumstances. Nevertheless, actual results may differ
        significantly from our estimates and assumptions, and it is possible that
        materially different amounts would be reported using differing estimates
        or
        assumptions. We consider our critical accounting policies to be those that
        require us to make more significant judgments and estimates when we prepare
        our
        financial statements. Our critical accounting policies include the
        following:
 
 *Depreciation
        of Property and Equipment.* We
        depreciate our property and equipment using the straight-line method over
        the
        estimated useful life of the asset. We generally use estimated useful lives
        of 3
        to 10 years for tractors and trailers, and estimated salvage values for tractors
        and trailers generally range from 35% to 50% of the capitalized cost. Gains
        and
        losses on the disposal of revenue equipment are included in depreciation
        expense
        in our statements of operations.
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  We
        review
        the reasonableness of our estimates regarding useful lives and salvage values
        of
        our revenue equipment and other long-lived assets based upon, among other
        things, our experience with similar assets, conditions in the used equipment
        market, and prevailing industry practice. Changes in our useful life or salvage
        value estimates, or fluctuations in market values that are not reflected
        in our
        estimates, could have a material effect on our results of
        operations.
 
 Revenue
        equipment and other long-lived assets are tested for impairment whenever
        an
        event occurs that indicates an impairment may exist. Expected future cash
        flows
        are used to analyze whether an impairment has occurred. If the sum of expected
        undiscounted cash flows is less than the carrying value of the long-lived
        asset,
        then an impairment loss is recognized. We measure the impairment loss by
        comparing the fair value of the asset to its carrying value. Fair value is
        determined based on a discounted cash flow analysis or the appraised or
        estimated market value of the asset, as appropriate.
 
 *Operating
        leases.* We
        have
        financed a majority of our revenue equipment acquisitions with operating
        leases,
        rather than with bank borrowings or capital lease arrangements. These leases
        generally contain residual value guarantees, which provide that the value
        of
        equipment returned to the Lessor at the end of the lease term will be no
        lower
        than a negotiated amount. To the extent that the value of the equipment is
        below
        the negotiated amount, we are liable to the Lessor for the shortage at the
        expiration of the lease. For approximately 39% of our tractors and 25% of
        our
        trailers under operating lease, we have residual value guarantees at amounts
        equal to our residual obligation to the lessors. For all other equipment
        (or to
        the extent we believe any manufacturer will refuse or be unable to meet its
        obligation), we are required to recognize additional rental expense to the
        extent we believe the fair market value at the lease termination will be
        less
        than our obligation to the lessor.
 
 In
        accordance with Statement of Financial Accounting Standards (“SFAS”) 13,
“Accounting for Leases,” property and equipment held under operating leases, and
        liabilities related thereto, are not reflected on our balance sheet. All
        expenses related to revenue equipment operating leases are reflected on our
        statements of operations in the line item entitled “Revenue equipment rentals.”
        As such, financing revenue equipment with operating leases instead of bank
        borrowings or capital leases effectively moves the interest component of
        the
        financing arrangement into operating expenses on our statements of operations.
        Consequently, we believe that pretax margin (income before income taxes as
        a
        percentage of operating revenue) may provide a more useful measure of our
        operating performance than operating ratio (operating expenses as a percentage
        of operating revenue) because it eliminates the impact of revenue equipment
        financing decisions.
 
 *Claims
        Reserves and Estimates.* The
        primary claims arising for us consist of cargo liability, personal injury,
        property damage, collision and comprehensive, workers’ compensation, and
        employee medical expenses. We maintain self-insurance levels for these various
        areas of risk and have established reserves to cover these self-insured
        liabilities. We also maintain insurance to cover liabilities in excess of
        these
        self-insurance amounts. Claims reserves represent accruals for the estimated
        uninsured portion of reported claims, including adverse development of reported
        claims, as well as estimates of incurred but not reported claims. Reported
        claims and related loss reserves are estimated by third party administrators,
        and we refer to these estimates in establishing our reserves. Claims incurred
        but not reported are estimated based on our historical experience and industry
        trends, which are continually monitored, and accruals are adjusted when
        warranted by changes in facts and circumstances. In establishing our reserves
        we
        must take into account and estimate various factors, including, but not limited
        to, assumptions concerning the nature and severity of the claim, the effect
        of
        the jurisdiction on any award or settlement, the length of time until ultimate
        resolution, inflation rates in health care and in general, interest rates,
        legal
        expenses, and other factors. Our actual experience may be different than
        our
        estimates, sometimes significantly. Changes in assumptions as well as changes
        in
        actual experience could cause these estimates to change in the near term.
        Insurance and claims expense will vary from period to period based on the
        severity and frequency of claims incurred in a given period.
 
 *Accounting
        for Income Taxes.* Deferred
        income taxes represent a substantial liability on our consolidated balance
        sheet. Deferred income taxes are determined in accordance with SFAS No. 109,
        “Accounting for Income Taxes.” Deferred tax assets and liabilities are
        recognized for the expected future tax consequences attributable to differences
        between the financial statement carrying amounts of existing assets and
        liabilities and their respective tax bases, and operating loss and tax credit
        carry-forwards. We evaluate our tax assets and liabilities on a periodic
        basis
        and adjust these balances as appropriate. We believe that we have adequately
        provided for our future tax consequences based upon current facts and
        circumstances and current tax law. However, should our tax positions be
        challenged and not prevail, different outcomes could result and have a
        significant impact on the amounts reported in our consolidated financial
        statements.
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 The
        carrying value of our deferred tax assets (tax benefits expected to be realized
        in the future) assumes that we will be able to generate, based on certain
        estimates and assumptions, sufficient future taxable income in certain tax
        jurisdictions to utilize these deferred tax benefits. If these estimates
        and
        related assumptions change in the future, we may be required to reduce the
        value
        of the deferred tax assets resulting in additional income tax expense. We
        believe that it is more likely than not that the deferred tax assets, net
        of
        valuation allowance, will be realized, based on forecasted income. However,
        there can be no assurance that we will meet our forecasts of future income.
        We
        evaluate the deferred tax assets on a periodic basis and assess the need
        for
        additional valuation allowances.
 
 Federal
        income taxes are provided on that portion of the income of foreign subsidiaries
        that is expected to be remitted to the United States.
 
 **Factors
        That May Affect Future Results**
 
 The
        following risks and uncertainties, among others, should be considered in
        evaluating our business and growth outlook.
 
 Our
        business is subject to general economic and business factors that are largely
        out of our control, any of which could have a materially adverse effect on
        our
        operating results. Our business is dependent on a number of factors that
        may
        have a materially adverse effect on our results of operations, many of which
        are
        beyond our control. Some of the most significant of these factors include
        excess
        tractor and trailer capacity in the trucking industry, declines in the resale
        value of used equipment, strikes or other work stoppages, or work slow downs
        at
        our facilities or at customer, port border crossing or other shipping related
        facilities, increases in interest rates, fuel taxes, tolls, and license and
        registration fees, rising costs of healthcare, and fluctuations in foreign
        exchange rates.
 
 We
        are
        also affected by recessionary economic cycles, changes in customers’ inventory
        levels, and downturns in customers’ business cycles, particularly in market
        segments and industries, such as retail and manufacturing, where we have
        a
        significant concentration of customers, and regions of the country, such
        as
        Texas and the Midwest, where we have a significant amount of business. Economic
        conditions may adversely affect our customers and their ability to pay for
        our
        services. Customers encountering adverse economic conditions represent a
        greater
        potential for loss and we may be required to increase our allowance for doubtful
        accounts. These economic conditions and good economic and business factors
        could
        have a mutually adverse effect on or ability to execute our strategic
        plan.
 
 In
        addition, it is not possible to predict the effects of actual or threatened
        terrorist attacks, efforts to combat terrorism, military action against any
        foreign state, heightened security requirements, or other related events.
        Such
        events, however, could negatively impact the economy and consumer confidence
        in
        the United States. Such events could impede shipping efficiency, especially
        at
        border crossings and have a materially adverse effect on our future results
        of
        operations. Moreover, our results of operations may be affected by seasonal
        factors. Customers tend to reduce shipments after the winter holiday season
        and
        our operating expenses tend to be higher in the winter months primarily due
        to
        colder weather, which causes higher fuel consumption from increased idle
        time
        and higher repairs and maintenance costs.
 
 We
        self-insure for a significant portion of our claims exposure, which could
        significantly increase the volatility of, and decrease the amount of, our
        earnings. Our future insurance and claims expense could reduce our earnings
        and
        make our earnings more volatile. We currently self-insure for a portion of
        our
        claims exposure and accrue amounts for liabilities based on our assessment
        of
        claims that arise and our insurance coverage for the periods in which the
        claims
        arise. In general, for casualty claims for fiscal 2005, we are self-insured
        for
        the first $2.5 million of each personal injury and property damage claim
        and the
        first $100 thousand of each cargo claim. We are also responsible for a pro
        rata
        portion of legal expenses relating to such claims. We maintain a workers’
        compensation plan and group medical plan for our employees with a deductible
        amount of $1.5 million for each workers’ compensation claim and a stop loss
        amount of $275,000 for each group medical claim. Because of our significant
        self-insured retention amounts, we have significant exposure to fluctuations
        in
        the number and severity of claims. If there is an increase in the frequency
        and
        severity of claims, or we are required to accrue or pay additional amounts
        if
        the claims prove to be more severe than originally assessed, our profitability
        would be adversely affected and could vary significantly from period to period.
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  We
        maintain insurance above the amounts for which we self-insure with licensed
        insurance carriers. Our insurance and claims expense could increase when
        our
        current coverages expire or we could raise our self-insured retention. If
        these
        expenses increase, our earnings could be materially and adversely
        affected.
 
 Ongoing
        insurance requirements could constrain our borrowing capacity. At June 30,
        2005,
        our revolving line of credit had a maximum borrowing limit of $40.2 million,
        no
        outstanding borrowings and outstanding letters of credit of $6.4 million.
        However, our borrowings may increase if we do acquisitions, finance more
        of our
        equipment under the revolving line of credit, and we do expect outstanding
        letters of credit to increase in the future. Outstanding letters of credit
        reduce the available borrowings under our credit agreement. These factors
        could
        negatively affect our liquidity should we need to increase our borrowings
        in the
        future.
 
 We
        operate in a highly competitive and fragmented industry, and numerous
        competitive factors could impair our ability to maintain or improve our current
        profitability. These factors include:
 
 q
              We
                  compete with many other truckload carriers of varying sizes and,
                  to a
                  lesser extent, with less-than-truckload carriers, railroads, and
                  other
                  transportation companies, many of which have more equipment and
                  greater
                  capital resources than we do.q
              Many
                  of our competitors periodically reduce their freight rates to gain
                  business, especially during times of reduced growth rates in the
                  economy,
                  which may limit our ability to maintain or increase freight rates
                  or
                  maintain significant growth in our business.q
              Many
                  customers reduce the number of carriers they use by selecting so-called
                  “core carriers” as approved service providers, and in some instances we
                  may not be selected.q
              Many
                  customers periodically accept bids from multiple carriers for their
                  shipping needs, and this process may depress freight rates or result
                  in
                  the loss of some business to competitors.q
              The
                  trend toward consolidation in the trucking industry may create
                  other large
                  carriers with greater financial resources and other competitive
                  advantages
                  relating to their size.q
              Advances
                  in technology require increased investments to remain competitive,
                  and our
                  customers may not be willing to accept higher freight rates to
                  cover the
                  cost of these investments.q
              Competition
                  from non-asset-based logistics and freight brokerage companies
                  may
                  adversely affect our customer relationships and freight
                  rates.q
              Economies
                  of scale that may be passed on to smaller carriers by procurement
                  aggregation providers may improve their ability to compete with
                  us.
 
 We
        derive
        a significant portion of our revenue from our major customers, the loss of
        one
        or more of which could have a materially adverse effect on our business.
        A
        significant portion of our revenue is generated from our major customers.
        For
        2005, our top 25 customers, based on revenue, accounted for approximately
        38% of
        our revenue; and our top 10 customers, approximately 23% of our revenue.
        We do
        not expect these percentages to change materially for 2006. Generally, we
        do not
        have long term contractual relationships with our major customers, and we
        cannot
        assure you that our customers will continue to use our services or that they
        will continue at the same levels. For some of our customers, we have entered
        into multi-year contracts and we cannot be assured that the rates will remain
        advantageous. A reduction in or termination of our services by one or more
        of
        our major customers could have a materially adverse effect on our business
        and
        operating results.
 
 Increases
        in compensation or difficulty in attracting drivers could affect our
        profitability and ability to grow. The trucking industry experiences substantial
        difficulty in attracting and retaining qualified drivers, including independent
        contractors. Our ability to attract and retain drivers could be adversely
        affected by increased availability of alternative employment opportunities
        in an
        economic expansion and by the potential need for more drivers due to more
        restrictive driver hours-of-service requirements imposed by the U.S. Department
        of Transportation effective January 2004. If we are unable to continue to
        attract drivers and contract with independent contractors, we could be required
        to adjust our driver compensation package, let trucks sit idle, or operate
        with
        fewer independent contractors and face difficulty meeting shipper demands,
        all
        of which could adversely affect our growth and profitability.
 
 Our
        growth may not continue at historical rates, which could adversely affect
        our
        stock price. We experienced significant growth in revenue between 2002 and
        2005.
        There can be no assurance that our revenue growth rate will continue at
        historical levels or that we can effectively adapt our management,
        administrative, and operational systems to respond to any future growth.
        We can
        provide no assurance that our operating margins will not be adversely affected
        by future changes in and expansion of our business or by changes in economic
        conditions. Slower or less profitable growth could adversely affect our stock
        price.
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  We
        operate in a highly regulated industry and increased costs of compliance
        with,
        or liability for violation of, existing or future regulations could have
        a
        materially adverse effect on our business. Our operations are regulated and
        licensed by various U.S., Canadian, and Mexican agencies. Our company drivers
        and independent contractors also must comply with the safety and fitness
        regulations of the United States Department of Transportation, or DOT, including
        those relating to drug and alcohol testing and hours-of-service. Such matters
        as
        weight and equipment dimensions are also subject to U.S. and Canadian
        regulations. We also may become subject to new or more restrictive regulations
        relating to fuel emissions, drivers’ hours-of-service, ergonomics, or other
        matters affecting safety or operating methods. Future laws and regulations
        may
        be more stringent and require changes in our operating practices, influence
        the
        demand for transportation services, or require us to incur significant
        additional costs. Higher costs incurred by us or by our suppliers who pass
        the
        costs onto us through higher prices would adversely affect our results of
        operations.
 
 Beginning
        in 2004, motor carriers were required to comply with several changes to DOT
        hours-of-service requirements that may have a positive or negative effect
        on
        driver hours (and miles) and our operations. A citizens’ advocacy group
        successfully petitioned the courts that the new rules were developed without
        driver health in mind. Pending further action by the courts or the effectiveness
        of new rules addressing these issues, Congress has enacted a law that extends
        the effectiveness of the new rules until September 30, 2005. We cannot predict
        whether there will be changes to the hours-of-service rules, the extent of
        any
        changes, or whether there will be further court challenges. Given this
        uncertainty, we are unable to determine the future effect of driver hour
        regulations on our operations. The DOT is also considering implementing higher
        safety requirements on trucks. These regulatory changes may have an adverse
        affect on our future profitability.
 
 Federal,
        state, and local taxes comprise a significant part of our expenses. As such,
        we
        actively manage these expenses when executing our business strategy.
        Consequently, when we believe it is appropriate, we use a number of structures
        to permanently decrease our overall tax liability or to defer tax payments.
 
 As
        part
        of our fleet upgrade and acquisition strategy we have significant ongoing
        capital requirements that could affect our profitability if we are unable
        to
        generate sufficient cash from operations and obtain financing on favorable
        terms. The truckload industry is capital intensive, and our policy of operating
        newer equipment requires us to expend significant amounts annually. For the
        past
        few years, we have depended on operating leases, cash from operations, and
        our
        line of credit to fund our revenue equipment. If we elect to expand our fleet
        in
        future periods, our capital needs would increase. We expect to pay for projected
        capital expenditures with operating leases of revenue equipment, cash flows
        from
        operations, and borrowings under our line of credit. If we are unable to
        generate sufficient cash from operations and obtain financing on favorable
        terms
        in the future, we may have to limit our growth, enter into less favorable
        financing arrangements, or operate our revenue equipment for longer periods,
        any
        of which could have a materially adverse effect on our profitability. We
        currently have lease residual value guarantees of approximately $70.0 million,
        substantially all of which are not covered by trade-in or fixed residual
        agreements with the equipment supplier. We are exposed to decreases in the
        resale value of our used equipment and we have increased exposure to issues
        on
        the growing percentage of our fleet not covered by manufacturer commitments
        which could have a materially adverse effect on our results of
        operations.
 
 Fluctuations
        in the price or availability of fuel, as well as hedging activities, surcharge
        collection, and the volume and terms of diesel fuel purchase commitments,
        may
        increase our cost of operation, which could materially and adversely affect
        our
        profitability. Fuel is one of our largest operating expenses. Diesel fuel
        prices
        fluctuate greatly due to economic, political, and other factors beyond our
        control. For example, our average price for diesel fuel was $1.91 per gallon
        in
        2005, as compared to $1.41 per gallon in 2004. Fuel is also subject to regional
        pricing differences and often costs more on the West Coast, where we have
        significant operations. From time-to-time we have used fuel surcharges, hedging
        contracts, and volume purchase arrangements to attempt to limit the effect
        of
        price fluctuations. Although we impose fuel surcharges on substantially all
        accounts, these arrangements do not fully protect us from fuel price increases
        and also may result in us not receiving the full benefit of any fuel price
        decreases. We currently do not have any fuel hedging contracts in place.
        If we
        do hedge, we may be forced to make cash payments under the hedging arrangements.
        Based on current market conditions we have decided to limit our hedging and
        purchase commitments, but we continue to evaluate such measures. The absence
        of
        meaningful fuel price protection through these measures, fluctuations in
        fuel
        pries, or a shortage of diesel fuel, could materially and adversely affect
        our
        results of operations.
 
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  We
        may
        not make acquisitions in the future, or if we do, we may not be successful
        in
        our acquisition strategy. We made eight acquisitions, including two between
        2004
        and 2005. Accordingly, acquisitions have provided a substantial portion of
        our
        growth. There is no assurance that we will be successful in identifying,
        negotiating or consummating any future acquisitions. If we fail to make any
        future acquisitions, our growth rate could be materially and adversely affected.
        Any acquisitions we undertake could involve the dilutive issuance of equity
        securities and/or incurring indebtedness. In addition, acquisitions involve
        numerous risks, including difficulties in assimilating the acquired company’s
        operations, the diversion of our management’s attention from other business
        concerns, risks of entering into markets in which we have had no or only
        limited
        direct experience, and the potential loss of customers, key employees, and
        drivers of the acquired company, all of which could have a materially adverse
        effect on our business and operating results. If we make acquisitions in
        the
        future, we cannot assure you that we will be able to successfully integrate
        the
        acquired companies or assets into our business.
 
 Our
        operations are subject to various environmental laws and regulations, the
        violation of which could result in substantial fines or penalties. Such laws
        and
        regulations deal with the hauling and handling of hazardous materials, fuel
        storage tanks, air emissions from our vehicles and facilities, and discharge
        and
        retention of storm water. We operate in industrial areas, where truck terminals
        and other industrial activities are located, and where groundwater or other
        forms of environmental contamination have occurred. Our operations involve
        the
        risks of fuel spillage or seepage, environmental damage, and hazardous waste
        disposal, among others. We also maintain underground bulk fuel storage tanks
        and
        fueling islands at two of our facilities. A small percentage of our freight
        consists of low-grade hazardous substances, which subjects us to a wide array
        of
        regulations. If we are involved in a spill or other accident involving hazardous
        substances, if there are releases of hazardous substances we transport, or
        if we
        are found to be in violation of applicable laws or regulations, we could
        be
        subject to liabilities that could have a materially adverse effect on our
        business and operating results. If we should fail to comply with applicable
        environmental regulations, we could be subject to substantial fines or penalties
        and to civil and criminal liability.
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2004, the FASB issued SFAS No. 123-R, *Share-Based
        Payments* ,
        an
        Amendment of FASB 123 on *Accounting
        for Stock Based Compensation* .
        SFAS
        123-R requires companies to recognize in the income statement the grant date
        fair value of stock options and other equity-based compensation issued to
        employees. SFAS 123-R is effective for most public companies with interim
        or
        annual periods beginning after June 15, 2005. We will adopt this statement
        effective July 1, 2005. Our adoption of SFAS 123-R will impact our results
        of
        operations by increasing salaries, wages and related expenses. The amount
        of the
        expected impact is still being reviewed by the Company.
 
 **Item
        7A.** **Quantitative
        and Qualitative Disclosures About Market Risk**
 
 We
        experience various market risks, including changes in interest rates, foreign
        currency exchange rates, and fuel prices. We do not enter into derivatives
        or
        other financial instruments for trading or speculative purposes, nor when
        there
        are no underlying related exposures.
 
 *Interest
        Rate Risk.* We
        are
        exposed to interest rate risk principally from our primary credit facility.
        The
        credit facility carries a maximum variable interest rate of either the bank’s
        base rate plus 0.25% or LIBOR plus 2.0%. At June 30, 2005, the interest rate
        for
        revolving borrowings under our credit facility was LIBOR plus 1.0%. At June
        30,
        2005, we had no variable rate term loan borrowings outstanding under the
        credit
        facility. A hypothetical 10% increase in the bank’s base rate and LIBOR would be
        immaterial to our net income.
 
 *Foreign
        Currency Exchange Rate Risk.* We
        are
        subject to foreign currency exchange rate risk, specifically in connection
        with
        our Canadian operations. While virtually all of the expenses associated with
        our
        Canadian operations, such as independent contractor costs, company driver
        compensation, and administrative costs, are paid in Canadian dollars, a
        significant portion of our revenue generated from those operations is billed
        in
        U.S. dollars because many of our customers are U.S. shippers transporting
        goods
        to or from Canada. As a result, increases in the Canadian dollar exchange
        rate
        adversely affect the profitability of our Canadian operations. Assuming revenue
        and expenses for our Canadian operations identical to the year ended June
        30,
        2005 (both in terms of amount and currency mix), we estimate that a $0.01
        increase in the Canadian dollar exchange rate would reduce our annual net
        income
        by approximately $208,000. In June 2000, the FASB issued SFAS 138, “Accounting
        for Certain Derivative Instruments and Certain Hedging Activity, an Amendment
        of
        SFAS 133” which requires that all derivative instruments be recorded on the
        balance sheet at their respective fair values. Derivatives that are not hedges
        must be adjusted to fair value through earnings. As of June 30, 2005, we
        had
        none of our currency exposure hedged. Derivative contracts had no material
        impact on our results of operations for the year ended June 30,
        2005.
  -
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 Table
            of Contents
  We
        generally do not face the same magnitude of foreign currency exchange rate
        risk
        in connection with our intra-Mexico operations conducted through our Mexican
        subsidiary, Jaguar, because our foreign currency revenues are generally
        proportionate to our foreign currency expenses for those operations. For
        purposes of consolidation, however, the operating results earned by our
        subsidiaries, including Jaguar, in foreign currencies are converted into
        United
        States dollars. As a result, a decrease in the value of the Mexican peso
        could
        adversely affect our consolidated results of operations. Assuming revenue
        and
        expenses for our Mexican operations identical to the year ended June 30,
        2005
        (both in terms of amount and currency mix), we estimate that a $0.01 decrease
        in
        the Mexican peso exchange rate would not have a material effect on our annual
        net income.
 
 *Commodity
        Price Risk.* Shortages
        of fuel, increases in prices, or rationing of petroleum products can have
        a
        materially adverse effect on our operations and profitability. Fuel is subject
        to economic, political and market factors that are outside of our control.
        Historically, we have sought to recover a portion of short-term increases
        in
        fuel prices from customers through the collection of fuel surcharges. However,
        fuel surcharges do not always fully offset increases in fuel prices. In
        addition, from time-to-time we may enter into derivative financial instruments
        to reduce our exposure to fuel price fluctuations. In accordance with SFAS
        138,
        we adjust any derivative instruments to fair value through earnings on a
        monthly
        basis. As of June 30, 2005, we had none of our estimated fuel purchases hedged.
        Derivative contracts had no material impact on our results of operations
        for the
        year ended June 30, 2005.
 
 
 **Item
        8.** **Financial
        Statements and Supplementary Data**
 
 The
        following statements are filed with this report:
 
 Reports
        of Independent Registered Public Accounting Firm - KPMG LLP;
 Report
        of
        Independent Registered Public Accounting Firm - Ernst & Young,
        LLP
 Consolidated
        Balance Sheets;
 Consolidated
        Statements of Operations;
 Consolidated
        Statements of Cash Flows;
 Consolidated
        Statements of Stockholders' Equity;
 Notes
        to
        Consolidated Financial Statements.
  -
            28
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 Table
            of Contents
  
 **REPORT
        OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 The
        Board
        of Directors and Stockholders of Celadon Group, Inc.
 
 
 We
        have
        audited the accompanying Consolidated Balance Sheet of Celadon Group, Inc.
        and
        subsidiaries as of June 30, 2005 and the related Consolidated Statements
        of
        Operations, Stockholders’ Equity, and Cash Flows for the year then ended. In
        connection with our audit of the Consolidated Financial Statements, we also
        have
        audited the 2005 Consolidated Financial Statement schedule listed in the
        Index
        at Item 15. These Consolidated Financial Statements and schedule are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these Consolidated Financial Statements and schedule based on
        our
        audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the Consolidated Financial Statements referred to above present
        fairly,
        in all material respects, the financial position of Celadon Group, Inc. and
        subsidiaries as of June 30, 2005, and the results of their operations and
        their
        cash flows for the year then ended, in conformity with U.S. generally accepted
        accounting principles. Also in our opinion, the related financial statement
        schedule, when considered in relation to the basic Consolidated Financial
        Statements taken as a whole, presents fairly, in all material respects, the
        information set forth therein.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Celadon Group, Inc.
        and
        subsidiaries’ internal control over financial reporting as of June 30, 2005,
        based on criteria established in *Internal
        Control-Integrated Framework* issued
        by
        the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
        and
        our report dated August 25, 2005, expressed an unqualified opinion on
        management’s assessment of, and the effective operation of, internal control
        over financial reporting.
 
 
 KPMG
        LLP
 
 /s/KPMG
        LLP
  Indianapolis,
        Indiana
 August
        25, 2005
  -
            29
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            of Contents
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 The
        Board
        of Directors and Stockholders of Celadon Group, Inc.
 
 We
        have
        audited management’s assessment, included in the accompanying Management’s
        Report on Internal Control Over Financial Reporting set forth in Item 9A
        of
        Celadon Group, Inc.’s Annual Report on Form 10-K for the year ended June 30,
        2005, that Celadon Group, Inc. and subsidiaries maintained effective internal
        control over financial reporting as of June 30, 2005, based on criteria
        established in *Internal
        Control-Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        The Company’s management is responsible for maintaining effective internal
        control over financial reporting and for its assessment of the effectiveness
        of
        internal control over financial reporting. Our responsibility is to express
        an
        opinion on management’s assessment and an opinion on the effectiveness of the
        Company’s internal control over financial reporting based on our
        audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management’s assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
 
 A
        company’s internal control over financial reporting is a process designed to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company’s internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company’s
        assets that could have a material effect on the financial
        statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
 
 In
        our
        opinion, management’s assessment that Celadon Group, Inc. and subsidiaries
        maintained effective internal control over financial reporting as of June
        30,
        2005, is fairly stated, in all material respects, based on criteria established
        in *Internal
        Control-Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        Also, in our opinion, Celadon Group, Inc. and subsidiaries maintained, in
        all
        material respects, effective internal control over financial reporting as
        of
        June 30, 2005, based on criteria established in *Internal
        Control - Integrated Framework* issued
        by
        the Committee of Sponsoring Organizations of the Treadway Commission
        (COSO).
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the Consolidated Balance Sheet of Celadon
        Group, Inc. and subsidiaries as of June 30, 2005, and the related Consolidated
        Statements of Operations, Stockholders’ Equity and Cash Flows for the year then
        ended, and our report dated August 25, 2005, expressed an unqualified opinion
        on
        those consolidated financial statements.
   KPMG
        LLP
 
 /s/KPMG
        LLP
  Indianapolis,
        Indiana
 August
        25, 2005
  -
            30
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            of Contents
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 The
        Board
        of Directors and Stockholders of Celadon Group, Inc.
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Celadon Group, Inc.
        as of
        June 30, 2004 and the related consolidated statements of operations,
        stockholders’ equity and cash flows for each of the two years ended June 30,
        2004 and June 30, 2003. Our audits also included the financial statement
        schedule listed in the Index at Item 15. These financial statements and schedule
        are the responsibility of the Company’s management. Our responsibility is to
        express an opinion on these financial statements and schedule based on our
        audits.
  We conducted our audits in accordance with auditing standards generally accepted
        in the United States. Those standards require that we plan and perform the
        audit
        to obtain reasonable assurance about whether the financial statements are
        free
        of material misstatement. We were not engaged to perform an audit of the
        Company’s internal control over financial reporting. Our audits included
        consideration of internal control over financial reporting as a basis for
        designing audit procedures that are appropriate in the circumstances, but
        not
        for the purpose of expressing an opinion on the effectiveness of the Company’s
        internal control over financial reporting. Accordingly, we express no such
        opinion. An audit includes examining, on a test basis, evidence supporting
        the
        amounts and disclosures in the financial statements, assessing the accounting
        principles used and significant estimates made by management, and evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Celadon
        Group,
        Inc. at June 30, 2004 and the consolidated results of its operations and
        its
        cash flows for each of the two years ended June 30, 2004, in conformity with
        accounting principles generally accepted in the United States. Also, in our
        opinion, the related financial statement schedule, when considered in relation
        to the basic financial statement taken as a whole, presents fairly in all
        material respects the information set forth therein.
   /s/ERNST
        & YOUNG LLP
  Indianapolis,
        Indiana
 August
        25, 2005
  -
            31
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  **CELADON
        GROUP, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **June
        30, 2005 and 2004**
 **(Dollars
        in thousands)**
 
 **ASSETS**
                
                **2005******
                
                **2004******Current
                    assets:Cash
                    and cash equivalents
                
                $
                11,115
                
                $
                356Trade
                    receivables, net of allowance for doubtful accounts of $1,496
                    and $1,945
                    in 2005 and 2004, respectively
                
                
                55,760
                
                
                52,248Accounts
                    receivable - other
                
                
                2,727
                
                
                4,476Prepaid
                    expenses and other current assets
                
                
                3,599
                
                
                5,427Tires
                    in service
                
                
                3,308
                
                
                4,368Deferred
                    income taxes
                
                
                2,424
                
                
                1,974Total
                    current assets
                
                
                78,933
                
                
                68,849Property
                    and equipment
                
                
                88,230
                
                
                102,084Less
                    accumulated depreciation and amortization
                
                
                30,685
                
                
                40,283Net
                    property and equipment
                
                
                57,545
                
                
                61,801Tires
                    in service
                
                
                1,739
                
                
                1,875Goodwill
                
                
                19,137
                
                
                16,702Other
                    assets
                
                
                2,089
                
                
                2,083Total
                    assets
                
                $
                159,443
                
                $
                151,310**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**Current
                    liabilities:Accounts
                    payable
                
                $
                4,465
                
                $
                6,018Accrued
                    salaries and benefits
                
                
                11,141
                
                
                9,229Accrued
                    insurance and claims
                
                
                10,021
                
                
                7,563Accrued
                    independent contractor expense
                
                
                1,265
                
                
                2,269Accrued
                    fuel expense
                
                
                6,104
                
                
                2,466Other
                    accrued expenses
                
                
                10,222
                
                
                12,945Current
                    maturities of long-term debt
                
                
                1,057
                
                
                2,270Current
                    maturities of capital lease obligations
                
                
                788
                
                
                3,040Income
                    tax payable
                
                
                265
                
                
                2,941Total
                    current liabilities
                
                
                45,328
                
                
                48,741Long-term
                    debt, net of current maturities
                
                
                4,239
                
                
                6,907Capital
                    lease obligations, net of current maturities
                
                
                1,260
                
                
                2,277Deferred
                    income taxes
                
                
                10,100
                
                
                10,530Minority
                    interest
                
                
                25
                
                
                25Stockholders’
                    equity:Preferred
                    stock, $1.00 par value, authorized 179,985 shares; no shares
                    issued and
                    outstanding
                
                
                ---
                
                
                ---Common
                    stock, $0.033 par value, authorized 12,000,000 shares; issued
                    and
                    outstanding 10,050,449 and
                  9,748,970 shares at June 30, 2005and
                    2004, respectively
                
                
                332
                
                
                322Additional
                    paid-in capital
                
                
                89,359
                
                
                86,588Retained
                    earnings (deficit)
                
                
                11,544
                
                
                (1,036
                )Unearned
                    compensation on restricted stock
                
                
                (711
                )
                
                (689
                )Accumulated
                    other comprehensive loss
                
                
                (2,033
                )
                
                (2,355
                )Total
                    stockholders’ equity
                
                
                98,491
                
                
                82,830Total
                    liabilities and stockholders’ equity
                
                $
                159,443
                
                $
                151,310
 
 See
        accompanying notes to consolidated financial statements.
  -
            32
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  **CELADON
        GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **Years
        ended June 30, 2005, 2004 and 2003**
 **(Dollars
        and shares in thousands, except per share amounts)**
 
 **2005**
              
              **2004******
              
              **2003******Revenue:Freight
                  revenue
              
              $
              399,656
              
              $
              382,918
              
              $
              355,692Fuel
                  surcharges
              
              
              37,107
              
              
              15,005
              
              
              11,413Total
                  revenue
              
              
              436,763
              
              
              397,923
              
              
              367,105Operating
                  expenses:Salaries,
                  wages and employee benefits
              
              
              133,565
              
              
              124,532
              
              
              111,588Fuel
              
              
              81,517
              
              
              54,019
              
              
              47,592Operations
                  and maintenance
              
              
              33,742
              
              
              33,081
              
              
              31,703Insurance
                  and claims
              
              
              14,375
              
              
              18,919
              
              
              14,100Depreciation,
                  amortization and impairment charge(1)
              
              
              14,870
              
              
              25,779
              
              
              13,818Revenue
                  equipment rentals
              
              
              35,848
              
              
              30,802
              
              
              24,753Purchased
                  transportation
              
              
              73,012
              
              
              77,059
              
              
              85,308Cost
                  of products and services sold
              
              
              4,807
              
              
              5,022
              
              
              4,545Professional
                  and consulting fees
              
              
              2,624
              
              
              2,366
              
              
              2,515Communications
                  and utilities
              
              
              4,218
              
              
              4,226
              
              
              4,160Operating
                  taxes and licenses
              
              
              8,507
              
              
              8,182
              
              
              7,484General
                  and other operating
              
              
              6,270
              
              
              6,865
              
              
              6,805Total
                  operating expenses
              
              
              413,355
              
              
              390,852
              
              
              354,371Operating
                  income
              
              
              23,408
              
              
              7,071
              
              
              12,734Other
                  (income) expense:Interest
                  income
              
              
              (12
              )
              
              (40
              )
              
              (85
              )Interest
                  expense
              
              
              1,430
              
              
              3,763
              
              
              6,286Other
                  (income) expense, net
              
              
              13
              
              
              180
              
              
              (3
              )Income
                  before income taxes
              
              
              21,977
              
              
              3,168
              
              
              6,536Provision
                  for income taxes
              
              
              9,397
              
              
              3,443
              
              
              2,948Net
                  income (loss)
              
              $
              12,580
              
              $
              (275
              )
              $
              3,588Earnings
                  (loss) per common share:Diluted
                  earnings (loss) per share
              
              $
              1.23
              
              $
              (0.03
              )
              $
              0.45Basic
                  earnings (loss) per share
              
              $
              1.27
              
              $
              (0.03
              )
              $
              0.47Average
                  shares outstanding:Diluted
              
              
              10,228
              
              
              7,986
              
              
              8,035Basic
              
              
              9,905
              
              
              7,986
              
              
              7,688
   (1)
              Includes
                  a $9.8 million trailer impairment charge in
                  2004.
 
 See
        accompanying notes to consolidated financial statements.
  -
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  **CELADON
        GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **Years
        ended June 30, 2005, 2004 and 2003**
 **(Dollars
        in thousands)**
 
 **2005**
              
              **2004******
              
              **2003******Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              12,580
              
              $
              (275
              )
              $
              3,588Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              14,870
              
              
              15,945
              
              
              13,818Impairment
                  charge
              
              
              ---
              
              
              9,834
              
              
              ---Write-off
                  of loan origination cost
              
              
              ---
              
              
              ---
              
              
              914Write-off
                  of revenue equipment
              
              
              ---
              
              
              ---
              
              
              1,023Provision
                  (benefit) for deferred income taxes
              
              
              (880
              )
              
              204
              
              
              2,570Provision
                  for doubtful accounts
              
              
              736
              
              
              2,217
              
              
              704Restricted
                  stock grants and stock appreciation rights
              
              
              (177
              )
              
              879
              
              
              ---Changes
                  in assets and liabilities:Trade
                  receivables
              
              
              (4,248
              )
              
              (7,800
              )
              
              9,910Accounts
                  receivable - other
              
              
              1,749
              
              
              (922
              )
              
              2,296Tires
                  in service
              
              
              1,196
              
              
              678
              
              
              (758
              )Prepaid
                  expenses and other current assets
              
              
              1,829
              
              
              1,989
              
              
              (1,793
              )Other
                  assets
              
              
              258
              
              
              1,385
              
              
              (483
              )Accounts
                  payable and accrued expenses
              
              
              3,200
              
              
              6,028
              
              
              1,628Income
                  tax payable
              
              
              (2,240
              )
              
              2,889
              
              
              284Net
                  cash provided by operating activities
              
              
              28,873
              
              
              33,051
              
              
              33,701Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (25,214
              )
              
              (23,837
              )
              
              (7,053
              )Proceeds
                  on sale of property and equipment
              
              
              39,803
              
              
              22,800
              
              
              10,291Purchase
                  of minority shares of subsidiary
              
              
              (1,525
              )
              
              ---
              
              
              ---Purchase
                  of CX Roberson and Highway Express assets, respectively
              
              
              (22,700
              )
              
              (3,593
              )
              
              ---Net
                  cash (used in) provided by investing activities
              
              
              (9,636
              )
              
              (4,630
              )
              
              3,238Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock
              
              
              2,026
              
              
              25,875
              
              
              78Proceeds
                  of long-term debt
              
              
              ---
              
              
              2,040
              
              
              4,147Payments
                  on long-term debt
              
              
              (7,235
              )
              
              (32,866
              )
              
              (23,294
              )Principal
                  payments on capital lease obligations
              
              
              (3,269
              )
              
              (24,202
              )
              
              (17,081
              )Net
                  cash used in financing activities
              
              
              (8,478
              )
              
              (29,153
              )
              
              (36,150
              )Increase
                  (decrease) in cash and cash equivalents
              
              
              10,759
              
              
              (732
              )
              
              789Cash
                  and cash equivalents at beginning of year
              
              
              356
              
              
              1,088
              
              
              299Cash
                  and cash equivalents at end of year
              
              $
              11,115
              
              $
              356
              
              $
              1,088Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              1,426
              
              $
              3,825
              
              $
              5,299Income
                  taxes paid
              
              $
              12,153
              
              $
              270
              
              $
              316Supplemental
                  disclosure of non-cash flow investing activities:Lease
                  obligation/debt incurred in the purchase of equipment
              
              $
              2,444
              
              $
              1,166
              
              $
              286Note
                  payable obligation incurred in purchase of minority shares
              
              $
              910
              
              
              ---
              
              
              ---
 
 See
        accompanying notes to consolidated financial statements.
  -
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  **CELADON
        GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **Years
        ended June 30, 2005, 2004 and 2003**
 **(Dollars
        in thousands, except share amounts)**
 
 **Common**
                  **Stock**
                  **No.
                    of Shares**
                  **Outstanding**
                
                **Amount**
                
                **Additional**
                  **Paid-In**
                  **Capital**
                
                **Retained**
                  **Earnings**
                  **(Deficit)**
                
                **Accumulated**
                  **Other**
                  **Comprehensive**
                  **Income/(Loss)**
                
                **Treasury**
                  **Stock-**
                  **Common**
                
                **Unearned**
                  **Compensation**
                
                **Total**
                  **Stock-**
                  **Holders’**
                  **Equity**Balance
                    at June 30, 2002
                
                
                7,677,608
                
                $
                257
                
                $
                60,044
                
                $
                (4,349
                )
                $
                (1,581
                )
                $
                (455
                )
                
                ---
                
                $
                53,916Net
                    income
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                3,588
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                3,588Equity
                    adjustments for foreigncurrency
                    translation,
                  net
                    of
                    tax
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (366
                )
                
                ---
                
                
                ---
                
                
                (366
                )Comprehensive
                    income (loss)
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                3,588
                
                
                (366
                )
                
                ---
                
                
                ---
                
                
                3,222Tax
                    benefits from stock options
                
                
                ---
                
                
                ---
                
                
                37
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                37Exercise
                    of incentive stock
                
                
                16,155
                
                
                ---
                
                
                11
                
                
                ---
                
                
                ---
                
                
                66
                
                
                ---
                
                
                77Balance
                    at June 30, 2003
                
                
                7,693,763
                
                $
                257
                
                $
                60,092
                
                $
                (761
                )
                $
                (1,947
                )
                $
                (389
                )
                $
                ---
                
                $
                57,252Net
                    loss
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (275
                )
                
                ---
                
                
                ---
                
                
                ---
                
                
                (275
                )Equity
                    adjustments for foreigncurrency
                    translation,
                  net
                    of
                    tax
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (408
                )
                
                ---
                
                
                ---
                
                
                (408
                )Comprehensive
                    loss
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (275
                )
                
                (408
                )
                
                ---
                
                
                ---
                
                
                (683
                )Tax
                    benefits from stock options
                
                
                ---
                
                
                ---
                
                
                247
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                247Secondary
                    stock offering
                
                
                1,853,500
                
                
                61
                
                
                24,997
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                25,058Restricted
                    stock grants
                
                
                67,800
                
                
                3
                
                
                824
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (689
                )
                
                138Exercise
                    of incentive stock options
                
                
                133,907
                
                
                1
                
                
                428
                
                
                ---
                
                
                ---
                
                
                389
                
                
                ---
                
                
                818Balance
                    at June 30, 2004
                
                
                9,748,970
                
                $
                322
                
                $
                86,588
                
                $
                (1,036
                )
                $
                (2,355
                )
                $
                0
                
                $
                (689
                )
                $
                82,830Net
                    income
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                12,580
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                12,580Equity
                    adjustments for foreigncurrency
                    translation,
                  net
                    of
                    tax
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                322
                
                
                ---
                
                
                ---
                
                
                322Comprehensive
                    income (loss)
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                12,580
                
                
                322
                
                
                ---
                
                
                ---
                
                
                12,902Tax
                    benefits from stock options
                
                
                ---
                
                
                ---
                
                
                436
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                436Secondary
                    stock offering
                
                
                ---
                
                
                ---
                
                
                (25
                )
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (25
                )Restricted
                    stock grants
                
                
                ---
                
                
                ---
                
                
                319
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                (22
                )
                
                297Exercise
                    of incentive stock options
                
                
                301,479
                
                
                10
                
                
                2,041
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                ---
                
                
                2,051Balance
                    at June 30, 2005
                
                
                10,050,449
                
                $
                332
                
                $
                89,359
                
                $
                11,544
                
                $
                (2,033
                )
                $
                0
                
                $
                (711
                )
                $
                98,491
 
 See
        accompanying notes to consolidated financial statements.
  -
            35
            -
 Table
            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 
 **(1)**
              **ORGANIZATION
                  AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 ***Organization***
 
 Celadon
        Group, Inc. (the “Company”), through its subsidiaries, provides long haul, full
        truckload services between the United States, Canada and Mexico. The Company’s
        primary trucking subsidiaries are: Celadon Trucking Services, Inc. (“CTSI”), a
        U.S. based company; Servicio de Transportation Jaguar, S.A. de C.V. (“Jaguar”),
        a Mexican based company and Celadon Canada, Inc. (“CelCan”), a Canadian based
        company.
 
 TruckersB2B,
        Inc. (“TruckersB2B”) is an Internet based “business-to-business” membership
        program, owned by Celadon E-Commerce, Inc., a wholly owned subsidiary of
        Celadon
        Group, Inc.
 
 ***Summary
        of Significant Account Policies***
 
 *Principles
        of Consolidation and Presentation*
 
 The
        consolidated financial statements include the accounts of Celadon Group,
        Inc.
        and its wholly and majority owned subsidiaries, all of which are wholly owned
        except for Jaguar in which the Company has a 75% interest. All significant
        intercompany accounts and transactions have been eliminated in consolidation.
        Unless otherwise noted, all references to annual periods refer to the respective
        fiscal years ended June 30.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets, liabilities,
        revenues, expenses and related disclosures at the date of the financial
        statements and during the reporting period. Such estimates include provisions
        for liability claims and uncollectible accounts receivable. Actual results
        could
        differ from those estimates.
 
 *Cash
        and Cash Equivalents*
 
 The
        Company considers all highly liquid instruments with maturity of three months
        or
        less when purchased to be cash equivalents.
 
 *Concentration
        of Credit Risk*
 
 Financial
        instruments, which potentially subject the Company to concentrations of credit
        risk, consist primarily of trade receivables. The Company performs ongoing
        credit evaluations of its customers and does not require collateral for its
        accounts receivable. The Company maintains reserves which management believes
        are adequate to provide for potential credit losses. Uncollectible accounts
        receivable are written off against the reserves. Concentrations of credit
        risk
        with respect to trade receivables are generally limited due to the Company’s
        large number of customers and the diverse range of industries, which they
        represent. Accounts Receivable balances due from any single customer did
        not
        total more than 5% of the Company’s gross trade receivables at June 30,
        2005.
 
  -
            36
            -
 Table
            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 *Property
        and Equipment*
 
 Property
        and equipment are stated at cost. Property and equipment under capital leases
        are stated at fair value at the inception of the lease.
 
 Depreciation
        of property and equipment and amortization of assets under capital leases
        is
        generally computed using the straight-line method and is based on the estimated
        useful lives (net of salvage value) of the related assets as
        follows:
 
 Revenue
                  and service equipment
              3-10
                  yearsFurniture
                  and office equipment
              4-7
                  yearsBuildings
              20
                  yearsLeasehold
                  improvements
              Lesser
                  of life of lease or useful life of
                  improvement
 
 Initial
        delivery costs relating to placing tractors in service, which are included
        in
        revenue and service equipment, are being amortized on a straight-line basis
        over
        the lives of the assets or in the case of leased equipment, over the respective
        lease term. The cost of maintenance and repairs is charged to expense as
        incurred.
 
 Long-lived
        assets are depreciated over estimated useful lives based on historical
        experience and prevailing industry practice. Estimated useful lives are
        periodically reviewed to ensure they remain appropriate. Long-lived assets
        are
        tested for impairment whenever an event occurs that indicates an impairment
        may
        exist. Future cash flows and operating performance are used for analyzing
        impairment losses. If the sum of expected undiscounted cash flows is less
        than
        the carrying value an impairment loss is recognized. The Company measures
        the
        impairment loss by comparing the fair value of the asset to its carrying
        value.
        Fair value is determined based on a discounted cash flow analysis or appraised
        or estimated market values as appropriate. Long-lived assets that are held
        for
        sale are recorded at the lower of carrying value or the fair value less costs
        to
        sell.
 
 *Tires
        in Service*
 
 Original
        and replacement tires on tractors and trailers are included in tires in service
        and are amortized over 18 to 36 months.
 
 *Goodwill*
 
 The
        consolidated balance sheets at June 30, 2005 and 2004, included goodwill
        of
        acquired businesses of approximately $19.1 and $16.7 million, respectively.
        These amounts have been recorded as a result of business acquisitions accounted
        for under the purchase method of accounting. Prior to July 1, 2001, goodwill
        from each acquisition was generally amortized on a straight-line basis. Under
        SFAS No. 142, *Goodwill
        and Other Intangible Assets,* which we
        adopted as of July 1, 2001, goodwill is tested for impairment annually (or
        more
        often, if an event or circumstance indicates that an impairment loss has
        been
        incurred) in lieu of amortization. During the fourth quarter of fiscal 2005,
        we
        completed our most recent annual impairment test for that fiscal year and
        concluded that there was no indication of impairment.
 
 Tests
        for
        impairment include estimating the fair value of our reporting units. As required
        by SFAS No. 142, we compare the estimated fair value of our reporting units
        with
        their respective carrying amounts including goodwill. We define a reporting
        unit
        as an operating segment. Under SFAS No. 142, fair value refers to the amount
        for
        which the entire reporting unit could be bought or sold. Our methods for
        estimating reporting unit values include market quotations, asset and liability
        fair values, and other valuation techniques, such as discounted cash flows
        and
        multiples of earnings, revenue, or other financial measures. With the exception
        of market quotations, all of these methods involve significant estimates
        and
        assumptions, including estimates of future financial performance and the
        selection of appropriate discount rates and valuation
        multiples.
  -
            37
            -
 Table
            of Contents
  
 **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 TruckersB2B,
        Inc. has purchased 2,128,345 shares of its Common Stock into treasury for
        $2,435,175, which is accounted for using the purchase method in accordance
        with
        SFAS 141 “Business Combinations” during fiscal 2005. See Note 2 to the
        Consolidated Financial Statements for further disclosure.
 
 *Insurance
        Reserves*
 
 The
        Company’s insurance program for liability, property damage, and cargo loss and
        damage, involves self-insurance with high retention levels. Under the casualty
        program, the Company is self-insured for personal injury and property damage
        claims for varying amounts depending on the date the claim was incurred.
        The
        Company accrues the estimated cost of the retained portion of incurred claims.
        These accruals are based on an evaluation of the nature and severity of the
        claim and estimates of future claims development based on historical trends.
        Insurance and claims expense will vary based on the frequency and severity
        of
        claims, the premium expense and self-insured retention levels.
 
 *Revenue
        Recognition*
 
 Trucking
        revenue and related direct cost are recognized on the date freight is delivered
        by the Company to the customer and collectibility is reasonably assured.
        Prior
        to commencement of shipment, the Company will negotiate an agreed upon price
        for
        services to be rendered.
 
 TruckersB2B
        revenue is recognized at different times depending on the product or service
        purchased by the TruckersB2B member (“member”). Revenue for fuel rebates is
        recognized in the month the fuel was purchased by a member. The tire rebate
        revenue is recognized when proof-of-purchase documents are received from
        members. In most other programs, TruckersB2B receives commissions, royalties
        or
        transaction fees based upon percentages of member purchases. TruckersB2B
        records
        revenue under these programs when earned and it receives the necessary
        information to calculate the revenue.
 
 *Costs
        of Products and Services*
 Cost
        of
        products and services represents the cost of the product or service purchased
        or
        used by the TruckersB2B member. Cost of products and services is recognized
        in
        the period that TruckersB2B recognizes revenue for the respective product
        or
        service.
 
 *Advertising*
 
 Advertising
        costs are expensed as incurred by the Company. Advertising expenses for fiscal
        2005, 2004, and 2003 were $1.3 million, $1.3 million, and
        $1.0 million, respectively, and are included in salaries, wages and
        employee benefits and general, administrative and selling expenses in the
        Consolidated Statements of Operations.
 
 *Income
        Taxes*
 
 Deferred
        taxes are recognized for the future tax effects of temporary differences
        between
        the carrying amounts of assets and liabilities for financial and income tax
        reporting, based on enacted tax laws and rates. Federal income taxes are
        provided on the portion of the income of foreign subsidiaries that is expected
        to be remitted to the United States.
  -
            38
            -
 Table
            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 *Accounting
        for Derivatives*
 
 The
        Company from time-to-time will enter into derivative financial instruments
        to
        reduce exposure to fuel and currency price fluctuations. In June 2000, the
        Financial Accounting Standards Board (“FASB”) issued SFAS 138, “Accounting for
        Certain Derivative Instruments and Certain Hedging Activity, an Amendment
        of
        SFAS 133.” SFAS 138 requires that all derivative instruments be recorded on the
        balance sheet at their respective fair values. In accordance with SFAS 138,
        the
        Company adjusts our derivative instruments to fair value through earnings
        on a
        monthly basis.
 
 *Earnings
        per Share (“EPS”)*
 
 The
        Company applies the provisions of the FASB SFAS No. 128, “Earnings per Share”,
        which requires companies to present basic EPS and diluted EPS. Basic EPS
        excludes dilution and is computed by dividing income available to common
        stockholders by the weighted-average number of common shares outstanding
        for the
        period. Diluted EPS reflects the dilution that could occur if securities
        or
        other contracts to issue common stock were exercised or converted into common
        stock or resulted in the issuance of common stock that then shared in the
        earnings of the Company. Dilutive common stock options are included in the
        diluted EPS calculation using the treasury stock method. Common stock options
        totaling 449,000 were not included in the diluted EPS computation for 2004
        because the options were anti-dilutive.
 
 *Stock-based
        Employee Compensation Plans*
 
 The
        Company has elected to follow Accounting Principles Board Opinion (APB) No.
        25,
“Accounting for Stock Issued to Employees,” and related interpretations in
        accounting for its stock options. Under APB 25, because the exercise price
        of
        the Company’s employee stock options equals the market price of the underlying
        stock on the date of grant, no compensation expense is recognized for the
        Celadon options. See Note 6 to the Consolidated Financial Statements - Stock
        Plans for further disclosure.
 
 SFAS
        123,
“Accounting for Stock-Based Compensation,” and SFAS 148 “Accounting for
        Stock-Based Compensation - Transition and Disclosure” requires presentation of
        pro forma net income and earnings per share if the Company had accounted
        for its
        employee stock options granted subsequent to June 30, 1995 under the fair
        value
        method of that statement. For purposes of pro forma disclosure, the estimated
        fair value of the options is amortized to expense over the vesting period.
        Under
        the fair value method, the Company’s net income (in thousands) and earnings per
        share would have been:
 
 2005
                
                
                
                2004
                
                
                
                2003Net
                    income (loss), as reported
                
                $
                12,580
                
                
                
                
                $
                (275
                )
                
                
                
                $
                3,588Stock-based
                    compensation expense (net of tax)
                
                
                228
                
                
                
                
                
                404
                
                
                
                
                
                773Adjusted
                    net income (loss), pro forma
                
                $
                12,352
                
                
                
                
                $
                (679
                )
                
                
                
                $
                2,815Basic
                    and diluted income (loss) per share:Diluted
                    earnings (loss) per share, as reported
                
                $
                1.23
                
                
                
                
                $
                (0.03
                )
                
                
                
                $
                0.45Stock-based
                    compensation expense (net of tax) per share
                
                $
                0.02
                
                
                
                
                $
                0.06
                
                
                
                
                $
                0.10Adjusted
                    diluted earnings (loss) per share, pro forma
                
                $
                1.21
                
                
                (1)
                
                $
                (0.09
                )
                
                (2)
                
                $
                0.35
                
                
                (1)
 
 (1)
              Adjusted
                  basic earnings per share was $1.25 in fiscal 2005, and $0.37 in
                  fiscal
                  2003.(2)
              Fiscal
                  2004 does not include the anti-dilutive effect of 449 thousand
                  stock
                  options and other incremental
                  shares.
 
  -
            39
            -
 Table
            of Contents
  
 **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 *Foreign
        Currency Translation*
 
 Foreign
        financial statements are translated into U.S. dollars in accordance with
        SFAS
        52, “Foreign Currency Translation.” Assets and liabilities of the Company’s
        foreign operations are translated into U.S. dollars at year-end exchange
        rates.
        Income statement accounts are translated at the average exchange rate prevailing
        during the year. Resulting translation adjustments are included in other
        comprehensive income.
 
 *Reclassifications*
 
 Certain
        reclassifications have been made to the 2004 and 2003 financial statements
        in
        order to conform to the 2005 presentation.
 
 *Recent
        Accounting Pronouncements*
 
 In
        December 2004, the FASB issued SFAS No. 123-R, *Share-Based
        Payments* ,
        an
        Amendment of FASB 123 on *Accounting
        for Stock Based Compensation* .
        SFAS
        123-R requires companies to recognize in the income statement the grant date
        fair value of stock options and other equity-based compensation issued to
        employees. SFAS 123-R is effective for most public companies with interim
        or
        annual periods beginning after June 15, 2005. We will adopt this statement
        effective July 1, 2005. Our adoption of SFAS 123-R will impact our results
        of
        operations by increasing salaries, wages and related expenses. The amount
        of the
        expected impact is still being reviewed by the Company.
 
 
 **(2)**
              **ACQUISITIONS**
 
 On
        January 14, 2005, the Company purchased certain assets consisting of
        approximately 370 tractors and 670 van trailers of CX Roberson, Inc.
        (“Roberson”) for approximately $22.7 million. The Company used borrowings under
        its existing credit facility to fund the transaction. The transaction did
        not
        include Roberson’s flatbed business and related assets. The purchase price was
        allocated to the revenue equipment based on an independent appraisal of the
        equipment.
 
 The
        Company plans to retain approximately 200 of the newest acquired tractors
        and
        200 of the newest acquired trailers, and to dispose of the balance of the
        acquired revenue equipment. Net of proceeds of dispositions, the Company
        expects
        its investment in the former Roberson equipment to be approximately $12.5
        million. Following the acquisition, employment was offered to approximately
        320
        of Roberson's drivers, and over 220 of those drivers accepted
        employment.
 
 In
        August
        2003, the Company acquired certain assets of Highway Express, Inc. (“Highway”).
        The results of operations of Highway from August 1, 2003 are included in
        the
        Company’s financial statements for fiscal 2004. The Company assigned values to
        the acquired assets of Highway consisting primarily of $8.6 million
        of
        property and equipment, $2.4 million of trade receivables and
        $0.4 million of cash. The purchase price of approximately
        $11.4 million was paid using cash generated from operations and the
        secondary offering. Highway’s revenue for fiscal 2002 was approximately
        $27.0 million.
 
 In
        fiscal
        2005, TruckersB2B, Inc. has purchased 2,013,276 shares of its Common Stock
        into
        treasury for $2,435,000. An 18-month note payable for $910,000 was issued
        with
        the difference settled in cash. Celadon Group, Inc. and subsidiaries own
        100% of
        the outstanding shares of TruckersB2B, Inc. The $2,435,000 of TruckersB2B
        treasury stock is accounted for using the purchase method in accordance with
        SFAS 141 “Business Combinations.”
  -
            40
            -
 Table
            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 **(3)** **PROPERTY,
        EQUIPMENT AND LEASES**
 
 *Property,
        Equipment and Revenue Equipment*
 
 Property
        and equipment consists of the following (in thousands):
 
 **2005**
              
              **2004**Revenue
                  equipment owned
              
              $
              59,480
              
              $
              66,182Revenue
                  equipment under capital leases
              
              
              8,190
              
              
              17,390Furniture
                  and office equipment
              
              
              4,047
              
              
              3,134Land
                  and buildings
              
              
              13,439
              
              
              12,814Service
                  equipment
              
              
              1,011
              
              
              757Leasehold
                  improvements
              
              
              2,063
              
              
              1,807$
              88,230
              
              $
              102,084
 
 Included
        in accumulated depreciation was $3.0 million and $6.6 million
        in 2005
        and 2004, respectively, related to revenue equipment under capital leases.
        Depreciation and amortization expense relating to property and equipment
        owned
        and revenue equipment under capital leases, including gains (losses) on
        disposition of equipment and impairment of trailers, was $14.9 million
        in
        2005, $25.8 million in 2004 and $13.8 million in 2003.
 
 *Impairment
        of Equipment*
 
 In
        September 2003, the Company initiated a plan to dispose of approximately
        1,600
        trailers and recognized a pre-tax impairment charge of $9.8 million based
        on
        comparison of net book value and estimated fair market value by make, model
        year, and trailer length. The pre-tax impairment charge consisted of a
        write-down of revenue equipment by $8.4 million (net of accumulated
        depreciation), a write-off of tires in-service of $0.9 million and an accrual
        for costs of disposal of $0.5 million. The Company disposed of these trailers,
        including all 48-foot trailers in addition to 53-foot trailers over 9 years
        old,
        due to shipper compatibility issues. The majority of the Company’s customers
        require 53-foot trailers. The disposal of 48-foot trailers from the Company
        fleet has reduced logistical issues with customers requiring a 53-foot trailer.
        The Company replaced approximately 1,600 trailers with 1,300 new 53-foot
        trailers. This change in the fleet increased operating efficiencies and reduced
        out-of-route miles.
 
 
  -
            41
            -
 Table
            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 **(4)** **LEASE
        OBLIGATIONS AND LONG-TERM DEBT AND STOCKHOLDERS’ EQUITY**
 
 *Lease
        Obligations*
 
 The
        Company leases certain revenue and service equipment under long-term lease
        agreements, payable in monthly installments with interest at rates ranging
        from
        4.8% to 7.5% per annum, maturing at various dates through 2011.
 
 The
        Company leases warehouse and office space under noncancellable operating
        leases
        expiring at various dates through September 2021. Certain leases contain
        renewal
        options.
 
 Future
        minimum lease payments relating to capital leases and to operating leases
        with
        initial or remaining terms in excess of one year are as follows (in
        thousands):
 
 **Year
                  ended June 30**
              
              **Capital**
                **Leases**
              
              **Operating**
                **Leases**2006
              
              $
              879
              
              $
              51,1422007
              
              
              510
              
              
              45,3362008
              
              
              147
              
              
              38,4372009
              
              
              147
              
              
              18,9122010
              
              
              147
              
              
              19,976Thereafter
              
              
              472
              
              
              34,621Total
                  minimum lease payments
              
              $
              2,303
              
              $
              208,424Less
                  amounts representing interest
              
              
              255Present
                  value of net minimum lease payments
              
              $
              2,048Less
                  current maturities
              
              
              788Non-current
                  portion
              
              $
              1,260
 
 The
        Company is obligated for lease residual value guarantees of $70.6 million,
        with
        $9.8 million due in the first year. The guarantees are included in the future
        minimum lease payments above. To the extent the expected value at lease
        termination date is lower than the residual value guarantee, we would accrue
        for
        the difference over the remaining lease term.
 
 Total
        rental expense for operating leases is as follows (in thousands):
 
 **2005**
              
              **2004**
              
              **2003**Revenue
                  and service equipment
              
              $
              35,848
              
              $
              30,802
              
              $
              24,753Office
                  facilities and terminals
              
              
              2,298
              
              
              2,297
              
              
              2,124$
              38,146
              
              $
              33,099
              
              $
              27,966
  *Long-Term
        Debt*
 
 The
        Company’s outstanding borrowings consist of the following at June 30 (in
        thousands):
 
 **2005**
              
              **2004**Outstanding
                  amounts under Credit Agreement (collateralized by certain trade
                receivables
                  and
                  revenue equipment)
              
              $
              ---
              
              $
              6,017Other
                  borrowings
              
              
              5,296
              
              
              3,1605,296
              
              
              9,177Less
                  current maturities
              
              
              1,057
              
              
              2,270Non-current
                  portion
              
              $
              4,239
              
              $
              6,907
 
  -
            42
            -
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 *Lines
        of Credit*
 
 The
        Company has a $55.0 million banking facility (“Credit Agreement”) with
        Fleet Capital Corporation, Fleet Capital Canada Corporation and several other
        lenders named in the Loan Agreement. The arrangement includes a
        $44.2 million revolving loan and a $10.8 million term loan.
        The
        Company’s Credit Agreement expires in September 2005 (fiscal 2006). Interest is
        based, at the Company’s option, upon either the bank’s base rate as defined in
        the Credit Agreement plus a margin ranging from 0.0% to 0.25% or the London
        Interbank Offered Rate plus a margin ranging from 1.0% to 2.0% depending
        upon
        performance by the Company. At June 30, 2005, the interest rate charged on
        outstanding borrowings was 6.25%. In addition, the Company pays a commitment
        fee
        of .25% on the unused portion of the Credit Agreement. As of June 30, 2005,
        there were no amounts outstanding on the term loan or the revolving loan.
 
 Amounts
        available under the Credit Agreement are determined based upon the Company’s
        borrowing base, as defined. In addition, there are certain covenants, which
        restrict, among other things, the payment of cash dividends, annual capital
        expenditures, and annual lease payments, and requires the Company to maintain
        a
        minimum fixed charge coverage ratio along with certain financial ratios and
        certain other financial conditions. Such borrowings are secured by a significant
        portion of the Company’s assets, primarily trade receivables.
 
 *Other
        Borrowings*
 
 Other
        borrowings consist primarily of mortgage debt financing and notes payable
        for
        equipment purchase, which are collateralized by the equipment. At June 30,
        2005,
        the interest rate charged on outstanding borrowings ranged from 6.7% to
        7.5%.
 
 Maturities
        of long-term debt for the years ending June 30 are as follows (in
        thousands):
 
 2006
              
              $
              1,0572007
              
              
              5442008
              
              
              2,6312009
              
              
              4552010
              
              
              609Thereafter
              
              
              ---$
              5,296
 
 *Stockholders’
        Equity*
 
 In
        the
        fourth quarter of fiscal 2004, we issued 1.85 million shares of our
        common
        stock in a public offering. The stock issuance resulted in net proceeds to
        us of
        approximately $25.1 million. We used the proceeds to repay all amounts
        outstanding under our revolving credit facility. The balance of the net proceeds
        were used to pay off debt and leases related to equipment.
 
 **(5)** **EMPLOYEE
        BENEFIT PLANS**
 
 *401(k)
        Profit Sharing Plan*
 
 The
        Company has a 401(k) profit sharing plan, which permits U.S. employees of
        the
        Company to contribute up to 50% of their annual compensation, up to certain
        Internal Revenue Service limits, on a pretax basis. The contributions made
        by
        each employee are fully vested immediately and are not subject to forfeiture.
        The Company makes a discretionary matching contribution of up to 50% of the
        employee’s contribution up to 5% of their annual compensation. The aggregate
        Company contribution may not exceed 5% of the employee’s compensation. Employees
        vest in the Company’s contribution to the plan at the rate of 20% per year from
        the date of employee anniversary. Contributions made by the Company during
        2005,
        2004 and 2003 amounted to $403 thousand, $374 thousand, and $281 thousand,
        respectively.
  -
            43
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 
 **(6)** **STOCK
        PLANS**
 
 *Stock
        Options - Celadon Group, Inc.*
 
 The
        Company has Stock Option Plans (“Plan”) which provide for the granting of stock
        options, stock appreciation rights and restricted stock awards to purchase
        not
        more than 1,350,000 shares of Common Stock, subject to adjustment under certain
        circumstances, to select management, key employees, and directors of the
        Company
        and its subsidiaries. The options have a six-month to three-year vesting
        period.
 
 In
        fiscal
        2005 and 2004 respectively, the Company granted 10,000 and 57,800 restricted
        stock awards to senior management at $19.45 and $12.20. These grants vest
        over
        four years contingent upon the Company meeting certain financial targets.
        In
        determining whether these targets were met for fiscal 2004, the Company’s Board
        of Directors excluded the impact of a $9.8 million pretax trailer impairment
        charge, outstanding stock appreciation rights, and the increased dilution
        resulting from the Company’s secondary stock offering. These grants are valued
        at $1.1 million at June 30, 2005 and the portion that has not vested is
        accounted for in unearned compensation of restricted stock in equity.
        Compensation expense of $435 thousand and $138 thousand has been recognized
        in
        salaries, wages and employee benefits for the year ended June 30, 2005 and
        2004,
        respectively.
 
 The
        weighted-average per share fair value of the individual options granted during
        fiscal 2005 and 2004 for Celadon is estimated as $8.43 and $8.84, respectively
        on the date of grant.
 
 The
        fair
        values of Celadon option grants for 2005 and 2004 were determined using a
        Black-Scholes option-pricing model with the following weighted average
        assumptions:
 
 **2005**
              
              **2004******
              
              **2003******Dividend
                  yield
              
              
              0
              
              
              0
              
              
              0Volatility
              
              
              37.4
              %
              
              51.7
              %
              
              59.9
              %Risk-free
                  interest rate
              
              
              3.77
              %
              
              2.88
              %
              
              1.95
              %Forfeiture
                  rate
              
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %Expected
                  life
              
              
              7
                  years
              
              
              7
                  years
              
              
              7
                  years
 
 Stock
        option activity for Celadon is summarized below:
 
 **Shares
                  of**
                **Common
                  Stock**
                **Attributable**
                **To
                  Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price
                  of Options**Unexercised
                  at June 30, 2002
              
              
              970,351
              
              $
              6.46Granted
              
              
              16,000
              
              $
              8.00Exercised
              
              
              (16,155
              )
              $
              4.77Forfeited
              
              
              (13,276
              )
              $
              8.21Unexercised
                  at June 30, 2003
              
              
              956,920
              
              $
              6.68Granted
              
              
              16,000
              
              $
              15.93Exercised
              
              
              (133,907
              )
              $
              6.11Forfeited
              
              
              (25,831
              )
              $
              13.21Unexercised
                  at June 30, 2004
              
              
              813,182
              
              $
              6.55Granted
              
              
              12,000
              
              $
              18.30Exercised
              
              
              (301,479
              )
              $
              7.46Forfeited
              
              
              (1,250
              )
              $
              3.84Unexercised
                  at June 30, 2005
              
              
              522,453
              
              $
              6.47
 
  -
            44
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 The
        following table summarizes information concerning outstanding and exercisable
        Celadon options at June 30, 2005:
 Options
                      Outstanding
                  Options
                      ExercisableRange
                      of
                    Exercise
                    Prices
                  Number
                    Outstanding
                  Weighted-
                    Average
                    Remaining
                    Contractual
                    Life
                  Weighted
                    Average
                    Exercise
                    Price
                  Number
                    Exercisable
                  Weighted
                    Average
                    Exercise
                    Price$0-$5
                  203,953
                  5.77
                  $3.42
                  203,953
                  $3.42$5-$10
                  246,500
                  5.90
                  $6.91
                  246,500
                  $6.91$10-$15
                  44,000
                  2.62
                  $11.52
                  44,000
                  $11.52$15-$20
                  28,000
                  9.27
                  $16.95
                  16,000
                  $15.93
 
 Celadon
        stock options exercisable at June 30, 2005, 2004 and 2003 were 510,453, 705,766
        and 713,368, respectively.
 
 *Stockholder
        Rights Plan*
 
 On
        June
        28, 2000, the Company’s Board of Directors approved a Stockholder Rights Plan
        whereby, on July 31, 2000, common stock purchase rights (“Rights”) were
        distributed as a dividend at the rate of one Right for each share of the
        Company’s common stock held as of the close of business on July 20, 2000. The
        Rights will expire on July 18, 2010. Under the plan, the Rights will be
        exercisable only if triggered by a person or group’s acquisition of 15% or more
        of the Company’s common stock. Each right, other than Rights held by the
        acquiring person or group, would entitle its holder to purchase a specified
        number of the Company’s common shares for 50% of their market value at that
        time.
 
 Following
        the acquisition of 15% or more of the Company’s common stock by a person or
        group, the Board of Directors may authorize the exchange of the Rights, in
        whole
        or in part, for shares of the Company’s common stock at an exchange ratio of one
        share for each Right, provided that at the time of such proposed exchange
        no
        person or group is then the beneficial owner of 50% or more of the Company’s
        common stock.
 
 Unless
        a
        15% acquisition has occurred, the Rights may be redeemed by the Company at
        any
        time prior to the termination date of the plan.
  -
            45
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 **(7)** **EARNINGS
        PER SHARE**
 
 The
        following is a reconciliation of the numerators and denominators used in
        computing earnings per share (in thousands):
 ******2005******
              
              ******2004******
              
              ******2003**Income
                  (loss) available to common shareholders
              
              $
              12,580
              
              $
              (275
              )
              $
              3,588Basic
                  earnings (loss) per share:Weighted
                  - average
                  number of common
                shares
                  outstanding
              
              
              9,905
              
              
              7,986
              
              
              7,688Basic
                  earnings
                  (loss) per share
              
              $
              1.27
              
              $
              (0.03
              )
              $
              0.47Diluted
                  earnings (loss) per share:Weighted
                  - average
                  number of common
                shares
                  outstanding
              
              
              9,905
              
              
              7,986
              
              
              7,688Effect
                  of stock
                  options and other incremental shares
              
              
              323
              
              
              ---
              
              
              347Weighted-average
                  number of common shares
                  outstanding
                      -
                      diluted
              
              
              10,228
              
              
              7,986
              
              
              8,035Diluted
                  earnings
                  (loss) per share
              
              $
              1.23
              
              $
              (0.03
              )
              $
              0.45
 
 Diluted
        loss per share for fiscal year 2004 does not include the anti-dilutive effect
        of
        449 thousand stock options and other incremental shares,
        respectively.
 
 **(8)** **RELATED
        PARTY TRANSACTIONS**
 
 In
        October 2001, the Company sold 103,850 shares of treasury stock to non-executive
        members of management. The Company granted loans totaling $449,000 to the
        non-executive management with a 5-year term. As of June 30, 2005, approximately
        $15,000 of the aforementioned loans remained outstanding.
 
 **(9)**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 The
        Company has outstanding commitments to purchase approximately $90.1 million
        of
        revenue equipment at June 30, 2005, which will be financed utilizing long-term
        lease agreements.
 
 Standby
        letters of credit, not reflected in the accompanying consolidated financial
        statements, aggregated approximately $6.4 million at June 30,
        2005.
 
 The
        Company has employment and consulting agreements with various key employees
        providing for minimum combined annual compensation over the next three fiscal
        years of $712 thousand in fiscal 2006, $158 thousand in fiscal
        2007,
        $139 thousand in fiscal 2008, and $77 thousand in fiscal 2009.
 
 During
        fiscal 2004, the Company received approximately $4.4 million in fuel tax
        refunds
        relating to prior periods. The Company recognized $3.1 million as a reduction
        in
        fuel expense during the period. The balance was settled in fiscal
        2005.
 
 There
        are
        various claims, lawsuits and pending actions against the Company and its
        subsidiaries in the normal course of the operations of its businesses with
        respect to cargo, auto liability or income taxes. The Company believes many
        of
        these proceedings are covered in whole or in part by insurance and that none
        of
        these matters will have a material adverse effect on its consolidated financial
        position or results of operations in any given period.
  -
            46
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 
 The
        Company is a party to routine litigation incidental to its business, primarily
        involving claims for bodily injury and cargo or other property damage or
        loss
        incurred in the transportation of freight. In fiscal 2005, the Company is
        self-insured on auto liability claims, in the United States and Canada, for
        the
        first $2.5 million dollars of an accident claim. In the fourth quarter
        of
        fiscal 2004, the Company incurred one significant accident, which was accrued
        for the maximum exposure. The Company is also responsible for administrative
        expenses, for each occurrence involving personal injury or property damage.
        The
        Company is also self-insured for the full amount of all physical damage losses,
        for workers compensation losses up to $1.5 million per claim, and for cargo
        claims up to $100 thousand per shipment. Subject to these self-insured retention
        amounts, our current workers’ compensation policy provides coverage up to a
        maximum per claim amount of $10.0 million, and our current cargo loss
        and
        damage coverage provides coverage up to $1.0 million per shipment.
        The
        Company maintains separate insurance in Mexico consisting of bodily injury
        and
        property damage coverage with acceptable deductibles. Management believes
        its
        uninsured exposure is reasonable for the transportation industry, based on
        previous history. Consequently, the Company does not believe that the litigation
        and claims experienced will have a material impact on our consolidated financial
        position or results of operations.
 
 Shortages
        of fuel, increases in fuel prices or rationing of petroleum products can
        have a
        materially adverse effect on the operations and profitability of the Company.
        The Company cannot predict whether high fuel price levels will continue in
        the
        future or the extent to which fuel surcharges will be collected to offset
        such
        increases. During the years ended June 30, 2005, 2004, and 2003, the Company
        had
        no material expense on futures contracts and commodity collar transactions
        which
        is included in fuel expense.
 
 **(10)** **INCOME
        TAXES**
 
 The
        income tax provision for operations in 2005, 2004 and 2003 consisted of the
        following (in thousands):
 
 **2005******
              
              **2004******
              
              **2003******Current:Federal
              
              $
              8,324
              
              $
              2,484
              
              $
              ---State
                  and local
              
              
              1,364
              
              
              256
              
              
              74Foreign
              
              
              589
              
              
              376
              
              
              (302
              )Total
                  Current
              
              
              10,277
              
              
              3,116
              
              
              (228
              )Deferred:Federal
              
              
              (561
              )
              
              730
              
              
              2,226State
                  and local
              
              
              (197
              )
              
              75
              
              
              409Foreign
              
              
              (122
              )
              
              (478
              )
              
              541Total
                  Deferred
              
              
              (880
              )
              
              327
              
              
              3,176Total
              
              $
              9,397
              
              $
              3,443
              
              $
              2,948
 
 No
        provision is made for U.S. federal income taxes on undistributed earnings
        of
        foreign subsidiaries of approximately $2.2 million at June 30, 2005,
        as
        management intends to permanently reinvest such earnings in the Company’s
        operations in the respective foreign countries where earned. Included in
        the
        consolidated income before income taxes is income of approximately
        $3.0 million generated from foreign operations in fiscal
        2005.
  -
            47
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 The
        Company’s income tax expense varies from the statutory federal tax rate of 35%
        to income before income taxes as follows (in thousands):
 
 ******2005******
              
              ******2004******
              
              ******2003******Computed
                  “expected” income tax expense
              
              $
              7,693
              
              $
              1,109
              
              $
              2,288State
                  taxes, net of federal benefit
              
              
              759
              
              
              215
              
              
              391Non-deductible
                  expenses
              
              
              1,057
              
              
              1,252
              
              
              314Settlement
                  of IRS audit
              
              
              ---
              
              
              993
              
              
              ---Other,
                  net
              
              
              (112
              )
              
              (126
              )
              
              (45
              )Actual
                  income tax expense
              
              $
              9,397
              
              $
              3,443
              
              $
              2,948
 
 The
        Company has reached final settlements with the Internal Revenue Service related
        to all of the audits of the Company’s consolidated federal income tax returns
        through fiscal year June 30, 2001. As a result of the settlement, Celadon
        reduced deferred tax asset by $993 thousand against its deferred tax asset
        for
        net operating loss carry forward during fiscal year 2004.
 
 The
        tax
        effect of temporary differences that give rise to significant portions of
        the
        deferred tax assets and liabilities at June 30, 2005 and 2004 consisted of
        the
        following (in thousands):
 
 **2005******
              
              **2004**Deferred
                  tax assets:Allowance
                  for doubtful accounts
              
              $
              440
              
              $
              595Insurance
                  reserves
              
              
              1,797
              
              
              1,906Net
                  operating loss carryforwards
              
              
              ---
              
              
              1,315Alternative
                  minimum tax credit carryforward
              
              
              ---
              
              
              635Other
              
              
              1,562
              
              
              503Total
                  deferred tax assets
              
              $
              3,799
              
              $
              4,954Deferred
                  tax liabilities:Property
                  and equipment
              
              $
              (6,140
              )
              $
              (7,448
              )Goodwill
              
              
              (1,728
              )
              
              (1,304
              )Capital
                  leases
              
              
              (1,194
              )
              
              (2,122
              )Other
              
              
              (2,413
              )
              
              (2,636
              )Total
                  deferred tax liabilities
              
              $
              (11,475
              )
              $
              (13,510
              )Net
                  current deferred tax assets
              
              $
              2,424
              
              $
              1,974Net
                  non-current deferred tax liabilities
              
              
              (10,100
              )
              
              (10,530
              )Total
                  net deferred tax liabilities
              
              $
              (7,676
              )
              $
              (8,556
              )
 
 As
        of
        June 30, 2005, the Company had no operating loss carry forwards.
 
 **(11)** **SEGMENT
        INFORMATION AND SIGNIFICANT CUSTOMERS**
 
 The
        Company operates in two segments, transportation and e-commerce. The Company
        generates revenue, in the transportation segment, primarily by providing
        truckload hauling services through its subsidiaries, CTSI, Jaguar, and CelCan.
        The Company provides certain services over the Internet through its e-commerce
        subsidiary, TruckersB2B. The e-commerce segment generates revenue by providing
        discounted fuel, tires, and other products and services to small and
        medium-sized trucking companies. The Company evaluates the performance of
        its
        operating segments based on operating income (loss).
  -
            48
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 **Fiscal
                  year ended**
                **June
                  30,**
                **(Dollars
                  in thousands)****2005**
              
              **2004**
              
              **2003**Total
                  revenuesTransportation
              
              $
              428,936
              
              $
              389,813
              
              $
              359,883E-Commerce
              
              
              7,827
              
              
              8,110
              
              
              7,222436,763
              
              
              397,923
              
              
              367,105Operating
                  incomeTransportation
              
              
              21,846
              
              
              5,558
              
              
              11,522E-Commerce
              
              
              1,562
              
              
              1,513
              
              
              1,21223,408
              
              
              7,071
              
              
              12,734Depreciation
                  and amortizationTransportation
              
              
              14,856
              
              
              25,722
              
              
              13,750E-Commerce
              
              
              14
              
              
              57
              
              
              6814,870
              
              
              25,779
              
              
              13,818Interest
                  incomeTransportation
              
              
              12
              
              
              40
              
              
              85Interest
                  expenseTransportation
              
              
              1,353
              
              
              3,684
              
              
              6,127E-Commerce
              
              
              77
              
              
              79
              
              
              159Income
                  before taxesTransportation
              
              
              20,492
              
              
              1,734
              
              
              5,484E-Commerce
              
              
              1,485
              
              
              1,434
              
              
              1,05221,977
              
              
              3,168
              
              
              6,536GoodwillTransportation
              
              
              16,702
              
              
              16,702
              
              
              16,702E-Commerce
              
              
              2,435
              
              
              ---
              
              
              ---19,137
              
              
              16,702
              
              
              16,702Total
                  assetsTransportation
              
              
              156,597
              
              
              149,824
              
              
              160,970E-Commerce
              
              
              2,846
              
              
              1,486
              
              
              1,103159,443
              
              
              151,310
              
              
              162,073Special
                  charges included in segment profit lossTrailer
                  impairment charge (Transportation)
              
              
              ---
              
              
              9,834
              
              
              ---Re-financing
                  of debt (Transportation)
              
              
              ---
              
              
              ---
              
              
              914
 
 
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 Information
        as to the Company’s operations by geographic area is summarized below: (in
        thousands). The Company allocates total revenue based on the country of origin
        of the tractor hauling the freight.
 
 **2005**
              
              **2004**
              
              **2003**Total
                  revenue:United
                  States
              
              $
              357,621
              
              $
              322,961
              
              $
              301,492Canada
              
              
              57,297
              
              
              55,580
              
              
              47,524Mexico
              
              
              21,845
              
              
              19,382
              
              
              18,089Total
              
              $
              436,763
              
              $
              397,923
              
              $
              367,105Long
                  lived assets:United
                  States
              
              $
              70,822
              
              $
              55,798
              
              $
              65,860Canada
              
              
              4,891
              
              
              4,698
              
              
              9,337Mexico
              
              
              4,797
              
              
              1,305
              
              
              1,770Total
              
              $
              80,510
              
              $
              61,801
              
              $
              76,967
 
 The
        Company’s largest customer is DaimlerChrysler, which accounted for approximately
        5%, 9%, and 12% of the Company’s total revenue for fiscal 2005, 2004 and 2003,
        respectively. The Company transports DaimlerChrysler original equipment
        automotive parts primarily between the United States and Mexico and Daimler
        Chrysler after-market replacement parts and accessories within the United
        States. The Company’s agreement with DaimlerChrysler is an agreement for
        international freight with the Chrysler division, which expires in October
        2006.
        No other customer accounted for more than 5% of the Company’s total revenue
        during any of its three most recent fiscal years.
 
  -
            50
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            of Contents
  **CELADON
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2005**
 
 
 **(12)** **SELECTED
        QUARTERLY DATA (Unaudited)**
 
 Summarized
        quarterly data for fiscal 2005 and 2004 follows (in thousands except per
        share
        amounts):
 
 **Fiscal
                  Year 2005****1****st****Qtr.**
              
              **2****nd****Qtr.**
              
              **3****rd****Qtr.**
              
              **4****th****Qtr.**Total
                  revenues
              
              $
              104,393
              
              $
              106,871
              
              $
              108,533
              
              $
              116,967Operating
                  expenses
              
              
              99,074
              
              
              101,601
              
              
              103,209
              
              
              109,471Operating
                  income
              
              
              5,319
              
              
              5,270
              
              
              5,324
              
              
              7,496Other
                  expense, net
              
              
              323
              
              
              366
              
              
              413
              
              
              330Income
                  before taxes
              
              
              4,996
              
              
              4,904
              
              
              4,911
              
              
              7,166Income
                  tax expense
              
              
              2,245
              
              
              2,130
              
              
              2,169
              
              
              2,853Net
                  income
              
              $
              2,751
              
              $
              2,774
              
              $
              2,742
              
              $
              4,313Basic
                  income per share
              
              $
              0.28
              
              $
              0.28
              
              $
              0.27
              
              $
              0.44Diluted
                  income per share
              
              $
              0.27
              
              $
              0.27
              
              $
              0.27
              
              $
              0.42**Fiscal
                  Year 2004****1stQtr.**
              
              
              **2****nd****Qtr.**
              
              
              **3****rd****Qtr.**
              
              
              **4****th****Qtr.**Total
                  revenues
              
              $
              95,651
              
              $
              97,137
              
              $
              98,822
              
              $
              106,313Operating
                  expenses(1)
              
              
              101,561
              
              
              93,084
              
              
              94,913
              
              
              101,294Operating
                  income (loss)
              
              
              (5,910
              )
              
              4,053
              
              
              3,909
              
              
              5,019Other
                  expense, net
              
              
              1,156
              
              
              1,020
              
              
              1,074
              
              
              653Income
                  (loss) before taxes
              
              
              (7,066
              )
              
              3,033
              
              
              2,835
              
              
              4,366Income
                  tax expense (benefit)
              
              
              (1,526
              )
              
              1,507
              
              
              1,464
              
              
              1,998Net
                  income (loss)
              
              $
              (5,540
              )
              $
              1,526
              
              $
              1,371
              
              $
              2,368Basic
                  income (loss) per share
              
              $
              (0.72
              )
              $
              0.20
              
              $
              0.18
              
              $
              0.28Diluted
                  income (loss) per share
              
              $
              (0.72
              )
              $
              0.19
              
              $
              0.17
              
              $
              0.26_________________________
 (1)
              Includes
                  $9.8 million trailer impairment charge in the first quarter
                  and a
                  $3.1 million tax refund in the fourth
                  quarter.
 
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  **SCHEDULE
        I**
 
 **CELADON
        GROUP, INC.**
 **VALUATION
        AND QUALIFYING ACCOUNTS**
 
 **Years
        ended June 30, 2005, 2004 and 2003**
 
 
 **Balance
                  at**
              
              **Charged
                  to**
              
              
              
              
              
              **Balance
                  at****Beginning**
              
              **Costs
                  and**
              
              
              
              
              
              **End
                  of****Description**
              
              **Of
                  Period**
              
              **Expenses**
              
              **Deductions**
              
              
              
              **Period****Year
                  ended June 30, 2003:**Allowance
                  for doubtful accounts
              
              $
              940,122
              
              $
              704,155
              
              $
              579,519
              
              
              (a
              )
              $
              1,064,758Reserves
                  for claims payable as self insurer
              
              $
              4,391,904
              
              $
              6,905,684
              
              $
              6,125,336
              
              
              (b
              )
              $
              5,172,252**Year
                  ended June 30, 2004:**Allowance
                  for doubtful accounts
              
              $
              1,064,758
              
              $
              959,771
              
              $
              742,314
              
              
              (a
              )
              $
              1,282,215Reserves
                  for claims payable as self insurer
              
              $
              5,172,252
              
              $
              12,938,284
              
              $
              10,376,949
              
              
              (b
              )
              $
              7,733,587**Year
                  ended June 30, 2005:**Allowance
                  for doubtful accounts
              
              $
              1,282,215
              
              $
              736,130
              
              $
              522,132
              
              
              (a
              )
              $
              1,496,213Reserves
                  for claims payable as self insurer
              
              $
              7,733,587
              
              $
              9,253,706
              
              $
              7,969,994
              
              
              (b
              )
              $
              9,017,299
 
 (a)
              Represents
                  accounts receivable write-offs.(b)
              Represents
                  claims paid.
 
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  Item
        9
 **Item
                  9.**
              **Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure**
 
 There
        were no changes in or disagreements with accountants on accounting or financial
        disclosure within the last three fiscal years.
 item9a
 **Item
                  9A**.
              **Controls
                  and Procedures**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 We
        have
        established disclosure controls and procedures to ensure that material
        information relating to us and our consolidated subsidiaries is made known
        to
        the officers who certify our financial reports and to other members of senior
        management and the Board of Directors.
 
 Based
        on
        their evaluation as of June 30, 2005, our principal executive officer and
        principal financial officer have concluded that our disclosure controls and
        procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
        Act)
        are effective to ensure that the information required to be disclosed by
        us in
        the reports that we file or submit under the Exchange Act is recorded,
        processed, summarized, and reported within the time periods specified in
        SEC
        rules and forms.
 
 **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting. Internal control over financial reporting is defined
        in
        Rule 13a-15(f) or 15d-(f) promulgated under the Exchange Act as a process
        designed by, or under the supervision of, the principal executive and principal
        financial officers and affected by the board of directors, management and
        other
        personnel, to provide reasonable assurance regarding the reliability of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles and
        includes those policies and procedures that:
 
 q
              Pertain
                  to the maintenance of records, that in reasonable detail, accurately
                  and
                  fairly reflect the transactions and dispositions of our
                  assets;q
              Provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that our receipts and expenditures are
                  being
                  made only in accordance with authorizations of our management and
                  directors; andq
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of our assets that
                  could have
                  a material effect on our financial
                  statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
 
 Management
        assessed the effectiveness of our internal control over financial reporting
        as
        of June 30, 2005. In making this assessment, management used the criteria
        set
        forth by the Committee of Sponsoring Organizations of the Treadway Commission
        (COSO) an Internal Control-Integrated Framework.
 
 Based
        on
        its assessment, management believes that, as of June 30, 2005, our internal
        control over financial reporting is effective based on those
        criteria.
 
 Management’s
        assessment of the effectiveness of internal control over financial reporting
        as
        of June 30, 2005, has been audited by KPMG LLP, the independent registered
        public accounting firm who also audited our consolidated financial statements.
        KPMG LLP’s attestation report on management’s assessment of the Company’s
        internal control over financial reporting appears on page 30
        herein.
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 **Design
        and Changes in Internal Control over Financial Reporting**
 
 The
        design, monitoring, and revision of the system of internal accounting controls
        involves, among other things, management’s judgments with respect to the
        relative cost and expected benefits of specific control measures.
 
 There
        were no changes in our internal control over financial reporting that occurred
        during the quarter ended June 30, 2005, that have materially affected, or
        are
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
 
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  **PART
        III**
 
 Certain
        information required to be set forth in Part III of this report is incorporated
        by reference to our definitive Proxy Statement which will be filed with the
        SEC
        not later than 120 days after the end of the fiscal year covered by this
        report.
        Only those sections of the definitive Proxy Statement which specifically
        address
        the items set forth herein are incorporated by reference. Such incorporation
        does not include the Compensation Committee Report or the Performance Graph
        included in the definitive Proxy Statement.
 item10
 **Item
                  10.**
              **Directors
                  and Executive Officers of the
                  Registrant**
 
 The
        information required by this Item, with the exception of the Code of Ethics
        disclosure below, is incorporated herein by reference to our definitive Proxy
        Statement to be filed in connection with the 2005 Annual Meeting of
        Stockholders **.**
 
 **Code
        of Ethics**
 
 We
        have
        adopted a Code of Ethics that applies to our principal executive officer,
        principal financial officer, principal accounting officer or controller,
        or
        persons performing similar functions. A copy of the Code of Ethics was filed
        as
        Exhibit 14 to our Annual Report on Form 10-K for the year ended June 30,
        2003, filed with the SEC on September 19, 2003.
 item10
 **Item
                  11.**
              **Executive
                  Compensation**
 
 The
        information required by this Item is incorporated herein by reference to
        our
        definitive Proxy Statement to be filed in connection with the 2005 Annual
        Meeting of Stockholders.
 item10
 **Item
                  12.**
              **Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters**
 
 The
        information required by this Item, is incorporated herein by reference to
        our
        definitive Proxy Statement to be filed in connection with the 2005 Annual
        Meeting of Stockholders. The following table provides certain information
        as of
        June 30, 2005, with respect to our compensation plans and other arrangements
        under which shares of our common stock are authorized for issuance.
 
 **Equity
        Compensation Plan Information**
 
 The
        following table summarizes our equity compensation plans as of June 30, 2005:
 
 Plan
                  Category
              (a)
                Number
                  of securities
                issued
                  upon exercise
                of
                  outstanding options
                warrants
                  and rights
              (b)
                Weighted-average
                exercise
                  price of
                outstanding
                  options,
                warrants
                    and rights
              (c)
                Number
                  of securities
                remaining
                  available
                for
                  future issuance
                under
                  equity
                compensation
                  plans
                (excluding
                  securities
                reflected
                  in column (a))Equity
                  compensation plans approved by
                security holders
              700,072
              $6.47
              107,319Equity
                  compensation plans not approved by
                security holders
              Not
                  applicable
              Not
                  applicable
              Not
                  applicable
 
 
 **Item
        13.** **Certain
        Relationships and Related Transactions**
 
 The
        information required by this Item is incorporated herein by reference to
        our
        definitive Proxy Statement to be filed in connection with the 2005 Annual
        Meeting of Stockholders.
 
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  **Item
        14.** **Principal
        Accountant Fees and Services**
 
 The
        information required by this Item is incorporated herein by reference to
        our
        definitive Proxy Statement to be filed in connection with the 2005 Annual
        Meeting of Stockholders.
 
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  **PART
        IV**
 item10
 **Item
                  15.**
              **Exhibits,
                  Financial Statement
                  Schedule.**
 
 Page
                  Number of
                Annual
                  Report
                on
                  Form 10-K(a)List
                  of Documents filed as part of this Report**(1)****Financial
                  Statements**Reports
                  of Independent Registered Public Accounting Firm - KPMG
                  LLP
              29,
                  30Report
                  of Independent Registered Public Accounting Firm - Ernst & Young
                  LLP
              31Consolidated
                  Balance Sheets
              32Consolidated
                  Statements of Operations
              33Consolidated
                  Statements of Cash Flows
              34Consolidated
                  Statements of Stockholders’ Equity
              35Notes
                  to Consolidated Financial Statements
              36**(2)****Financial
                  Statement Schedule**Schedule
                  I - Valuation and Qualifying Accounts.
              52
 
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            57
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  **(3)**  **Exhibits
        (Numbered in accordance with Item 601 of Regulation S-K).**
 
 3.1
              Certificate
                  of Incorporation of the Company. (Incorporated by reference to
                  Exhibit 3.1
                  to the Company’s Registration Statement on Form S-1, Registration No.
                  33-72128, filed with the SEC on November 24, 1993.)3.2
              Certificate
                  of Amendment of Certificate of Incorporation dated February 2,
                  1995
                  decreasing aggregate number of authorized shares to 12,179,985.
                  (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report
                  on Form 10-K for the fiscal year ended June 30, 1995, filed with
                  the SEC
                  on December 1, 1995.)3.3
              Certificate
                  of Designation for Series A Junior Participating Preferred Stock.
                  (Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report
                  on Form 10-K for the fiscal year ended June 30, 2000, filed with
                  the SEC
                  on September 28, 2000.)3.4
              By-laws.
                  (Incorporated by reference to Exhibit 3.2 to the Company’s Registration
                  Statement on Form S-1, Registration No. 33-72128, filed with the
                  SEC on
                  November 24, 1993.)4.1
              Certificate
                  of Incorporation. (Incorporated by reference to Exhibit 3.1 to
                  the
                  Company’s Registration Statement on Form S-1, Registration No. 33-72128,
                  filed with the SEC on November 24, 1993.)4.2
              Certificate
                  of Amendment of Certificate of Incorporation dated February 2,
                  1995
                  decreasing aggregate number of authorized shares to 12,179,985.
                  (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report
                  on Form 10-K for the fiscal year ended June 30, 1995, filed with
                  the SEC
                  on December 1, 1995.)4.3
              Certificate
                  of Designation for Series A Junior Participating Preferred Stock.
                  (Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report
                  on Form 10-K for the fiscal year ended June 30, 2000, filed with
                  the SEC
                  on September 28, 2000.)4.4
              Rights
                  Agreement, dated as of July 20, 2000, between Celadon Group, Inc.
                  and
                  Fleet National Bank, as Rights Agent. (Incorporated by reference
                  to
                  Exhibit 4.1 to the Company’s Registration Statement on Form 8-A,
                  filed with the SEC on July 20, 2000.)4.5
              By-laws.
                  (Incorporated by reference to Exhibit 3.2 to the Company’s Registration
                  Statement on Form S-1, Registration No. 33-72128, filed with the
                  SEC on
                  November 24, 1993.)10.1
              Celadon
                  Group, Inc. 1994 Stock Option Plan. (Incorporated by reference
                  to Exhibit
                  B to the Company’s Proxy Statement on Schedule 14A, filed with the SEC
                  October 17, 1997.) *10.2
              Employment
                  Contract dated January 21, 1994 between the Company and Stephen
                  Russell.
                  (Incorporated by reference to Exhibit 10.43 to the Company’s Registration
                  Statement on Form S-1, Registration No. 33-72128, filed with the
                  SEC on
                  November 24, 1993.) *10.3
              Amendment
                  dated February 12, 1997 to Employment Contract dated January 21,
                  1994
                  between the Company and Stephen Russell. (Incorporated by reference
                  to
                  Exhibit 10.50 to the Company’s Annual Report on Form 10-K filed with the
                  SEC on September 12, 1997.)10.4
              Celadon
                  Group, Inc. Non-Employee Director Stock Option Plan. (Incorporated
                  by
                  reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A,
                  filed with the SEC on October 14, 1997.) *10.5
              Amendment
                  No. 2 dated August 1, 1997 to Employment Contract dated January
                  21, 1994
                  between the Company and Stephen Russell. (Incorporated by reference
                  to
                  Exhibit 10.54 to the Company’s Quarterly Report on Form 10-Q filed with
                  the SEC on February 11, 1998.) *10.6
              Rights
                  Agreement, dated as of July 20, 2000, between Celadon Group, Inc.
                  and
                  Fleet National Bank, as Rights Agent. (Incorporated by reference
                  to
                  Exhibit 4.1 to the Company’s Registration Statement on Form 8-A, filed
                  with the SEC on July 20, 2000.)10.7
              Amendment
                  No. 3 dated July 26, 2000 to Employment Contract dated January
                  21, 1994
                  between the Company and Stephen Russell. (Incorporated by reference
                  to
                  Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed with the
                  SEC on September 30, 2002.) *10.8
              Amendment
                  No. 4 dated April 4, 2002 to Employment Contract dated January
                  21, 1994
                  between the Company and Stephen Russell. (Incorporated by reference
                  to
                  Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed with the
                  SEC on September 30, 2002.) *10.9
              Separation
                  Agreement dated March 3, 2000 between the Company and Paul A. Will.
                  (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report
                  on Form 10-K filed with the SEC on September 30, 2002.)
                  *10.10
              Amendment
                  dated September 30, 2001 to Separation Agreement between the Company
                  and
                  Paul A. Will dated March 3, 2000. (Incorporated by reference to
                  Exhibit
                  10.22 to the Company’s Annual Report on Form 10-K filed with the SEC on
                  September 30, 2002.) *
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 10.11
              Separation
                  Agreement dated March 2, 2000 between the Company and David Shatto.
                  (Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report
                  on Form 10-K filed with the SEC on September 30, 2002.)
                  *10.12
              Amendment
                  dated September 30, 2001 to Separation Agreement between the Company
                  and
                  David Shatto dated March 2, 2000. (Incorporated by reference to
                  Exhibit
                  10.24 to the Company’s Annual Report on Form 10-K filed with the SEC on
                  September 30, 2002.) *10.13
              Loan
                  and Security Agreement dated September 26, 2002 among the Company,
                  certain
                  of its subsidiaries, Fleet Capital Corporation, Fleet Capital Canada
                  Corporation and certain other lenders. (Incorporated by reference
                  to
                  Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed with the
                  SEC on September 30, 2002.)10.14
              Waiver
                  and First Amendment to Loan and Security Agreement dated January
                  31, 2003
                  among the Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet Capital Canada Corporation and certain other lenders. (Incorporated
                  by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K
                  filed with the SEC on September 19, 2003.)10.15
              Waiver
                  and Second Amendment to Loan and Security Agreement dated April
                  24, 2003
                  among the Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet Capital Canada Corporation and certain other lenders. (Incorporated
                  by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K
                  filed with the SEC on September 19, 2003.)10.16
              Third
                  Amendment to Loan and Security Agreement dated August 21, 2003
                  among the
                  Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet
                  Capital Canada Corporation and certain other lenders. (Incorporated
                  by
                  reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K
                  filed with the SEC on September 19, 2003.)10.17
              Amendment
                  No. 5 dated November 20, 2002 to Employment Contract dated January
                  21,
                  1994 between the Company and Stephen Russell. (Incorporated by
                  reference
                  to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed with
                  the SEC on September 19, 2003.) *10.18
              Letter
                  of Understanding and Mutual Agreement dated July 9, 2001 between
                  the
                  Company and Sergio Hernandez Aranda. (Incorporated by reference
                  to Exhibit
                  10.18 to the Company’s Annual Report on Form 10-K/A filed with the SEC on
                  May 18, 2004.) *10.19
              Fourth
                  Amendment to Loan and Security Agreement dated January 16, 2004
                  among the
                  Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet
                  Capital Canada Corporation and certain other lenders. (Incorporated
                  by
                  reference to Exhibit 10.21 to the Company’s 10-Q filed with the SEC on
                  April 29, 2004.)10.20
              Fifth
                  Amendment to Loan and Security Agreement dated May 20, 2004 among
                  the
                  Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet
                  Capital Canada Corporation and certain other lenders. (Incorporated
                  by
                  reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K
                  filed with the SEC on September 13, 2004.)10.21
              Sixth
                  Amendment to Credit Agreement, dated September 21, 2004, among
                  the
                  Company, certain of its subsidiaries, Fleet Capital Corporation,
                  Fleet
                  Capital Canada Corporation, and certain other lenders. (Incorporated
                  by
                  reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q
                  filed with the SEC on November 8, 2004.)10.22
              Asset
                  Purchase Agreement dated January 14, 2005, by and among PFT Roberson,
                  Inc., CX Roberson, Inc., and Celadon Trucking Services, Inc. (Incorporated
                  by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed
                  January 21, 2005.)14
              Celadon
                  Group, Inc. Code of Business Conduct and Ethics adopted by the
                  Company on
                  April 30, 2003. (Incorporated by reference to Exhibit 10.20 to
                  the
                  Company’s Annual Report on Form 10-K filed with the SEC on September 19,
                  2003.)21
              Subsidiaries.
                  #23.1
              Consent
                  of Registered Independent Accounting Firm - KPMG, LLP.
                  #23.2
              Consent
                  of Registered Independent Accounting Firm - Ernst & Young, LLP.
                  #31.1
              Certification
                  pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 2002, by Stephen Russell,
                  the
                  Company’s Chief Executive Officer. #31.2
              Certification
                  pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 2002, by Paul A. Will,
                  the
                  Company’s Chief Financial Officer. #32.1
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002, by Stephen Russell, the Company’s Chief
                  Executive Officer. #32.2
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002, by Paul A. Will, the Company’s Chief
                  Financial Officer. #
 
   *
              Management
                  contract or compensatory plan or arrangement.#
              Filed
                  herewith.
 
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  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
        has duly caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized this August 26, 2005.
 
 **Celadon
                  Group, Inc.**By:
              /s/
                  Stephen RussellStephen
                  Russell
                Chairman
                  of the Board and
                Chief
                  Executive Officer
 
 
 
 Pursuant
        to the requirements of the Exchange Act, this report has been signed below
        by
        the following persons on behalf of the registrant and in the capacities and
        on
        the dates indicated.
 
 Signature
                Title
                DateChairman
                    of the
                    Board and
                August
                    26, 2005/s/
                    Stephen Russell
                Chief
                    Executive Officer(Stephen
                    Russell)
                (Principal
                    Executive Officer)/s/
                    Paul A. Will
                Chief
                    Financial Officer, Treasurer, and
                August
                    26, 2005(Paul
                    A. Will)
                Asst.
                    Secretary (Principal Financial and
                  Accounting
                    Officer)/s/
                    Paul A. Biddelman
                Director
                August
                    26, 2005(Paul
                    A. Biddelman)/s/
                    Michael Miller
                Director
                August
                    26, 2005(Michael
                    Miller)/s/
                    Anthony Heyworth
                Director
                August
                    26, 2005(Anthony
                    Heyworth)
 
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