SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

(Mark One)
[  X  ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934.
         For the Fiscal Year Ended December 31, 1998
                                       OR
[      ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934.
         For the transition period from                        to

                        Commission file number 000-20793

                           SMITHWAY MOTOR XPRESS CORP.
             (Exact name of registrant as specified in its charter)

Nevada                                               42-1433844
(State or Other Jurisdiction of 
Incorporation or Organization)        (I.R.S. Employer Identification No.)

2031 Quail Avenue
Fort Dodge, Iowa  (Zip Code)50501
(Address of Principal Executive Offices)
 
Registrant's telephone number, including area code:  515/576-7418

Securities Registered Pursuant to Section 12(b) of the Act:  None

Securities Registered Pursuant to Section 12(g) of the Act:  
$0.01 Par Value Class A Common Stock
                      ------------------------------------

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was  $23,227,539 as of February 12, 1999,  (based upon the $8.625 per
share  closing  price on that  date as  reported  by  Nasdaq).  In  making  this
calculation the registrant has assumed,  without admitting for any purpose, that
all  executive  officers,  directors,  and holders of more than 5% of a class of
outstanding common stock, and no other persons, are affiliates.

As of February 12, 1999, the  registrant had 4,024,627 shares of Class A Common
Stock and 1,000,000 shares of Class B Common Stock outstanding.

DOCUMENTS  INCORPORATED BY REFERENCE:  The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is  incorporated  by reference  from the
registrant's   definitive  proxy  statement  for  the  1999  annual  meeting  of
stockholders that will be filed no later than April 30, 1999.


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<PAGE>



                              Cross Reference Index

         The following cross reference index indicates the document and location
of the information  contained herein and incorporated by reference into the Form
10-K.


                              Document and Location

                                     Part I
Item 1        Business                                 Page 3 through 7 herein
Item 2        Properties                               Page 8 herein
Item 3        Legal Proceedings                        Page 8 herein
Item 4        Submission of Matters to a Vote of 
              Security Holders                         Page 8 herein

                                     Part II

Item 5        Market for the Registrant's Common 
                 Equity and Related Stockholder 
                 Matters                               Page 9 herein
Item 6        Selected Financial Data                  Page 10 herein
Item 7        Management's Discussion and Analysis of 
                 Financial Condition and Results of 
                 Operations                            Page 11 through 18 herein
Item 8        Financial Statements and 
                 Supplementary Data                    Page 19 herein
Item 9        Changes in and Disagreements with 
                 Accountants on Accounting and 
                 Financial Disclosure                  Page 19 herein

                                    Part III

Item 10       Directors and Executive Officers         Page 3 of Proxy Statement
                 of the Registrant 
Item 11       Executive Compensation                   Page 5 of Proxy Statement
Item 12       Security Ownership of Principal 
                 Stockholders and Management           Page 8 of Proxy Statement
Item 13       Related Party Transactions               Page 5 of Proxy Statement

                                     Part IV

Item 14       Exhibits, Financial Statement Schedules,
                 and Reports on Form 8-K              Pages 20 through 38 herein


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


         This report  contains  "forward-looking  statements" in paragraphs that
are marked with an asterisk.  These  statements are subject to certain risks and
uncertainties  that could cause actual results to differ  materially  from those
anticipated.  See "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  -  Cautionary  Statement  Regarding  Forward-Looking
Statements" for additional  information and factors to be considered  concerning
forward-looking statements.



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<PAGE>



                                     PART I

ITEM 1.           BUSINESS

The Company

         Smithway  Motor  Xpress  Corp.  ("Smithway"  or  the  "Company")  is  a
truckload  carrier  that  provides  nationwide   transportation  of  diversified
freight, concentrating primarily on the flatbed segment of the truckload market.
The Company uses its "Smithway Network" of 29 computer-connected  field offices,
commission  agencies,   and  Company-owned   terminals  to  offer  comprehensive
truckload  transportation services to shippers located predominantly between the
Rocky  Mountains in the West and the  Appalachian  Mountains in the East, and in
eight Canadian provinces.

         Prior  to  1984,  the  Company  specialized  in  transporting  building
materials on flatbed trailers.  William G. Smith became President of Smithway in
1984,  and led the Company's  effort to diversify its customer and freight base,
form the  Smithway  Network  of  locations,  and  implement  systems  to support
sustained  growth and premium  service.  After  establishing an efficient growth
platform,  management  commenced the Company's  acquisition  strategy in 1995 to
take  advantage  of  economies  of  scale,  customer  relationships,  and  other
opportunities offered by industry consolidation.

         Smithway  acquired the operations of eight trucking  companies  between
June 1995 and October 1998. In each  transaction,  Smithway  purchased  specific
assets  for fair  market  value  and paid the  selling  company's  owner a small
percentage of revenue for goodwill or a noncompetition arrangement.  The Company
acquired the business of Van Tassel,  Inc., a primarily flatbed carrier based in
Pittsburg, Kansas, in June 1995, and Smith Trucking Company, a primarily dry van
carrier based in McPherson,  Kansas, in January 1996. Both of these acquisitions
permitted  Smithway to expand and solidify  existing  customer  relationships as
well as access new  customers.  The Smith  Trucking  location  also expanded the
Company's driver  recruiting  region.  In October 1996, the Company acquired the
business of Marquardt Transportation, Inc., a primarily flatbed carrier based in
Yankton,  South  Dakota,  and with a small  facility  in  Stockton,  California.
Marquardt further diversified Smithway's freight base by increasing its presence
in hauling  large,  manufactured  items and heavy  machinery.  In February 1997,
Smithway acquired Fort Dodge,  Iowa-based Pirie Motor Freight,  Inc. Pirie was a
small flatbed  carrier,  and its operations  were  consolidated  into Smithway's
headquarters.  In  September  1997,  Smithway  acquired  the  business  of Royal
Transport,  Ltd. of Grand Rapids,  Michigan,  primarily a flatbed  carrier.  The
Royal acquisition provided Smithway a regional niche specializing in heavy loads
hauled  primarily  on multiple  axle  trailers.  In February  1998,  the Company
acquired  the  business of East West Motor  Express,  Inc. of Black Hawk,  South
Dakota  ("East  West"),  a regional  flatbed and dry van carrier.  The East West
acquisition  added 225  trucks to  Smithway's  fleet.  TP  Transportation,  Inc.
("TP"),  a flatbed  carrier from Enid,  Oklahoma was acquired in August 1998. In
October  1998 the Company  continued  to build its dry van freight base with the
acquisition  of the business of JHT, Inc.  ("JHT") of Cohasset,  Minnesota.  JHT
operated 185 tractors serving  exclusively the dry van market with slightly over
half  of  the  tractors   company-owned   and  the  balance  being  provided  by
owner-operators.  Through  acquisitions and internal growth the Company expanded
from $77.3 million revenue in 1995 to $161.4 million in 1998.

         Smithway Motor Xpress Corp. was  incorporated in Nevada in January 1995
to serve as a holding company and conduct the Company's initial public offering,
which  occurred in June 1996.  References to the "Company" or "Smithway"  herein
refer to the  consolidated  operations of Smithway  Motor Xpress Corp., a Nevada
corporation  ("Smithway-Nevada"),  and its wholly owned  subsidiaries,  Smithway
Motor Xpress, Inc., an Iowa corporation  ("Smithway-Iowa"),  and East West Motor
Express,  Inc.,  a  South  Dakota  corporation.   Former  subsidiaries  Smithway
Transportation Brokerage,  Inc., an Iowa corporation,  and Wilmar Truck Leasing,
Inc., an Iowa corporation,  were merged into Smithway-Iowa in 1996. JHT, Inc., a
Minnesota  corporation formed by Smithway to purchase the assets from the former
JHT in October 1998, was merged into Smithway-Iowa in February 1999.

Growth Strategy

         Management  believes  that the  flatbed and dry van  truckload  markets
offer growth opportunities  because of several identifiable trends.  First, many
major  shippers  are  reducing  the  number  of  carriers  they  use in favor of
service-based,  ongoing  relationships  with a limited  group of core  carriers.
These  partnerships and the increasing use of equipment and drivers dedicated to
a single  shipper's  needs  ("dedicated  fleets")  are  designed to offer higher
quality,  more consistent service for shippers and greater equipment utilization
and more predictable revenue for core carriers. Second, some shippers that


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own tractor-trailer fleets are outsourcing their transportation  requirements to
truckload  carriers to lower  operating  expenses and conserve  capital for core
corporate purposes.  This outsourcing has resulted in some shippers  eliminating
their own trucks in favor of truckload  carriers,  which  frequently can provide
similar service at less cost.  Third,  deregulation  and economies of scale also
promote  consolidation.   Many  truckload  carriers  have  grown  rapidly  since
deregulation in 1980 and have achieved the size to negotiate  lifetime equipment
warranties and obtain equipment, fuel, insurance, financing, and other items for
significantly  less  than  smaller  or more  leveraged  competitors.  Management
believes that these trends favor large  carriers with modern  fleets,  excellent
service,  in-transit  communication  and load tracking,  good drivers,  a strong
safety record, adequate insurance, and a strong capital base.

         The Smithway growth strategy contains six key elements:

         o Market Leadership. Smithway strives for market prominence by offering
a combination of premium service,  equipment availability,  and broad geographic
coverage.  These  factors  can  differentiate  Smithway  in a highly  fragmented
flatbed market segment characterized primarily by smaller, less diversified, and
less technologically  advanced carriers.  Management believes the flatbed market
is less developed than the dry van segment, and that the Company's size, service
standards, and financial strength have positioned it to take advantage of market
consolidation.(*)

         o Diversified  Freight.  Smithway targets a diversified mix of freight.
Management  believes  that   diversification  can  reduce  exposure  to  certain
customers'  or  industries'  business  cycles.  In addition,  certain  shipments
outside  the  construction  materials  most  typically  transported  by  flatbed
carriers can increase  profitability.  Smithway's diversified operations include
revenue generated by dry van, transportation logistics,  brokerage,  specialized
railroad  service,  and dedicated route  operations,  together with transporting
non-construction freight such as tires, machinery, and irrigation systems.

         o  Acquisitions.   Smithway  has  grown  substantially   through  eight
acquisitions since May 1995, and management expects that acquisitions of flatbed
and dry van  carriers  will  continue to be an important  part of the  Company's
growth strategy. Management believes that, over time, smaller carriers will find
it difficult to compete with larger,  better capitalized  carriers. As a result,
management believes that consolidation in the truckload industry will accelerate
in future years. Management believes that acquisitions can promote the Company's
growth by providing access to drivers,  customer relationships,  and diversified
freight.  In  1999,   management  expects  to  concentrate  on  integrating  the
operations  of the  three  companies  acquired  during  1998 and may not  pursue
acquisitions as aggressively as in 1998.(*)

         o Return on Equity.  Smithway  emphasizes  return on equity by limiting
capital  investment and attempting to increase the utilization of its equipment.
The Company limits capital  expenditures  through the use of equipment  owned by
independent  contractors and facilities provided by commission sales agents. The
Company's  participation in the flatbed market also reduces capital requirements
because  flatbed  operations  generally  require a lower  ratio of  trailers  to
tractors than is required for van traffic.

         o Productivity Incentives.  Smithway seeks to create an entrepreneurial
environment  for its  personnel by  compensating  all  independent  contractors,
commission  sales  agents,  and most flatbed  drivers  solely on a percentage of
revenue  basis,  all Company sales  personnel  partially  through  percentage of
revenue  bonuses,  and all van  drivers on a per mile  basis.  The  majority  of
employees also own Smithway stock through the Company's 401(k) plan.

     o Operating  Efficiencies.  Smithway enhances operating  efficiency through
freight-selection software,  satellite-based  communication,  late-model revenue
equipment,  and the Smithway Network.  The Spectrum freight  selection  software
permits dispatchers to select freight based upon profitability and compatibility
with preferred routes.  The  satellite-based  tracking and communication  system
permits  instantaneous  location of equipment  and  communication  with drivers.
Smithway  operates a late-model  tractor fleet (with an average age of 28 months
at December 31, 1998) to enhance fuel  efficiency and driver  recruitment  while
reducing maintenance downtime.
--------
         (*)      May contain "forward-looking" statements.


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<PAGE>




Operations

         Smithway  integrates  its sales and dispatch  functions  throughout its
computer-connected  "Smithway  Network."  The Smithway  Network  consists of the
Company's  headquarters in Fort Dodge,  Iowa, and 28 field offices,  independent
agencies, and terminals strategically located near major shippers to provide the
consistent,  local  contact  with  shipper  personnel  expected  by  many of the
Company's flatbed customers. The headquarters and 23 terminals and field offices
are  managed  by  Smithway  employees,  while  the 5  agencies  are  managed  by
independent  commission agents. The customer sales representatives and agents at
each location have front-line responsibility for booking freight and dispatching
all  trucks  in  their  regions.   Fleet  managers  at  the  Fort  Dodge,  Iowa,
headquarters  coordinate  all load  movements via computer link to optimize load
selection  and promote  proper fleet  balance  among  regions.  Personnel at the
Company's  headquarters  also handle all sales and  dispatch  functions  for van
traffic and for flatbed traffic that does not originate  within a specific sales
region.

         Agents are important to the Company's  operations  because they are the
primary  contact for shippers  within their region and have regular contact with
drivers and independent contractors.  The Company's agents are paid a commission
on revenue they generate.  Although agent contracts  typically are cancelable on
14 days' notice,  Smithway's  agents  average  nearly ten years' tenure with the
Company. In addition to sales and customer service benefits, management believes
agents offer the advantage of  minimizing  capital  investment  and fixed costs,
because agents are responsible for all of their own expenses.

Customers and Marketing

         Smithway's  sales force includes seven national sales  representatives,
personnel  at 24  terminals  and field  offices,  and 5  independent  commission
agents.  National  sales  representatives  focus on national  customers  and van
freight,  while sales  personnel at terminals,  field offices,  and agencies are
responsible for regional customer contact.  The Company's sales force emphasizes
rapid response time to customer  requests for  equipment,  undamaged and on-time
pickup and delivery,  one of the nation's  largest fleets of flatbed  equipment,
safe and professional drivers, logistics management, dedicated fleet capability,
and its  strategically  located Smithway Network.  Management  believes that few
other carriers operating principally in the Midwest flatbed market offer similar
size,  service,  and the reliability of a late-model  fleet.  Consequently,  the
Company seeks primarily  service-sensitive freight rather than competing for all
freight on the basis of price.

          In 1998,  the Company's top 50, 25, 10, and 5 customers  accounted for
44.3%,  33.4%,  26.0%,  and 16.1% of revenue,  respectively,  with the remaining
customers accounting for 55.7% of revenue. No single customer accounted for more
than 5% of Smithway's revenue during 1998.

Technology

         Management  believes  that  advances  in  technology  can  enhance  the
Company's   operating   efficiency  and  customer   service.   Three   principal
technologies   used   by   Smithway   includes   freight   selection   software,
satellite-based  tracking and communication  with tractors,  and electronic data
interchange ("EDI") with customers.  In July 1993, the Company initiated the use
of the Spectrum freight selection  software.  Spectrum ranks each potential load
based upon rate per loaded mile, empty mile exposure, and history of obtaining a
profitable return load from the proposed destination.

          Smithway operates  satellite-based tracking and communication units in
all of its  Company-owned  tractors and has offered  rental of these units as an
option   to  its   independent   contractors.   Management   believes   on-board
communication  capability can reduce  unnecessary  stops and out-of-route  miles
because  drivers  are not forced to find a  telephone  to contact the Company or
receive instructions.  In addition, drivers can immediately report breakdowns or
other  emergency  conditions.  The system  also  enables  the  Company to advise
customers  of the  location of freight in transit  through  its hourly  position
reports of each tractor's location.

          Smithway  also  offers  its  customers  EDI  technology.   EDI  allows
customers to  communicate  directly with the Company via computer link and, with
the aid of  satellite  communication,  obtain  location  updates  of  in-transit
freight, expected delivery times, and account payment instructions.



                                        5

<PAGE>



Drivers, Independent Contractors, And Other Personnel

         Smithway seeks drivers and  independent  contractors  who safely manage
their  equipment and treat  freight  transportation  as a business.  The Company
historically  has  operated a fleet  comprised  of  substantial  numbers of both
Company-owned and independent  contractor tractors.  Management believes a mixed
fleet offers competitive  advantages because the Company is able to recruit from
both  personnel  pools to facilitate  fleet  expansion.  The Company  intends to
retain a mixed fleet in the future to insure that its recruiting  efforts toward
either group are not damaged by becoming  categorized as predominantly  either a
Company-owned or independent  contractor fleet,  although  acquisitions or other
factors may cause fluctuations in the fleet mix from time to time.

         Smithway  has  implemented  several  policies  to  promote  driver  and
independent  contractor  recruiting and retention.  These include maintaining an
open-door policy with easy access to senior  executives,  appointing an advisory
board  comprised  of top drivers and  independent  contractors  to consult  with
management, and assigning each driver and independent contractor to a particular
dispatcher  to insure  personal  contact.  In  addition,  the  Company  utilizes
conventional  (engine-forward)  tractors,  which  are more  comfortable  for the
driver, and operates over relatively short-to-medium distances (659-mile average
length of haul in 1998) to return drivers home as frequently as possible.

         Smithway is not a party to a collective  bargaining  agreement  and its
employees are not  represented by a union. At December 31, 1998, the Company had
767 Company drivers, 337 non-driver employees,  and 711 independent contractors.
Management  believes that the Company has good  relationships with its employees
and independent contractors.

Safety and Insurance

         Smithway's  active safety and loss  prevention  program has resulted in
the  Department  of  Transportation's  highest  safety  and  fitness  rating and
numerous  safety  awards.  Its  safety  and loss  prevention  program  includes,
pre-screening,  initial orientation,  six weeks on-the-road training for drivers
without substantial experience, 100% log monitoring, and safety bonuses.

         The Company maintains  insurance covering losses in excess of a $50,000
self-insured  retention for cargo loss,  personal injury,  property damage,  and
physical  damage  claims.  The Company has a $100,000  deductible  for  workers'
compensation  claims  in states  where a  deductible  is  allowed.  Its  primary
personal injury and property damage insurance policy has a limit of $2.0 million
per  occurrence,  and the  Company  carries  excess  liability  coverage,  which
management  believes  is  adequate to cover  exposure  to claims  exceeding  its
retention limit.

Revenue Equipment

         Smithway's  equipment  strategy  for its own  tractors  (as  opposed to
independent  contractors'  tractors) is to operate late-model tractors and trade
or  dispose  of  its  tractors  prior  to  the  expiration  of  major  component
warranties.  Management  believes that  operating  newer  equipment can minimize
repair  and  maintenance  expense  and offer  improvements  in fuel  efficiency.
Smithway orders conventional  (engine forward) tractors with standard engine and
drivetrain  components,  and trailers with standard brakes and tires to minimize
its inventory of spare parts. All equipment is subject to the Company's  regular
maintenance  program,  and is also inspected and maintained  each time it passes
through a Smithway maintenance facility.  Smithway's Company-owned tractor fleet
had an average age of 28 months at December 31, 1998.

Competition

         The truckload  segment of the trucking  industry is highly  competitive
and fragmented, and no carrier or group of carriers dominates the flatbed or van
market.  Smithway competes  primarily with other regional,  short-to-medium-haul
carriers  and private  truck  fleets used by  shippers  to  transport  their own
products in proprietary  equipment.  Competition is based primarily upon service
and price.  The Company  competes to a limited  extent with rail and  rail-truck
intermodal   service,   but  attempts  to  limit  this  competition  by  seeking
service-sensitive  freight  and  focusing  on  short-to-medium  lengths of haul.
Although  management believes the 1,804 flatbed trailers it operated at December
31, 1998,  rank its flatbed  division  among the ten largest such fleets in that
industry  segment,  there are other trucking  companies,  including  diversified
carriers with large flatbed fleets, that possess substantially greater financial
resources and operate more equipment than Smithway.



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<PAGE>



Fuel Availability and Cost

         The Company actively  manages its fuel costs.  Company drivers purchase
virtually all of the Company's fuel through  service centers with which Smithway
has volume purchasing arrangements.  In addition, management periodically enters
into  futures  contracts  and price swap  agreements  on heating  oil,  which is
derived  from the same  petroleum  products  as  diesel  fuel,  in an  effort to
partially hedge increases in fuel prices.  Most of the Company's  contracts with
customers contain fuel surcharge  provisions.  Although the Company historically
has been able to pass through most long-term  increases in fuel prices and taxes
to customers in the form of surcharges and higher rates,  shorter-term increases
are not fully recovered.

Regulation

         Historically,  the Interstate  Commerce  Commission ("ICC") and various
state agencies regulated motor carriers'  operating rights,  accounting systems,
mergers and acquisitions,  periodic financial  reporting,  and other matters. In
1995,  federal  legislation  preempted state regulation of prices,  routes,  and
services of motor carriers and  eliminated  the ICC.  Several ICC functions were
transferred to the Department of  Transportation  ("DOT").  Management  does not
believe that  regulation by the DOT or by the states in their remaining areas of
authority will have a material effect on the Company's operations. The Company's
drivers  and  independent  contractors  must  comply with the safety and fitness
regulations promulgated by the DOT, including those relating to drug and alcohol
testing and hours of service.

         The Company's  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,
the discharge of pollutants into the air and surface and underground waters, and
the disposal of certain  substances.  The Company transports certain commodities
that may be deemed hazardous substances,  and its Fort Dodge, Iowa, headquarters
and Black Hawk, South Dakota, Enid, Oklahoma, and Stockton, California terminals
have  above-ground  fuel storage  tanks and fueling  facilities.  The  Company's
Cohasset,  Minnesota terminal has underground fuel storage tanks. If the Company
should be involved in a spill or other accident involving hazardous  substances,
if any such substances were found on the Company's properties, or if the Company
were found to be in violation of applicable  laws and  regulations,  the Company
could be responsible for clean-up  costs,  property  damage,  and fines or other
penalties,  any one of which  could  have a  materially  adverse  effect  on the
Company. Management believes that its operations are in material compliance with
current laws and  regulations  and does not know of any existing  condition that
would cause  compliance  with  applicable  environmental  regulations  to have a
material effect on the Company's capital expenditures,  earnings, or competitive
position. If the Company should fail to comply with applicable regulations,  the
Company  could be  subject to  substantial  fines or  penalties  and to civil or
criminal liability.





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<PAGE>




ITEM 2.           PROPERTIES

         Smithway's  headquarters consists of 25,000 square feet of office space
and 51,000 square feet of equipment maintenance and wash facilities,  located on
31 acres near Fort Dodge, Iowa. The Smithway Network consists of locations in or
near the following cities with the facilities noted:


                                          Driver
Company Locations          Maintenance  Recruitment  Dispatch  Sales   Ownership
--------------------------------------------------------------------------------
Altoona, Iowa .................   X                              X       Owned
Birmingham, Alabama ...........              X           X       X       Leased
Black Hawk, South Dakota.......   X          X           X       X       Owned
Chicago, Illinois..............                          X       X       Owned
Cincinnati, Ohio...............                          X       X       Leased
Cohasset, Minnesota............   X          X           X       X       Leased
Dallas, Texas..................                          X       X       Leased+
Denver, Colorado...............                          X       X       Leased+
Enid, Oklahoma.................   X          X           X       X       Leased
Fort Dodge, Iowa...............   X          X           X       X       Owned
Grand Rapids, Michigan.........                          X       X       Leased
Joplin, Missouri...............   X          X           X       X       Owned
Kansas City, Missouri..........                          X       X       Leased+
McPherson, Kansas..............   X                      X       X       Leased
Memphis, Tennessee.............                          X       X       Leased
Oklahoma City, Oklahoma........              X           X       X       Owned
Oshkosh, Wisconsin.............                          X       X       Leased+
Philadelphia, Pennsylvania.....                          X       X       Leased+
Stockton, California...........   X          X           X       X       Leased+
St. Louis, Missouri............                          X       X       Leased+
St. Paul, Minnesota............                          X       X       Leased+
Tulsa, Oklahoma ...............                                  X       Leased
Yankton, South Dakota..........   X          X           X       X       Leased
Youngstown, Ohio...............              X           X       X       Leased+

        Agent Locations
-------------------------------
Cedar Rapids, Iowa ............                          X       X
Detroit Michigan ..............                          X       X
Hennepin, Illinois ............                          X       X
Norfolk, Nebraska .............                          X       X
Toledo, Ohio ..................                          X       X

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

+ Month-to-month leases.






ITEM 3.           LEGAL PROCEEDINGS

         The Company from time to time is a party to  litigation  arising in the
ordinary course of its business,  substantially all of which involves claims for
personal injury and property damage incurred in the  transportation  of freight.
The  Company is not aware of any claims or  threatened  claims that might have a
materially adverse effect upon its operations or financial position.

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

         During the fourth  quarter of the fiscal year ended  December 31, 1998,
no matters were submitted to a vote of security holders.


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<PAGE>



                                     PART II

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

         Price Range of Common  Stock.  The  Company's  Class A Common  Stock is
traded on the Nasdaq  National  Market,  under the symbol  "SMXC." The following
table sets forth for the calendar  periods  indicated  the range of high and low
sales  quotations  for the Company's  Class A Common Stock as reported by Nasdaq
from January 1, 1997 to December 31, 1998.


                     Period                    High                 Low
----------------------------------------- ----------------- --------------------
Calendar Year 1998
         1st  Quarter                     $    16 1/8        $     11 1/2
         2nd Quarter                      $    19 1/8        $      9 3/4
         3rd Quarter                      $    10 3/4        $      6 7/8
         4th Quarter                      $    10            $      6 5/8


                     Period                    High                 Low
----------------------------------------- ----------------- --------------------
Calendar Year 1997
         1st  Quarter                     $    9 3/4        $     8
         2nd Quarter                      $   12 7/8        $     8 1/2
         3rd Quarter                      $   14 1/2        $    10 3/4
         4th Quarter                      $   14 7/8        $    10 1/2





         The prices  reported  reflect  interdealer  quotations  without  retail
mark-ups, mark-downs, or commissions, and may not represent actual transactions.
As of February 12, 1999, the Company had 286 stockholders of record of its Class
A Common Stock.  However,  the Company believes that many additional  holders of
Class A Common  Stock  are  unidentified  because  a  substantial  number of the
Company's shares are held of record by brokers or dealers for their customers in
street names.

         Dividend  Policy.  The  Company  has  never  declared  and  paid a cash
dividend  on its  Class A  Common  Stock.  It is the  current  intention  of the
Company's  Board of  Directors  to  continue  to retain  earnings to finance the
growth of the Company's  business rather than to pay dividends.  Future payments
of  cash  dividends  will  depend  upon  the  financial  condition,  results  of
operations  and  capital   commitments  of  the  Company,   restrictions   under
then-existing  agreements,  and other  factors  deemed  relevant by the Board of
Directors.



                                        9



<PAGE>




ITEM 6.           SELECTED FINANCIAL AND OPERATING DATA
                           
 <TABLE>
<CAPTION>                           
                                               
                                                                 Years Ended December 31,
                                                    1998       1997        1996      1995         1994
                                                 ---------  ---------- ----------- ----------  ---------
                                                  (in thousands, except per share and operating data amounts)
<S>                                              <C>        <C>         <C>        <C>         <C>    
Statement of Operations Data:
Operating revenue.............................. $  161,375 $ 120,117  $   93,667 $    77,339 $    69,180
Operating expenses:
  Purchased transportation.....................     66,495    47,095      37,386      31,621      27,420
  Compensation and employee benefits...........     38,191    26,904      20,800      17,182      15,877
  Fuel, supplies, and maintenance..............     19,738    15,965      12,347      10,183       9,368
  Insurance and claims.........................      2,745     2,206       1,995       1,827       2,238
  Taxes and licenses...........................      3,048     2,299       1,856       1,588       1,454
  General and administrative...................      6,237     5,391       4,214       3,592       3,512
  Communications and utilities.................      1,838     1,378         971         758         585
  Depreciation and amortization................     11,015     7,880       5,740       3,879       2,774
                                                ---------- ---------  ---------- ----------- -----------
    Total operating expenses...................    149,307   109,118      85,309      70,630      63,228
                                                ---------- ---------  ---------- ----------- -----------
    Earnings from operations...................     12,068    10,999       8,358       6,709       5,952
Interest expense (net).........................      2,965     1,545       1,548       1,225         966
                                                ---------- ---------  ---------- ----------- -----------
Earnings before income taxes ..................      9,103     9,454       6,810       5,484       4,986
Income taxes(1)................................      3,774     3,781       2,860       2,393       2,111
                                                ---------- ---------  ---------- ----------- -----------
Net earnings(1)................................ $    5,329   $ 5,673  $    3,950 $     3,091 $     2,875
                                                ========== =========  ========== =========== ===========
Basic and diluted earnings 
    per common share(1)(2)                            1.06  $   1.13  $     0.93 $      0.88 $      0.82
                                                ========================================================
Weighted averages shares outstanding(2):
   Basic ......................................      5,012     5,001       4,250       3,524       3,498
   Diluted ....................................      5,037     5,019       4,250       3,524       3,498
Operating Data(3):
Operating ratio(4).............................      92.5%     90.8%       91.1%       91.3%       91.4%
Average revenue per tractor per week........... $    2,330 $   2,342  $    2,243 $     2,160 $     2,272
Average revenue per loaded mile(5)............. $     1.33 $    1.36  $     1.37 $      1.38 $      1.39
Average length  of haul in miles...............        659       609         568         563         571
Company tractors at end of period..............        815       525         458         376         302
Independent contractor tractors at end of period       711       443         406         303         258
Weighted average tractors during period........      1,236       909         747         619         532
Trailers at end of period......................      2,720     1,673       1,492       1,167         911
Balance Sheet Data (at end of period):
Working capital ............................... $    6,811 $  10,100  $    1,893 $     2,516 $       371
Net property and equipment.....................     87,137    53,132      39,170      27,843      15,824
Total assets...................................    115,494    74,878      55,330      40,702      25,229
Long-term debt, including current maturities...     61,703    30,976      15,904      23,219      11,775
Total stockholders' equity.....................     35,405    29,906      24,193       7,871       4,789
------------------
</TABLE>


(1)      Balance for 1994 has been  adjusted by $232 to reflect a provision  for
         pro forma  income  taxes  for  certain  related  entities  acquired  by
         Smithway, the earnings of which were not subject to corporate   income 
         taxes. Such  transactions  were accounted for in a manner similar to a 
         pooling of interests.

(2)      Balance for 1994 has been  adjusted  to reflect  the  issuance of 3,514
         shares of Common  Stock by the Company in the  formation of the holding
         company and acquisition of the related entities referred to in Note (1)
         above.

(3)      Excludes brokerage activities except as to operating ratio.

(4)      Operating expenses as a percentage of operating revenue.

(5)      Net of fuel surcharges.


                                       10

<PAGE>



ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS

GENERAL

         From 1996 to 1998 the Company expanded its operating  revenue by 72.3%,
to $161.4  million in 1998 from $93.7 million in 1996.  This revenue  growth was
accompanied  by a 34.9%  increase in net earnings,  to $5.3 million in 1998 from
$4.0 million in 1996. A significant  portion of the Company's  growth since 1995
has  occurred  through  acquisitions.  Since  January 1, 1996,  the  Company has
acquired companies that generated  aggregate annual revenue of approximately $90
million.  These  acquisitions  included the purchases of East West,  TP, and JHT
between February and October of 1998. Those three carriers  generated  aggregate
annual  revenue of  approximately  $60  million in 1997.  The  Company  invested
approximately  $26.3 million in the three acquisitions in 1998. The acquisitions
and other  investments  in  revenue  equipment   raised the  Company's  ratio of
debt-to-capitalization,  representing the ratio of (i) long-term debt, including
current maturities,  to (ii) long-term debt,  including current maturities,  and
stockholders' equity, to 63.5% at December 31, 1998. Although management expects
acquisitions of both flatbed and dry van carriers to continue to be an important
aspect of the Company's growth strategy,  management  expects to concentrate its
efforts  during 1999 on  integrating  the  operations of the companies  acquired
during 1998. Management will continue to evaluate acquisition candidates using a
number of factors,  including  the impact of any  potential  transaction  on the
Company's debt-to-capitalization ratio.(*)

         The Company  significantly  increased its dry van  operations  with the
acquisition of East West and JHT. The Company's  increasing revenue from dry van
operations  has  affected its  operating  statistics.  Company-wide  revenue per
loaded mile has decreased from $1.37 in 1996 to $1.33 in 1998, primarily because
revenue per loaded mile for the  Company's dry van freight is lower than for its
flatbed  freight.  Management  believes,  however,  that the dry van  freight is
comparable in  profitability  to flatbed freight because it typically  generates
fewer empty miles and greater miles per tractor than flatbed freight. Management
expects  that the  percentage  of the  Company's  revenue  generated  by dry van
freight will increase in 1999 because of the acquisition of JHT in October 1998.
Fluctuations in revenue per loaded mile and other operating statistics may occur
from  time-to-time as the Company's  freight mix changes due to acquisitions and
other factors.(*)

         The  Company  operates  a  tractor-trailer   fleet  comprised  of  both
Company-owned  vehicles and  vehicles  obtained  under  leases from  independent
contractors  and  third-party  finance  companies.  Fluctuations  among  expense
categories  may occur as a result of changes in the relative  percentage  of the
fleet obtained  through  equipment that is owned versus equipment that is leased
from independent contractors or financing sources. Costs associated with revenue
equipment acquired under operating leases or through agreements with independent
contractors are expensed as "purchased  transportation." For these categories of
equipment the Company does not incur costs such as interest and  depreciation as
it might with owned equipment.  In addition,  independent  contractor  tractors,
driver compensation, fuel, communications,  and certain other expenses are borne
by the independent  contractors  and are not incurred by the Company.  Obtaining
equipment  from  independent  contractors  and under  operating  leases  reduces
capital  expenditures  and  on-balance  sheet  leverage and  effectively  shifts
expenses from interest to "above the line" operating expenses. The fleet profile
of acquired  companies  and the  Company's  relative  recruiting  and  retention
success with  Company-employed  drivers and independent  contractors  will cause
fluctuations  from time-to-time in the percentage of the Company's fleet that is
owned versus obtained from independent  contractors and under operating  leases.
Accordingly,  management  intends to evaluate  the  Company's  efficiency  using
pretax margin and net margin rather than operating ratio.(*)






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

(*) May contain "forward-looking" statements.


                                       11

<PAGE>




RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                                                        1998            1997             1996
                                                                  --------------   --------------   ---------------
<S>                                                               <C>              <C>              <C>    


Operating revenue.................................................        100.0%            100.0%            100.0%
Operating expenses:
         Purchased transportation.................................         41.2             39.2              39.9
         Compensation and employee benefits.......................         23.7             22.4              22.2
         Fuel, supplies, and maintenance..........................         12.2             13.3              13.2
         Insurance and claims.....................................          1.7              1.8               2.1
         Taxes and licenses.......................................          1.9              1.9               2.0
         General and administrative...............................          3.9              4.5               4.5
         Communications and utilities..............................         1.1              1.1               1.0
         Depreciation and amortization............................          6.8              6.6               6.1
                                                                  --------------   --------------   ---------------
         Total operating expenses.................................         92.5             90.8              91.1
                                                                  --------------   --------------   ---------------
Earnings from operations..........................................          7.5              9.2               8.9
Interest expense, net.............................................          1.8              1.3               1.7
                                                                  --------------   --------------   ---------------
Earnings before income taxes......................................          5.6              7.9               7.3
Income taxes......................................................          2.3              3.2               3.1
                                                                  --------------   --------------   ---------------
Net earnings......................................................          3.3%             4.7%              4.2%
                                                                  ==============   ==============   ===============
</TABLE>

Comparison of year ended December 31, 1998 to year ended December 31, 1997.

         Operating revenue increased $41.3 million (34.3%), to $161.4 million in
1998 from $120.1 million in 1997. The revenue increase resulted primarily from a
36.0% increase in weighted  average  tractors,  to 1,236 in 1998 from 909 during
1997 as the Company expanded internally to meet customer demand and acquired the
business of East West in February  1998,  TP in August 1998,  and JHT in October
1998. Revenue per tractor per week (excluding revenue from brokerage operations)
decreased  $12 per week  (0.5%),  to $2,330 in 1998  from  $2,342 in 1997.  This
resulted from a decrease in revenue per loaded mile, which was largely offset by
an increase in miles per tractor and a decrease in empty miles percentage. These
changes  were a  result  of the  increase  in van  freight  associated  with the
acquisition  of  East  West.  In  addition,  revenue  from  the  Company's
brokerage division increased $3.1 million (42.3%), to $10.4 million in 1998 from
$7.3 million in 1997.

     Purchased  transportation  consists  primarily  of payments to  independent
contractor  providers  of  revenue  equipment,  expenses  related  to  brokerage
activities, and payments under operating leases of revenue equipment.  Purchased
transportation  increased $19.4 million  (41.2%),  to $66.5 million in 1998 from
$47.1  million in 1997,  as the  Company's  business  expanded  and the  Company
contracted with more independent contractor providers of revenue equipment. As a
percentage of revenue,  purchased transportation increased to 41.2% in 1998 from
39.2% in 1997.  This  reflects an increase in the  percentage  of the  Company's
fleet supplied by independent  contractors as a result of the Company's internal
recruiting efforts and the acquisition of East West, which has obtained a higher
percentage  of its fleet  from  independent  contractors.  It also  reflects  an
increase in the freight hauled by brokered equipment.

     Compensation and employee benefits increased $11.3 million (42.0%) to $38.2
million  in 1998  from  $26.9  million  in 1997.  As a  percentage  of  revenue,
compensation  and  employee  benefits  increased  to 23.7% in 1998 from 22.4% in
1997. The increase was attributable to (i) an increase in the per-mile wage paid
to van drivers,  (ii) an increase in the number of driver trainers and trainees,
and (iii) an increase in the self-insured  retention for health insurance claims
and reserve amounts for the period,  which  primarily  related to unusual health
claims during the second quarter of 1998.

     Fuel,  supplies,  and maintenance  increased $3.8 million (23.6%), to $19.7
million in 1998 from $16.0 million in 1997.  As a percentage  of revenue,  fuel,
supplies,  and  maintenance  decreased  to  12.2%  in 1998  from  13.3% in 1997,
reflecting a 13.4%  decrease in fuel costs to $1.03 per gallon  during 1998 from
$1.19 per gallon in 1997.  The decrease was  partially  offset by an increase in
the cost of parts,  tires,  tarps,  supplies,  and binders used in the Company's
operations.

     Insurance and claims increased  $539,000  (24.4%),  to $2.7 million in 1998
from $2.2 million in 1997.  As a  percentage  of revenue,  insurance  and claims
remained  relatively  constant at 1.7% of revenue in 1998  compared with 1.8% in
1997.
                                       12
                                       
<PAGE>

         Taxes and licenses increased $749,000 (32.6%),  to $3.0 million in 1998
from $2.3  million in 1997.  As a  percentage  of  revenue,  taxes and  licenses
remained unchanged at 1.9% of revenue for each year.

         General and administrative expenses increased $846,000 (15.7%), to $6.2
million in 1998 from $5.4 million in 1997. As a percentage  of revenue,  general
and  administrative  expenses  decreased to 3.9% of revenue in 1998 from 4.5% in
1997, as a result of a decrease in freight revenue being  dispatched by terminal
agents, resulting in less commissions paid during the 1998 period. Additionally,
certain fixed costs are being spread over a larger revenue base.

         Communications  and  utilities  increased  $460,000  (33.4%),  to  $1.8
million  in 1998  from  $1.4  million  in  1997.  As a  percentage  of  revenue,
communications and utilities remained unchanged at 1.1% in both years.

         Depreciation and amortization  increased $3.1 million (39.8%), to $11.0
million  in 1998  from  $7.9  million  in  1997.  As a  percentage  of  revenue,
depreciation and amortization  increased to 6.8% of revenue in 1998 from 6.6% in
1997. The increase was attributable to a larger fleet of Company-owned  tractors
and trailers,  which increased the cost of the equipment being  depreciated,  an
increase in the number of Company-owned  tractors financed with debt rather than
operating  leases,  slightly  lower  revenue  per  tractor,  and an  increase in
goodwill amortization as a result of the three acquisitions in 1998.

         Interest expense,  net, increased $1.4 million (91.9%), to $3.0 million
in 1998 from $1.5 million in 1997. As a percentage of revenue, interest expense,
net  increased  to 1.8% of  revenue  in 1998 from 1.3% in 1997,  as the  Company
incurred  debt to finance the  acquisition  of three  trucking  companies.  This
increase in debt was partially  offset by lower average  interest rates of 6.79%
in 1998 compared with 7.1% in 1997.

         As a result of the foregoing,  the Company's pretax margin decreased to
5.6% in 1998 from 7.9% in 1997.

         The  Company's  effective tax rate was 41.5% in 1998 (2.3% of revenue),
compared with 40.0% in 1997 (3.1% of revenue).  The effective tax rate is higher
than the expected combined tax rate for a company  headquartered in Iowa because
of the cost of  nondeductible  driver per diem expense  absorbed by the Company.
The impact of the Company's  paying per diem travel  expenses  varies  depending
upon the ratio of drivers  to  independent  contractors  and the  Company's  net
earnings.

         As a result of the factors  described above, net earnings  decreased to
$5.3  million  in 1998  (3.3% of  revenue),  from $5.7  million in 1997 (4.7% of
revenue).

Comparison of year ended December 31, 1997 to year ended December 31, 1996.

     Operating  revenue  increased $26.5 million  (28.2%),  to $120.1 million in
1997 from $93.7 million in 1996. The revenue increase resulted  primarily from a
21.7% increase in weighted average tractors, to 909 in 1997 from 747 during 1996
as the Company  expanded  internally  to meet  customer  demand and acquired the
business of Pirie Motor Freight, Inc. in February 1997, and Royal Transport Ltd.
in  September  1997.  Revenue  per  tractor  per week  (excluding  revenue  from
brokerage  operations)  increased  $99 per week  (4.4%),  to $2,342 in 1997 from
$2,243 in 1996.  In addition,  revenue  from the  Company's  brokerage  division
increased $900,000 (14.1%), to $7.3 million in 1997 from $6.4 million in 1996.

     Purchased  transportation  consists  primarily  of payments to  independent
contractor  providers  of  revenue  equipment,  expenses  related  to  brokerage
activities, and payments under operating leases of revenue equipment.  Purchased
transportation  increased  $9.7 million  (26.0%),  to $47.1 million in 1997 from
$37.4  million in 1996,  as the  Company's  business  expanded  and the  Company
contracted with more independent contractor providers of revenue equipment. As a
percentage of revenue,  purchased transportation decreased to 39.2% in 1997 from
39.9% in 1996, as the increase in expenses related to brokerage revenue was more
than offset by the decrease in the  percentage  of the  Company's  overall fleet
comprised of tractors and trailers  leased from  independent  contractors  and a
decrease  in  the  amount  of  fuel  surcharge  passed  through  to  independent
contractors and tractors utilized by the brokerage division.

         Compensation  and employee  benefits  increased $6.1 million (29.4%) to
$26.9  million in 1997 from $20.8  million in 1996.  As a percentage of revenue,
compensation  and  employee  benefits  increased  to 22.4% in 1997 from 22.2% in
1996,


                                       13

<PAGE>



because of the increase in the  percentage  of the Company's  revenue  equipment
fleet being operated by employee drivers.

     Fuel,  supplies,  and maintenance  increased $3.6 million (29.3%), to $16.0
million in 1997 from $12.3 million in 1996.  As a percentage  of revenue,  fuel,
supplies,  and  maintenance  increased  slightly  to 13.3% in 1997 from 13.2% in
1996,  because  the  increase in the  percentage  of the  Company's  fleet being
comprised of Company-owned tractors, for which the Company pays fuel costs, more
than offset decreasing per gallon fuel prices.

     Insurance and claims  increased  $211,000  (10.6%),    to $2.2   million in
1997 from $2.0 million in 1996. As a percentage of revenue, insurance and claims
decreased to 1.8% of revenue in 1997 from 2.1% in 1996,  as the Company  reduced
its  insurance  reserves  as claims  were  ultimately  resolved at less than the
reserve amount.

      Taxes and licenses increased $443,000 (23.9%),     to $2.3 million in 1997
from $1.9  million in 1996.  As a  percentage  of  revenue,  taxes and  licenses
remained  relatively  constant  at 1.9% and 2.0% of  revenue  for 1997 and 1996,
respectively.

      General and administrative  expenses increased  $1.2  million (27.9%), to
$5.4  million in 1997 from $4.2  million in 1996.  As a  percentage  of revenue,
general and  administrative  expenses were unchanged at 4.5% of revenue for each
year.

      Communications  and  utilities  increased  $407,000     (41.9%),  to  $1.4
million  in 1997  from  $1.0  million  in  1996.  As a  percentage  of  revenue,
communications  and  utilities  increased to 1.1% in 1997 from 1.0% in 1996 as a
result of an increase in the number of  Company-owned  terminals,  for which the
Company pays telephone  costs, and an increase in the costs relating to usage of
mobile, satellite-based tracking and communication units.

       Depreciation and amortization  increased $2.1   million (37.3%),  to $7.9
million  in 1997  from  $5.7  million  in  1996.  As a  percentage  of  revenue,
depreciation and amortization  increased to 6.6% of revenue in 1997 from 6.1% in
1996. The increase was attributable to a newer and larger fleet of Company-owned
tractors  and  trailers,  which  increased  the  cost  of  the  equipment  being
depreciated,  and an increase in Company tractors financed with debt rather than
operating leases.  These factors were partially offset by an increase in revenue
per  tractor  per  week,  which  more  efficiently  spread  the  fixed  cost  of
depreciation over a larger revenue base.

     Interest expense,  net remained   unchanged at $1.5   million in each year.
As a percentage of revenue,  interest expense,  net decreased to 1.3% of revenue
in 1997 from 1.7% in 1996, as the increase in average debt balance was offset by
lower average interest rates of 7.1% in 1997 compared with 7.5% in 1996.

     As a result of the foregoing,  the Company's pretax margin improved to 7.9%
in 1997 from 7.3% in 1996.

     The  Company's  effective  tax rate was  40.0% in 1997  (3.2% of  revenue),
compared with 42.0% in 1996 (3.1% of revenue).  The effective tax rate is higher
than the expected combined tax rate for a company  headquartered in Iowa because
of the cost of  nondeductible  driver per diem expense  absorbed by the Company.
The impact of the Company's  paying per diem travel  expenses  varies  depending
upon the ratio of drivers  to  independent  contractors  and the  Company's  net
earnings.

      As a result of the factors  described above,  net  earnings  increased to
$5.7  million  in 1997  (4.7% of  revenue),  from $4.0  million in 1996 (4.2% of
revenue).




                                       14

<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

     The growth of the Company's business has required  significant  investments
in new  revenue  equipment  that the  Company  historically  has  financed  with
borrowing under installment notes payable to commercial lending institutions and
equipment  manufacturers,  borrowings  under  lines of  credit,  cash  flow from
operations,  equipment  leases from  third-party  lessors,  and  proceeds of the
Company's  initial public  offering.  The Company also has obtained a portion of
its revenue equipment fleet from independent contractors who own and operate the
equipment,  which reduces overall capital expenditure requirements compared with
providing a fleet of entirely  Company-owned  equipment.  The Company's  primary
sources of liquidity  currently are funds  provided by operations and borrowings
under credit agreements with financial institutions and equipment manufacturers.
Management  believes  that its  sources of  liquidity  are  adequate to meet its
current  anticipated working capital  requirements,  capital  expenditures,  and
other needs at least through 1999.(*)

     Net cash provided by operating activities was $16.5 million, $14.9 million,
and $7.1  million  for the  years  ended  December  31,  1998,  1997,  and 1996,
respectively.  The Company's principal use of cash from operations is to service
debt and internally  finance accounts  receivable  associated with growth in the
business. Customer accounts receivable increased $4.4 million, $1.4 million, and
$4.0 million for the years ended December 31, 1998, 1997, and 1996 respectively.
The average age of the Company's  accounts  receivable was approximately 33 days
for 1998, 34 days for 1997, and 30 days for 1996.

     Net cash used in investing activities was $36.6 million,  $1.8 million, and
$8.4  million  for  the  years  ended   December  31,  1998,   1997,  and  1996,
respectively. Such amounts related primarily to payments made in acquisitions of
seven trucking companies and purchases,  sales, and trades of revenue equipment.
The Company expects capital  expenditures  (primarily for revenue  equipment and
satellite  communications  units),  net of revenue  equipment  trade-ins,  to be
approximately $22.8 million during 1999. Such projected capital expenditures are
expected to be funded with cash flow from operations,  borrowings,  or operating
leases.  The  Company  has  begun to  evaluate  the need to expand  its  present
headquarters  facility  and may incur a portion of the  expansion  costs  during
1999. The size and cost of the possible  expansion has not yet been  determined.
The Company's projected capital  expenditures do not include any amount for this
possible expansion.(*)

     Net cash  provided  by (used in)  financing  activities  of $17.3  million,
($10.0 million), and ($766,000) for the years ended December 31, 1998, 1997, and
1996,  respectively,  consisted primarily of net borrowings  (payments) of $17.3
million,  ($5.5  million),  and ($16.1 million) of principal under the Company's
long-term debt agreements,  and net borrowings (payments) of $0, ($4.5 million),
and $4.5 million under the Company's  former line of credit,  which was paid off
during 1997.

     At December 31, 1998, the Company had outstanding long-term debt (including
current maturities) of approximately $61.7 million,  most of which was comprised
of  obligations  for the  purchase  of revenue  equipment.  Approximately  $35.4
million  consisted of  borrowings  from  financial  institutions  and  equipment
manufacturers,  $25 million  represented  the amount  drawn under the  Company's
revolving  credit  facility,  and $1.3 million  represented  future payments for
purchases of intangible assets.  Interest rates on this debt range from 5.81% to
6.99% with maturities through 2003.

     At December 31, 1998, the revolving credit facility provided for borrowings
of up to $40.0  million,  based upon  certain  accounts  receivable  and revenue
equipment  values.  The interest rate under the credit facility is 1.5% plus the
LIBOR rate for the  corresponding  period.  The credit  facility  is secured and
contains  covenants  that  impose  certain  minimum  financial  ratios and limit
additional liens, the size of certain mergers and acquisitions,  dividends,  and
other  matters.  The  Company  was in  compliance  with the credit  facility  at
December 31, 1998.




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

(*) May contain "forward-looking" statements.



                                       15

<PAGE>



MARKET RISKS

     The Company is exposed to market risks from changes in (i) certain interest
rates on its debt and (ii) certain commodity prices.

Interest Rate Risk

     The revolving credit facility,  provided there has been no default, carries
a maximum  variable  interest  rate of LIBOR for the  corresponding  period plus
1.5%. This variable interest exposes the Company to the risk that interest rates
may rise.  Assuming borrowing levels at December 31, 1998, a one-point  increase
in the LIBOR would increase our interest expense by $250,000.

Commodity Price Risk

     The Company uses derivative  instruments,  including  purchased options and
futures   contracts   to  reduce  a  portion  of  its  exposure  to  fuel  price
fluctuations.  At December 31, 1998, the notional  amount for purchased  options
and futures  contracts was 1.6 million  gallons and net  unrealized  losses were
approximately  $140,000.  At December  31,  1998,  a ten percent  change in fuel
prices would impact 1998 net unrealized losses by approximately $97,000.

     The Company also uses heating oil price swap agreements to reduce a portion
of its exposure to fuel price  fluctuations.  At December 31, 1998,  the Company
had price swap  agreements  for 7.5 million  gallons at prices ranging from 37.8
cents per gallon to 42.2 cents per gallon.  Since the  Company's  price is fixed
for these gallons,  changes in fuel prices would have no impact on the Company's
future fuel expense related to these gallons. Therefore, there is no earnings or
liquidity risk  associated with these price swap  agreements.  The fair value of
the price swap  agreements  is the  estimated  amount the  Company  would pay or
receive to terminate  the swap  agreements.  At December 31, 1998, a ten percent
change in the price of  heating  oil would  result in a  $271,000  change in the
current cost of $317,000 to terminate the swap agreements.

     The  Company  does not trade in these  derivatives  with the  objective  of
earning  financial  gains  on  price  fluctuations,  nor  does it trade in these
instruments when there are no underlying transaction related exposures.

INFLATION AND FUEL COST

     Most of the  Company's  operating  expenses are  inflation-sensitive,  with
inflation  generally  producing  increased  costs of operation.  During the past
three years,  the most  significant  effects of  inflation  have been on revenue
equipment prices and the compensation paid to drivers.  Innovations in equipment
technology  and comfort have resulted in higher  tractor  prices,  and there has
been an  industry-wide  increase in wages paid to attract  and retain  qualified
drivers.  The Company  historically has limited the effects of inflation through
increases  in freight  rates and certain cost  control  efforts.  The failure to
obtain  rate   increases  in  the  future  could  have  an  adverse   effect  on
profitability. In addition to inflation,  fluctuations in fuel prices can affect
profitability.  Most of the  Company's  contracts  with  customers  contain fuel
surcharge  provisions.  Although the Company  historically has been able to pass
through  most  long-term  increases in fuel prices and taxes to customers in the
form of  surcharges  and  higher  rates,  shorter-term  increases  are not fully
recovered. (*)

SEASONALITY

     In the trucking  industry,  results of operations  show a seasonal  pattern
because customers  generally reduce shipments during the winter season,  and the
Company  experiences  some  seasonality  due to the open,  flatbed nature of the
majority of its trailers. The Company at times has experienced delays in meeting
its shipment  schedules as a result of severe weather  conditions,  particularly
during the winter months.  In addition,  the Company's  operating  expenses have
been higher in the winter months due to decreased fuel  efficiency and increased
maintenance costs in colder weather.
---------------------

(*) May contain "forward-looking" statements.


                                       16

<PAGE>



YEAR 2000

     The Year 2000 issue,  common to most  companies,  concerns the inability of
information and non information systems to recognize and process  date-sensitive
information  after 1999 due to the use of only the last two digits to refer to a
year. This problem could affect both information systems (software and hardware)
and other equipment that relies on  microprocessors.  Management has completed a
Company-wide evaluation of this impact on its computer systems, applications and
other  date-sensitive  equipment.  The Company's primary information  technology
systems ("IT  Systems")  include  hardware  and  software for billing  dispatch,
electronic  data  interchange,  fueling,  payroll and  satellite  communications
systems. These IT Systems include both  Company-developed  software and software
designed by  third-parties.  The primary IT System  designed by a third party is
the  satellite  tracking  system,  which tracks  equipment  locations,  provides
dispatch and routing  information and allows in-cab  communication with drivers.
The Company has been  informed by this  provider  that its system is  compliant.
Another  significant IT System provided by a third party transmits payroll funds
to drivers  and allows  drivers to  purchase  fuel and other  items  outside the
Company's  terminal  locations.  The Company has been  informed by this provider
that it expects to be compliant by June 1999.

     The IT Systems  developed by the Company have been assessed and systems and
equipment that are not Year 2000 compliant have been  identified and remediation
efforts are in process.  Management  estimates  that nearly 100 percent of known
remediation   efforts  were  completed  as  of  December  31,  1998.  All  known
remediation  efforts  and  testing  of  systems/equipment  are  expected  to  be
completed by March 31, 1999.

     The Company is reviewing its risks associated with microprocessors embedded
in facilities  and equipment  ("Non-IT  Systems").  The primary  Non-IT  Systems
include  microprocessors  in  tractor  engines  and other  components,  terminal
facilities,  satellite  communications units, and  telecommunications  and other
office equipment.  The Company's assessment of its revenue equipment,  satellite
communications  units, and office equipment Non-IT Systems has revealed low risk
of material replacement  requirements.  Such systems are relatively new and were
designed  to be Year 2000  compliant.  The Company is  continuing  to assess its
Non-IT Systems included in its terminal  facilities,  but believes that the risk
of a service-interrupting failure in these systems is low.

     The Company is also in the process of  monitoring  the progress of material
third  parties  (shippers  and  suppliers)  in their efforts to become Year 2000
compliant.  These third  parties  include,  but are not limited to:  shippers of
freight,  manufacturers of operating  equipment,  fuel and parts suppliers,  the
U.S.  Postal Service,  financial  institutions,  and utilities.  The Company has
requested  copies of the Year  2000  plans of the  material  third  parties  and
intends to seek updates from third parties as to their performance against these
plans.

     Through December 31, 1998 the Company has spent  approximately  $100,000 to
address Year 2000 issues.  Total costs to address Year 2000 issues are currently
estimated  not to  exceed  $150,000  and  consist  primarily  of  costs  for the
remediation  of  internal  systems  and  equipment.  Funds for  these  costs are
expected to be provided by the operating cash flows of the Company. The majority
of the internal  system  remediation  efforts  relate to staff costs of on-staff
systems programmers, and therefore, are not incremental costs.

     The  Company's  primary  risk  relating  to  Year  2000  compliance  is the
possibility  of service  disruption  from  third-party  suppliers  of  satellite
communication,  telephone, fueling, and financial services. The Company could be
faced  with  severe  consequences  if Year 2000  issues are not  identified  and
resolved  in a timely  manner by the  Company  and  material  third  parties.  A
worst-case  scenario  would result in the short term inability of the Company to
deliver  freight for its shippers.  This would result in lost revenues;  however
the amount would be dependent on the length and nature of the disruption,  which
cannot be  predicted  or  estimated.  The  progress of the  Company's  Year 2000
efforts are reported to the board of directors at each quarterly meeting.  While
management  expects a successful  resolution  of these  issues,  there can be no
guarantee that material third parties, on which the Company relies, will address
all Year 2000  issues on a timely  basis or that their  failure to  successfully
address all issues would not have an adverse effect on the Company.

     The  Company is in the  process  of  developing  contingency  plans in case
business interruptions do occur.  Management expects these plans to be completed
by June 30, 1999.




                                       17

<PAGE>



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

          The Company may from time-to-time make written or oral forward-looking
     statements.  Written  forward-looking  statements  may appear in  documents
     filed with the Securities and Exchange Commission,  in press releases,  and
     in reports to stockholders. The Private Securities Litigation Reform Act of
     1995  contains a safe harbor for  forward-looking  statements.  The Company
     relies on this safe harbor in making such  disclosures.  In connection with
     this "safe harbor" provision,  the Company is hereby identifying  important
     factors that could cause  actual  results to differ  materially  from those
     contained  in any  forward-looking  statement  made by or on  behalf of the
     Company.  Factors that might cause such a difference  include,  but are not
     limited to, the following:

          Economic   Factors;   Fuel  Prices.  Negative economic factors such as
     recessions,  downturns in customer's business cycles,  surplus inventories,
     inflation,  and higher interest rates could impair the Company's  operating
     results  by  decreasing  equipment   utilization  or  increasing  costs  of
     operations.  Increases  in fuel  prices  usually  are not fully  recovered.
     Accordingly,  high fuel prices can have a negative  impact on the Company's
     profitability.

          Resale  of  Used  Revenue  Equipment.  The  Company  historically  has
     recognized a gain on the sale of its revenue equipment. The market for used
     equipment has experienced  greater supply than demand in 1996 through 1998.
     If the resale value of the Company's revenue equipment were to decline, the
     Company could find it necessary to dispose of its equipment at lower prices
     or retain  some of its  equipment  longer,  with a  resulting  increase  in
     operating expenses.

          Recruitment,  Retention,  and  Compensation  of Qualified  Drivers and
     Independent   Contractors.   Competition   for  drivers   and   independent
     contractors is intense in the trucking industry. There is, and historically
     has  been,   an   industry-wide   shortage   of   qualified   drivers   and
     independent contractors.   This   shortage   could   force  the  Company to
     significantly  increase the  compensation  it pays to driver  employees and
     independent contractors or curtail the Company's growth.

          Competition.   The  trucking   industry  is  highly   competitive  and
     fragmented.  The Company  competes with other truckload  carriers,  private
     fleets  operated by existing and  potential  customers,  and to some extent
     railroads and  rail-intermodal  service.  Competition is based primarily on
     service,   efficiency,   and  freight   rates.   Many   competitors   offer
     transportation  service at lower  rates  than the  Company.  The  Company's
     results could suffer if it cannot obtain higher rates than competitors that
     offer a lower level of service.

          Acquisitions. A significant portion of the Company's growth since June
     1995 has occurred through  acquisitions,  and acquisitions are an important
     component of the Company's  growth strategy.  Management  believes that the
     Company must continue to identify desirable target companies and negotiate,
     finance, and close acceptable  transactions and successfully  integrate the
     acquired operations or the Company's growth and profitability could suffer.
     In 1999, management intends to concentrate on integrating the operations of
     the three  companies  acquired  during  1998 and may not pursue  additional
     acquisitions as aggressively.


                                       18

<PAGE>




ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Company's audited financial statements,  including its consolidated
balance   sheets  and   consolidated   statements   of  earnings,   cash  flows,
stockholders'  equity, and notes related thereto, are included at pages 24 to 39
of this report. The supplementary quarterly financial data follow:

<TABLE>
<CAPTION>

Quarterly Financial Data:
(Dollars in thousands, 
except earnings per share)                        First Quarter    Second Quarter    Third Quarter   Fourth Quarter
                                                      1998             1998            1998            1998
                                                 -------------- ------------------ -------------- -----------------
<S>                                              <C>            <C>                <C>            <C>    

Operating revenue................................$       33,391  $        40,835    $    42,424    $       44,725
Earnings from operations.........................         2,493            2,396          3,528             3,651
Earnings before income taxes.....................         1,988            1,719          2,743             2,653
Income taxes.....................................           845              698          1,139             1,092
Net earnings.....................................         1,143            1,021          1,604             1,561
Basic and diluted earnings per share.............          0.23             0.20           0.32              0.31
</TABLE>

<TABLE>
<CAPTION>


                                                 First Quarter    Second Quarter   Third Quarter   Fourth Quarter
                                                      1997             1997            1997            1997
                                                 -------------- ------------------ -------------- -----------------
<S>                                              <C>            <C>                <C>            <C>    

Operating revenue................................$       26,908 $           30,614 $       31,834 $          30,761
Earnings from operations.........................         1,955              3,107          3,369             2,569
Earnings before income taxes.....................         1,639              2,650          2,899             2,267
Income taxes.....................................           688              1,114          1,204               775
Net earnings.....................................           951              1,536          1,695             1,492
Basic and diluted earnings per share.............          0.19               0.31           0.34              0.30
</TABLE>




As a result  of  rounding,  the  total of the four  quarters  may not  equal the
Company's results for the full year.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         No reports on Form 8-K have been filed  within the  twenty-four  months
prior to December 31, 1998,  involving a change of accountants or  disagreements
on accounting and financial disclosure.


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information  respecting  executive officers and directors set forth
under the captions "Election of Directors;  Information Concerning Directors and
Executive   Officers"  and  "Section  16(a)   Beneficial   Ownership   Reporting
Compliance" on pages 3, 4, 5, and 7 of the Registrant's  Proxy Statement for the
1999 annual meeting of stockholders, which will be filed with the Securities and
Exchange  Commission  in  accordance  with  Rule  14a-6  promulgated  under  the
Securities  Exchange  Act  of  1934,  as  amended  (the  "Proxy  Statement")  is
incorporated by reference.

ITEM 11.          EXECUTIVE COMPENSATION

         The information  respecting executive  compensation set forth under the
caption   "Executive   Compensation"  on  page  5  of  the  Proxy  Statement  is
incorporated  herein by reference;  provided,  that the "Compensation  Committee
Report  on  Executive  Compensation"  contained  in the Proxy  Statement  is not
incorporated by reference.



                                       19

<PAGE>



ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information  respecting  security  ownership of certain  beneficial
owners  and  management  set forth  under the  caption  "Security  Ownership  of
Principal  Stockholders  and  Management"  on page 8 of the Proxy  Statement  is
incorporated herein by reference.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information  respecting  certain  relationships and transactions of
management  set forth under the  captions  "Compensation  Committee  Interlocks,
Insider  Participation,  and Related Party  Transactions" on page 5 of the Proxy
Statement is incorporated herein by reference.

                                     PART IV

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

(a)      1.       Financial Statements.

         The  Company's  audited  financial  statements  are  set  forth  at the
following pages of this report:


                                                                            Page
Independent Auditors' Report.............................................    24
Consolidated Balance Sheets..............................................    25
Consolidated Statements of Earnings......................................    27
Consolidated Statements of  Stockholders' Equity.........................    28
Consolidated Statements of Cash Flows....................................    29
Notes to Consolidated Financial Statements...............................    31

         2.       Financial Statement Schedules.

         Financial  statement  schedules  are not required  because all required
information is included in the financial statements.

(b)      Reports on Form 8-K

         A  Form  8-K  was  filed  on  November  12,  1998,  pertaining  to  the
acquisition of certain assets from JHT.




                                       20

<PAGE>



(c)      Exhibits

Exhibit         Description
Number

2.1      +++    Asset Purchase Agreement dated February 20, 1998, by and 
                among Smithway Motor Xpress, Inc., East West Motor Express,  
                Inc., and Darwyn and David Stebbins.
2.2      +++++  Asset Purchase Agreement dated September 23, 1998, by and among
                Smithway  Motor Xpress, Inc.,JHT, Inc.,JHT LOGISTICS, INC., Bass
                Brook Truck Service,Inc., and JERDON TERMINAL HOLDINGS, LLC.
2.3      +++++  First  Amendment to Asset Purchase  Agreement  dated October 29,
                1998, by and among  Smithway  Motor Xpress,  Inc.,  JHT,  Inc., 
                JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON 
                TERMINAL HOLDINGS, LLC.
2.4        #    Second Amendment to Asset Purchase Agreement dated October 30, 
                1998, by and among Smithway Motor Xpress, Inc., JHT, Inc., 
                JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON 
                TERMINAL HOLDINGS, LLC.
3.1        +    Articles of Incorporation.
3.2        +    Bylaws.
4.1        +    Articles of Incorporation.
4.2        +    Bylaws.
10.1       +    Outside Director Stock Plan dated March 1, 1995.
10.2       +    Incentive Stock Plan, adopted March 1, 1995.
10.3       +    Form of Agency Agreement between Smithway Motor Xpress, Inc.and 
                its independent commission agents.
10.4       +    Memorandum of officer incentive compensation policy.
10.5       +    Form of Independent Contractor Agreement between Smithway  Motor
                Xpress, Inc. and its independent contractor providers of 
                tractors.
10.6     ++     Credit  Agreement  dated  September  3,  1997, between Smithway
                Motor Xpress Corp., as Guarantor, Smithway Motor  Xpress, Inc., 
                as Borrower, and LaSalle National Bank.
10.7     +++    Asset  Purchase  Agreement  dated February 20, 1998, by and 
                among  Smithway  Motor Xpress,  Inc., East West Motor Express, 
                Inc., and Darwyn and David Stebbins.
10.8     ++++   First  Amendment  to Credit  Agreement dated March 1, 1998, 
                between  Smithway Motor Xpress Corp., as Guarantor,  
                Smithway  Motor  Xpress,  Inc.,  as  Borrower, and LaSalle 
                National Bank.
10.9     ++++   Second  Amendment to Credit  Agreement dated March 15, 1998,  
                between  Smithway Motor Xpress Corp.,  as Guarantor, Smithway 
                Motor  Xpress,  Inc.,  as  Borrower,  and LaSalle National Bank.
10.10    +++++  Asset Purchase Agreement dated September 23, 1998, by and among
                Smithway  Motor Xpress, Inc., JHT, Inc., JHT LOGISTICS,  INC.,
                Bass Brook Truck Service, Inc., and JERDON TERMINAL HOLDINGS, 
                LLC.



                                       21

<PAGE>




10.11    +++++  First  Amendment to Asset Purchase  Agreement  dated October 29,
                1998, by and among Smithway  Motor Xpress,  Inc.,  JHT,  Inc., 
                JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., 
                and JERDON TERMINAL HOLDINGS, LLC.
10.12      #    Second Amendment to Asset Purchase Agreement dated October 30, 
                1998, by and among Smithway Motor Xpress, Inc., JHT,Inc., 
                JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and 
                JERDON TERMINAL HOLDINGS, LLC. (Filed as Exhibit 2.4 hereto)
10.13      #    Third Amendment to Credit Agreement dated October 30, 1998, 
                between Smithway Motor Xpress Corp., as Guarantor, 
                Smithway Motor Xpress, Inc., as Borrower, and LaSalle National 
                Bank, as Lender.

21         #    List of subsidiaries.
23         #    Consent of KPMG Peat Marwick LLP, independent accountants.
27         #    Financial Data Schedule.


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

+        Incorporated by reference from the Company's Registration Statement 
         on Form S-1, Registration No. 33-90356, effective June 27, 1996.

++       Incorporated by reference from the Company's Quarterly Report on 
         Form 10-Q for the period ended September  30, 1997.   
         Commission  File No.  000-20793, dated November 12, 1997.

+++      Incorporated by reference from the Company's Form 8-K.  Commission 
         File No. 000-20793, dated March 12, 1998.

++++     Incorporated by reference from the Company's Quarterly Report on 
         Form 10-Q for the period ended March 31, 1998.   Commission File No.
         000-20793, dated May 14, 1998.

+++++    Incorporated by reference from the Company's Form 8-K.  
         Commission File No. 000-20793, dated November 12, 1998.

#        Filed herewith.







                                       22

<PAGE>



                                   SIGNATURES


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

                                                     SMITHWAY MOTOR XPRESS CORP.



Date:    March  18 , 1999                          BY: /s/ William G. Smith
         -----------------------------------           --------------------
                                                   William G. Smith
                                                   Chairman of the Board,
                                                   President, and Chief 
                                                   Executive Officer

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


Signature               Position                                   Date
--------------------------------------------------------------------------------
s/ William G. Smith     Chairman of the Board, President,         March 18, 1999
--------------------    and Chief Executive Officer; Director
William G. Smith        (principal executive officer)        
                        

                                     
/s/ G. Larry Owens      Executive Vice President,                 March 18, 1999
--------------------    Chief Operating Officer, and
G. Larry Owens          Chief Financial Officer;
                        Director            
                        
                        
      
/s/ Michael E. Oleson   Treasurer and Chief                       March 18, 1999
----------------------  Accounting Officer
Michael E. Oleson       (principal financial 
                        and accounting officer)
                       
 
/s/ Herbert D. Ihle          Director                             March 18, 1999
--------------------
Herbert D. Ihle                                          
                                            
/s/ Robert  E. Rich          Director                             March 18, 1999
-------------------
Robert E. Rich                                          
                                  
/s/ Terry G.Christenberry    Director                             March 18, 1999
---------------------------
Terry G. Christenberry



                                       23

<PAGE>






                          Independent Auditors' Report



To the Stockholders and Board of Directors
of Smithway Motor Xpress Corp.:

     We have audited the  accompanying  consolidated  balance sheets of Smithway
Motor Xpress Corp.  and  subsidiaries  as of December 31, 1998 and 1997, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the years in the  three-year  period ended  December 31, 1998.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.
     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Smithway
Motor Xpress Corp.  and  subsidiaries  as of December 31, 1998 and 1997, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.


KPMG Peat Marwick LLP

/s/KPMG Peat Marwick LLP


Des Moines, Iowa
February 5, 1999


                                       24

<PAGE>


<TABLE>
<CAPTION>


                       SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                              Consolidated Balance Sheets
                                 (Dollars in thousands)

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

Current assets:
    Cash and cash equivalents                         $   1,276     $     4,082
    Receivables (note 5):
       Trade                                             15,481          11,040
       Other                                              1,366           1,261
       Recoverable income taxes                             270               -
    Inventories                                           1,537           1,064
    Deposits, primarily with insurers (note 12)             391             770
    Prepaid expenses                                      1,110           1,160
    Deferred income taxes (note 6)                          510             350
                                                      ----------    ------------
             Total current assets                        21,941          19,727
                                                      ----------    ------------
Property and equipment (note 5):
    Land                                                    881             531
    Buildings and improvements                            6,147           5,100
    Tractors                                             60,915          38,217
    Trailers                                             39,194          24,233
    Other equipment                                       6,269           5,308
                                                      ----------    ------------
                                                        113,406          73,389
    Less accumulated depreciation                        26,269          20,257
                                                      ----------    ------------
             Net property and equipment                  87,137          53,132
                                                      ----------    ------------
Intangible assets, net (note 3)                           5,892           1,530
Other assets                                                524             489
                                                      ----------    ------------
                                                      $ 115,494     $    74,878
                                                      ==========    ============
</TABLE>








              See accompanying notes to consolidated financial statements.



                                       25

<PAGE>




                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                           Liabilities and                    December 31,
                           Stockholders' Equity         ----------------------
                           --------------------            1998          1997
                                                           -----         ----
<S>                                                        <C>           <C>    

Current liabilities:
    Current maturities of long-term debt (note 5)     $      8,124   $    3,971
    Accounts payable                                         3,280        2,277
    Accrued compensation                                     1,714        1,278
    Income taxes payable                                         -          275
    Accrued loss reserves (note 12)                          1,204          905
    Other accrued expenses                                     808          921
                                                      ------------   ----------
               Total current liabilities                    15,130        9,627
Long-term debt, less current maturities (note 5)            53,579       27,005
Deferred income taxes (note 6)                              11,380        8,340                                 
                                                      ------------   ----------
               Total liabilities                            80,089       44,972                                    
                                                      ------------   ----------

Stockholders' equity (notes 7 and 8):
    Preferred stock (.01 par value;                             -            -
    authorized 5 million shares; issued none)
    Common stock:
        Class A (.01 par value; authorized 20 million           40           40
        shares; issued 1998 -4,015,662; 
        1997 - 4,003,068 shares)
        Class B (.01 par value; authorized 5 million shares;    10           10
        issued 1 million shares)                                                                          
    Additional paid-in capital                              11,311       11,144                               
    Retained earnings                                       24,118       18,789                         
    Reacquired shares, at cost (1998 - 13,885; 
    1997 - 14,404 shares)                                      (74)        (77)
                                                       ------------   ----------
               Total stockholders' equity                   35,405       29,906
                                                       ------------   ----------
Commitments (notes 4,11 and 12)
                                                       $   115,494   $   74,878
                                                       ============  ===========

</TABLE>


           See accompanying notes to consolidated financial statements



                                       26

<PAGE>



                                                                        
  
   

                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                       Consolidated Statements of Earnings
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                          Years ended December 31,
                              --------------------------------------------------
                                      1998              1997             1996
                                      -----             ----             ----
<S>                           <C>              <C>               <C>    

Operating revenue:
   Freight                    $      160,975   $       119,688   $       93,428
   Other                                 400               429              239
                              ---------------  ----------------  ---------------
         Operating revenue           161,375           120,117           93,667
                              ---------------  ----------------  ---------------
Operating expenses:
   Purchased transportation           66,495            47,095           37,386
   Compensation and employee benefits 38,191            26,904           20,800
   Fuel, supplies, and maintenance    19,738            15,965           12,347
   Insurance and claims                2,745             2,206            1,995
   Taxes and licenses                  3,048             2,299            1,856
   General and administrative          6,237             5,391            4,214
   Communications and utilities        1,838             1,378              971
   Depreciation and amortization      11,015             7,880            5,740
                              ---------------  ----------------  ---------------
         Total operating expenses    149,307           109,118           85,309
                              ---------------  ----------------  ---------------
         Earnings from operations     12,068            10,999            8,358
Financial (expense) income:
   Interest expense                   (3,200)           (1,654)          (1,705)
   Interest income                       235               109              157
                              ---------------  ----------------  ---------------
         Earnings before income taxes  9,103             9,454            6,810
Income taxes (note 6)                  3,774             3,781            2,860
                              ---------------  ----------------  ---------------
         Net earnings         $        5,329   $         5,673    $       3,950
                              ===============  ================  ===============
Basic and diluted earnings    $         1.06   $          1.13    $        0.93
     per share (note 9)       ===============  ================  ===============

                             
</TABLE>

                                                                
          See accompanying notes to consolidated financial statements.



                                       27

<PAGE>




                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 1998, 1997, and 1996
                             (Dollars in thousands)

                                               
<TABLE>
<CAPTION>
                                                                                                
                                                                                             Equity         
                                                      Additional                            reduction     Total
                                           Common      paid-in     Retained    Reacquired      for      stockholders'
                                           stock      capital      earnings     shares         ESOP     equity
                                                                                               debt
                                        ============================================================================
<S>                                       <C>       <C>         <C>         <C>           <C>        <C>

Balance at December 31, 1995              $      28 $         - $     8,138 $        (52) $    (243) $         7,871
Net earnings                                      -           -       3,950             -          -           3,950
Reduction of ESOP debt                            -           -           -             -        243             243
Acquisition of 4,777 common shares                -           -           -          (25)          -            (25)
Shares sold for cash, net of
  issuance costs(note 7)                         15      10,727           -             -          -          10,742
Change in value and number of
  redeemable common shares                        7         377       1,028             -          -           1,412
                                         ---------------------------------------------------------------------------
Balance at December 31, 1996                     50      11,104      13,116          (77)          -          24,193
Net earnings                                      -           -       5,673             -          -           5,673
Issuance of stock bonuses                         -          40           -             -          -              40
                                         ---------------------------------------------------------------------------
Balance at December 31, 1997                     50      11,144      18,789          (77)          -          29,906
Net earnings                                      -           -       5,329             -          -           5,329
Issuance of stock bonuses                         -         165           -             -          -             165
Treasury stock reissued (519 shares)              -           2           -             3          -               5
                                         ---------------------------------------------------------------------------
Balance at December 31, 1998              $      50 $    11,311 $    24,118 $        (74) $        - $        35,405
                                         ===========================================================================


</TABLE>






          See accompanying notes to consolidated financial statements.



                                       28

<PAGE>




                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                  Years ended December 31,
                                                                          ----------------------------------------
                                                                             1998           1997          1996
                                                                             ----           ----          ----
<S>                                                                     <C>             <C>           <C>    

Cash flows from operating activities:
   Net earnings                                                         $       5,329   $      5,673 $       3,950
                                                                          -----------   ------------  ------------
   Adjustments  to  reconcile   net  earnings  to  cash  
      provided  by  operating activities:
         Depreciation and amortization                                         11,015          7,880         5,740
         Deferred income taxes                                                  2,880          2,460         2,088
         Provision for bad debts                                                   57             60            --
         Stock bonuses                                                            165             40            --
         Change in:
            Receivables                                                       (4,603)        (1,214)       (4,756)
            Inventories                                                         (107)          (326)         (210)
            Deposits, primarily with insurers                                     379            151          (67)
            Prepaid expenses                                                      343          (264)            90
            Accounts payable and other accrued liabilities                      1,050            450           249
                                                                          -----------   ------------  ------------
               Total adjustments                                               11,179          9,237         3,134
                                                                          -----------   ------------  ------------
               Net cash provided by operating activities                       16,508         14,910         7,084
                                                                          -----------   ------------  ------------

Cash flows from investing activities:
   Payments for acquisitions                                                  (26,266)        (2,599)       (3,834)
   Purchase of property and equipment                                         (12,865)          (357)       (6,341)
   Proceeds from sale of property and equipment                                 2,592          1,317         1,321
   Purchase of other assets                                                      (36)          (117)            --
   Proceeds from short-term investments                                            --             --           500
                                                                          -----------   ------------  ------------
               Net cash used in investing activities                         (36,575)        (1,756)       (8,354)
                                                                          -----------   ------------  ------------


Cash flows from financing activities:
   Proceeds from long-term debt                                                41,000         14,300            --
   Principal payments on long-term debt                                      (23,744)       (19,822)      (16,068)
   Borrowings on line of credit agreement                                          --         44,670        93,593
   Payments on line of credit agreement                                            --       (49,160)      (89,103)
   Proceeds from issuance of common stock, net                                     --             --        11,232
   Other                                                                            5             --         (420)
                                                                          -----------   ------------  ------------
      Net cash provided by (used in) financing activities                      17,261       (10,012)         (766)
                                                                          -----------   ------------  ------------
      Net(decrease)increase in cash and cash equivalents                      (2,806)          3,142       (2,036)
                                                       
Cash and cash equivalents at beginning of year                                  4,082            940         2,976
                                                                          -----------   ------------  ------------
Cash and cash equivalents at end of year                                $       1,276   $      4,082 $         940
                                                                          ===========   ============  ============
</TABLE>

                                                                         
         
                                                                          


                                       29

<PAGE>




                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows, Continued
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                          ----------------------------------------
                                                                              1998          1997          1996
<S>                                                                      <C>            <C>          <C>    
Supplemental disclosure of cash flow information: 
   Cash paid during the year for:
       Interest                                                          $       3,262  $      1,455 $       1,732
       Income taxes                                                              1,438           835           971
                                                                          ------------  ------------  ------------
Supplemental schedules of noncash investing and financing activities:
       Notes payable issued for tractors and trailers                    $      11,780  $     20,594 $       8,996
       Principal payments made by ESOP                                              --            --           243
       Issuance of stock bonuses                                                   165            40            --
       Liability issued for intangible assets                                    1,691            --           100
                                                                          ============  ============  ============

Cash payments for acquisitions:
     Revenue equipment                                                   $      21,671  $      1,990 $       3,004
     Intangible assets                                                           2,779           472           727
     Land, buildings and other assets                                            1,816           137           103
                                                                          ------------  ------------  ------------
                                                                         $      26,266  $      2,599 $       3,834
                                                                          ============  ============  ============
</TABLE>




















          See accompanying notes to consolidated financial statements.




                                       30

<PAGE>





                   SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997
             (Dollars in thousands, except share and per share data)


Note 1: Consolidated Entity

         Smithway Motor Xpress Corp.  and  subsidiaries  is a truckload  carrier
that provides nationwide  transportation of diversified  freight,  concentrating
primarily in flatbed  operations.  It generally  operates  over  short-to-medium
traffic routes, serving shippers located predominantly in central United States.
The  Company  also  operates  in the  southern  provinces  of  Canada.  Canadian
revenues,  based on miles  driven,  were  approximately  $339 for the year ended
December 31, 1998.
     Smithway  Motor Xpress  Corp.  is a holding  company of three  wholly-owned
subsidiaries,  Smithway Motor Xpress,  Inc., East West Motor Express,  Inc., and
JHT,  Inc.  East West  Motor  Express,  Inc.  and JHT,  Inc.  are newly  created
corporations  formed in 1998 to facilitate the purchase of unrelated  businesses
using the same name.  (See note 3.) Unless  otherwise  indicated,  the companies
named in this paragraph are collectively referred to as the "Company."

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation
         The  consolidated  financial  statements  include  the  accounts of the
Company  as  described  in note 1. All  significant  intercompany  balances  and
transactions have been eliminated in consolidation.

Customers
         The  Company  serves a diverse  base of  shippers.  No single  customer
accounted for more than 10 percent of the  Company's  total  operating  revenues
during any of the years ended  December 31, 1998,  1997, and 1996. The Company's
10 largest customers accounted for approximately 26 percent, 23 percent,  and 32
percent of the Company's total operating  revenues during 1998,  1997, and 1996,
respectively.  The Company's largest  concentration of customers is in the steel
and building materials industries, which together accounted for approximately 46
percent, 51 percent, and 47 percent of the Company's total operating revenues in
1998, 1997, and 1996, respectively.

Drivers
         The Company  faces  intense  industry  competition  in  attracting  and
retaining qualified drivers and independent contractors.  This competition could
result in the  Company  temporarily  idling  some of its  revenue  equipment  or
increasing  the  compensation  the Company  pays to its drivers and  independent
contractors.

Use of Estimates
         Management   of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

Cash and Cash Equivalents
         The Company  considers  interest-bearing  instruments  with maturity of
three months or less at the date of purchase to be the  equivalent  of cash.  At
December  31, 1998 and 1997 cash  equivalents  consisted of $1,471 and $3,700 of
commercial paper and United States Treasury bills.

Receivables
         Trade  receivables are stated net of an allowance for doubtful accounts
of $66 and $60 at December 31, 1998 and 1997, respectively. The financial status
of customers is checked and monitored by the Company when granting  credit.  The
Company routinely has significant dollar transactions with certain customers. At
December 31, 1998 and 1997,  no individual  customer  accounted for more than 10
percent of total trade receivables.

Inventories
         Inventories   consist  of  tractor  and  trailer  supplies  and  parts.
Inventories are stated at lower of cost (first-in, first-out method) or market.



                                       31

<PAGE>



Prepaid Expenses
         Prepaid  expenses  consist  primarily  of the cost of tarps,  which are
amortized over 36 months and licenses which are amortized over 12 months.

Accounting for Leases
         The Company is a lessee of revenue  equipment under  operating  leases.
Rent expense is charged to operations  as it is incurred  under the terms of the
respective leases.

Property and Equipment
         Property and equipment are recorded at cost.  Depreciation  is provided
by use of the straight-line and declining-balance  methods over lives of 5 to 39
years for  buildings and  improvements,  5 to 7 years for tractors and trailers,
and 3 to 10 years for other  equipment.  Expenditures  for maintenance and minor
repairs are charged to operations,  and expenditures for major  replacements and
betterments are capitalized.  The cost and related  accumulated  depreciation on
property and equipment retired, traded, or sold are eliminated from the property
accounts at the time of retirement,  trade, or sale. In accordance with industry
practices,  the gain or loss on retirement  or sale is included in  depreciation
and amortization in the consolidated statements of earnings.  Gains or losses on
trade-ins are included in the basis of the new asset.
     Tires  purchased as part of revenue  equipment are capitalized as a cost of
the equipment.  Effective  January 1, 1998, the Company  changed its estimate of
the life of these  tires  from two years to the life of the  underlying  revenue
equipment.  This change is in accordance wtih standard industry practice and was
based on the Company's  experience  with the warranties and tread life of tires.
The change has been  accounted for  prospectively.  The effect of this change on
net earnings was an increase of $175. Replacement tires are expensed when placed
in service.

Intangibles
         Intangible  assets,  primarily  goodwill,  are recorded at cost and are
amortized  using the  straight-line  method over  periods  ranging  from 5 to 15
years. Accumulated amortization of $583 and $211, at December 31, 1998 and 1997,
respectively,  have  been  netted  against  these  intangible  assets.  Goodwill
represents the excess of purchase price over fair value of net assets  acquired.
The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered  through  undiscounted  future  operating  cash flows of the  acquired
operation.  The amount of goodwill  impairment,  if any,  is  measured  based on
projected   discounted  future  operating  cash  flows  using  a  discount  rate
reflecting  the  Company's  average cost of funds.  The  assessment of the
recoverability  of goodwill will be impacted if estimated  future operating cash
flows are not achieved.

Revenue Recognition
         The Company generally  recognizes operating revenue when the freight to
be  transported  has  been  loaded.   The  Company  operates  primarily  in  the
short-to-medium  length haul category of the trucking industry;  therefore,  the
Company's   typical  customer  delivery  is  completed  one  day  after  pickup.
Accordingly, this method of revenue recognition is not materially different from
recognizing  revenue  based on completion  of delivery.  The Company  recognizes
operating  revenue  when the  freight is  delivered  for longer haul loads where
delivery  is  completed  more  than one day after  pickup.  Amounts  payable  to
independent  contractors  for purchased  transportation,  to Company drivers for
wages,  and other  direct  expenses  are  accrued  when the  related  revenue is
recognized.

Insurance and Claims
     Losses  resulting  from  personal  liability,   physical  damage,  workers'
compensation,  and cargo  loss and damage are  covered by  insurance  subject to
certain deductibles.  Losses resulting from uninsured claims are recognized when
such losses are known and can be estimated.  The Company estimates and accrues a
liability for its share of ultimate settlements using all available information.
Expenses depend on actual loss experience and changes in estimates of settlement
amounts for open claims which have not been fully resolved.

Income Taxes
         Income taxes are accounted  for under the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  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  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and  liabilities  is  recognized  in  income in the  period  that  includes  the
enactment date.


                                       32

<PAGE>

                                                  


Stock Option Plans
     The Company has elected the pro forma  disclosure  option of  Statement  of
Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for  Stock-Based
Compensation."  The Company  will  continue  applying the  accounting  treatment
prescribed by the provisions of APB Opinion No. 25, "Accounting for Stock Issued
to  Employees."  Pro forma net  earnings  and pro forma net  earnings per common
share have been  provided as if SFAS No. 123 were  adopted  for all  stock-based
compensation plans.

Derivative Instruments
     The Company uses purchased options and futures contracts to hedge a portion
of their anticipated fuel purchases.  These derivative instruments are linked to
heating  oil  which has a high  correlation  to diesel  fuel.  These  derivative
instruments meet the criteria for hedge accounting and are accounted for on this
basis.  The Company  does not hold or issue  options and futures  contracts  for
trading  purposes.  Unrealized gains and losses related to qualifying hedges are
deferred  and  recognized  in  income  when  the fuel  purchases  are  made,  or
immediately if the commitment has been canceled.
     The Company also uses "floating to fixed" heating oil price swap agreements
to limit its exposure to potentially adverse fluctuations in fuel prices. As the
fuel  is  purchased,  the  differential  to be  paid  or  received  on the  swap
agreements is recognized as an  adjustment to fuel,  supplies,  and  maintenance
expense in the consolidated statement of earnings.

Net Earnings Per Common Share
     Basic earnings per share have been computed by dividing net earnings by the
weighted-average  outstanding  Class A and Class B common  shares during each of
the years.  Diluted earnings per share have been calculated by also including in
the  computation  the effect of employee stock  options,  nonvested  stock,  and
similar equity instruments granted to employees as potential common shares.

Effect of New Accounting Standards
     The  Company   adopted  the   provisions   of  SFAS  No.  130,   "Reporting
Comprehensive  Income" and SFAS No. 132,  "Employers'  Disclosure about Pensions
and Other  Postretirement  Benefits"  effective  January 1,  1998.  SFAS No. 130
establishes the standards for the reporting and display of comprehensive  income
in the financial  statements.  SFAS No. 132 revises the disclosure  requirements
for  pension  and other  postretirement  benefit  plans.  The  adoption of these
standards had no effect on the Company's consolidated financial statements.  The
Company adopted the provisions of SFAS No.  131,"Disclosure about Segments of an
Enterprise  and Related  Information"  effective  January 1, 1998.  SFAS No. 131
establishes  disclosure  requirements  for segment  operations.  The Company has
three operating segments:  Smithway Motor Xpress, Inc.; East West Motor Express,
Inc.;  and JHT,  Inc.  Each of these  segments  operates  in the  motor  carrier
services  industry with a similar  operations and customer base.  These segments
have been  aggregated for purposes of SFAS No. 131. The Company intends to merge
JHT, Inc. into Smithway Motor Xpress,  Inc. in 1999,  thereby  eliminating  this
operating  segment.  SFAS No. 133,  "Accounting  for Derivative  Instruments and
Hedging  Activities,"  will be effective for the Company for the year  beginning
January 1, 2000.  Management is  evaluating  the impact the adoption of SFAS No.
133 will have on the Company's  consolidated  financial statements.  The Company
expects to adopt SFAS No. 133 when required.

Note 3:  Acquisitions

     In February 1998, the Company acquired tractors,  trailers, real estate and
certain other assets owned or leased by East West Motor  Express,  Inc. of Black
Hawk,  South  Dakota.   In  exchange  for  these  assets,   the  Company  repaid
approximately  $4,287 in  equipment  financing  secured by these assets and paid
$5,896 to the former  owners of the acquired  assets.  In addition,  the Company
agreed to pay $2,256 for goodwill and other intangible assets.
     In October 1998, the Company acquired tractors, trailers, and certain other
assets  owned or leased by JHT,  Inc. of  Cohasset,  Minnesota.  In exchange for
these assets,the Company assumed and repaid  approximately  $10,200 in equipment
financing  secured by these  assets  and paid $813 to the  former  owners of the
acquired assets. In addition,  the Company agreed to pay $1,515 for goodwill and
other intangible assets.
     A summary of unaudited pro forma  financial  statement  data,  assuming the
acquisition  of East West Motor  Express,  Inc.  and JHT,  Inc.  had occurred on
January  1,  1997 is as  follows:  operating  revenue,  $185,692  and  $175,200;
earnings from operations,  $13,599 and $15,256; net earnings, $5,739 and $7,176;
and basic and diluted net earnings per common share,  $1.14 and $1.43,  for 1998
and 1997, respectively.
     The Company also acquired tractors,  trailers,  and certain other assets of
TP Transportation, Inc. of Enid, Oklahoma in August 1998. 


                                       33

<PAGE>

In exchange for these assets, the Company assumed or repaid approximately $4,333
in  equipment  financing  secured  by these  assets  and paid $125 to the former
owners of TP  Transportation,  Inc. In addition,  the Company agreed to pay $675
for goodwill and other intangible assets. The effect of this transaction was not
material to the consolidated financial statements of the Company.
     In February  1997, the Company  acquired  tractors,  trailers,  and certain
other assets of Pirie Motor Freight,  Inc. of Fort Dodge,  Iowa. In exchange for
these assets, the Company assumed and repaid  approximately  $1,260 in equipment
financing  secured by these assets and paid $140 for a noncompete and consulting
agreement.  The effect of this  transaction was not material to the consolidated
financial statements of the Company.
     In September 1997, the Company  acquired  tractors,  trailers,  and certain
other assets of Royal Transport, Ltd. of Grand Rapids, Michigan. In exchange for
these  assets,  the Company  repaid  approximately  $669 in equipment  financing
secured by these assets and paid $179 to the former  owners of Royal  Transport,
Ltd. In addition, the Company agreed to pay $376 for a noncompete and consulting
agreement.  The effect of this  transaction was not material to the consolidated
financial statements of the Company.
     The  above  acquisitions  were  accounted  for by the  purchase  method  of
accounting.

Note 4:  Financial Instruments

     SFAS 107, "Disclosures About Fair Value of Financial  Instruments," defines
the fair value of a financial  instrument as the amount at which the  instrument
could be exchanged in a current transaction between willing parties. At December
31, 1998, the carrying amounts of cash and cash equivalents,  trade receivables,
other receivables,  accounts payable, and accrued liabilities,  approximate fair
value because of the short maturity of those  instruments.  The carrying amounts
of  long-term  debt  and line of  credit  approximate  fair  value  because  the
applicable borrowing rates equal current market rates.
     The Company uses derivative  instruments  including  purchased  options and
futures  contracts to hedge a portion of their  anticipated fuel purchases.  The
Company does not hold these  instruments with the objective of earning financial
gains on price  fluctuations  alone,  nor does it enter  into  derivative  hedge
instruments for which there are no underlying transaction related exposures. The
notional amounts for options and futures contracts in place at December 31, 1998
and 1997 are 1.6 million  gallons and -0- gallons,  respectively.  These options
and futures  contracts  generally  mature in less than one year. At December 31,
1998 deferred unrealized losses were $140, based upon broker quoted prices.
     In December  1998,  the Company  entered into  several  "floating to fixed"
heating oil price swap agreements.  At December 31, 1998, the notional amount of
the  agreements  was 7.5  million  gallons,  related  specifically  to 1999 fuel
purchases.  At December  31,1998,  the fixed price in the agreements ranged from
37.8 cents per gallon to 42.2 cents per gallon. Fair value of these swaps, based
upon the estimated amount the Company would pay to terminate the agreements, was
$317 at December 31, 1998.

Note 5:  Long-Term Debt

     Long-term debt includes a credit  agreement,  entered into during 1997,
with an  outstanding  balance of $25,000 and  $10,000 at  December  31, 1998 and
1997,  respectively.  The  agreement  was  amended  during  1998  to  allow  for
borrowings up to the lesser of 85 percent of eligible accounts receivable and 75
percent of the net book value of  unencumbered  revenue  equipment  or  $40,000.
Borrowings  under the  agreement  are  secured  by liens on  revenue  equipment,
accounts  receivable,  and certain  other  assets  at December  31,  1998.  The
agreement expires August 31, 2000 and contains certain compliance covenants. The
Company was in  compliance  with these  covenants  at  December  31,  1998.  The
weighted  average  interest  rate on the  outstanding  balance is defined in the
agreement  and at December 31, 1998 and 1997 was 6.79 percent and 6.87  percent,
respectively.  The credit  agreement  also  includes  financing  for  letters of
credit.  At  December  31,  1998 and 1997,  the Company had letters of credit of
$2,000 and $1,000 outstanding for self-insured  amounts related to its insurance
programs.  (See note 12.) These letters of credit directly reduced the amount of
potential borrowings available under the credit agreement.
     Long-term debt also includes  equipment  notes with balances of $35,444
and $20,976 at December 31, 1998 and 1997,  respectively.  Interest rates on the
equipment notes range from 5.81 percent to 6.99 percent with maturities  through
2003. The equipment notes are collateralized by the underlying equipment.
     At December 31, 1998,  long-term debt also includes future payments for
intangible  assets of $1,259.  
     Future  maturities on long-term  debt for years ending  December 31, are as
follows:  1999, $8,124;  2000,  $33,577;  2001, $6,416;  2002, $8,773; and 2003,
$4,813.

                                       34
<PAGE>

Note 6:  Income Taxes

         Income taxes consisted of the following  components for the three years
ended December 31:
<TABLE>
                                     Federal       State        Total
                              -------------- ----------- ------------
<S>                           <C>            <C>          <C>    

                         1998
                         ----
                      Current  $         805 $        89 $       894
                     Deferred          2,304         576        2,880
                               ------------- ----------- ------------
                               $       3,109 $       665 $      3,774
                               ============= =========== ============
                              
                         1997
                         ----
                      Current          1,082         239        1,321
                     Deferred          2,016         444        2,460
                               ------------- ----------- ------------
                               $       3,098 $       683 $      3,781
                               ============= =========== ============
                             
                         1996
                         ----
                      Current            725          47          772
                     Deferred          1,712         376        2,088
                              -------------- ----------- ------------
                               $       2,437 $       423 $      2,860
                               ============= =========== ============

</TABLE>

         Total income tax expense  differs from the amount of income tax expense
computed by applying  the normal  United  States  federal  income tax rate of 34
percent to income  before income tax expense.  The reasons for such  differences
are as follows:

<TABLE>
<CAPTION>
                                                      Years ended December 31,
                                                       1998     1997     1996
                                                       ----------------------
<S>                                                   <C>     <C>      <C>    

Computed "expected" income tax expense                $3,095  $3,214   $2,315
State income tax expense net of federal benefit          439     451      279
Permanent differences, primarily nondeductible 
     portion of driver per diem and travel expenses      234     230      176
Other                                                      6    (114)      90
                                                      ------------------------
                                                      $3,774   $3,781  $2,860
                                                      ========================
</TABLE>

         Temporary  differences  between the financial statement basis of assets
and liabilities and the related  deferred tax assets and liabilities at December
31, 1998 and 1997, were as follows:

<TABLE>
<CAPTION>

                                                       1998                1997
                                                    ----------------------------
<S>                                                 <C>                <C>    

Deferred tax assets:
Alternative minimum tax (AMT)credit carryforwards   $ 1,783             $   910
Accrued expenses                                        650                 508
Other                                                   101                  32
                                                    --------            --------
Total gross deferred tax assets                       2,534               1,450
                                                    --------            --------
Deferred tax liabilities:
Prepaid expenses                                         (5)                (17)
Property and equipment                              (13,399)             (9,423)
                                                    --------            --------
Total gross deferred tax liabilities                (13,404)             (9,440)
                                                    --------            --------
Net deferred tax liabilities                       ($10,870)            ($7,990)
                                                   =========            ========
                                                    
</TABLE>
         The AMT  credit  carryforwards  are  available  indefinitely  to reduce
future income tax liabilities to the extent they exceed AMT liabilities.

                                       35
<PAGE>


Note 7:  Stockholders' Equity

         On all matters with respect to which the Company's  stockholders have a
right to vote, each share of Class A common stock is entitled to one vote, while
each share of Class B common stock is entitled to two votes.  The Class B common
stock is  convertible  into shares of Class A common stock on a  share-for-share
basis at the election of the  stockholder  and will be  converted  automatically
into  shares of Class A common  stock  upon  transfer  to any party  other  than
William  G.  Smith,   his  wife,   Marlys  L.  Smith,   their  children,   their
grandchildren,  trusts for any of their  benefit,  and entities  wholly owned by
them.
         Effective  July 2, 1996,  the Company  sold 1.5  million  shares of its
Class A common  stock in an initial  public  offering.  The shares  were sold at
$8.50 per share, for a total  consideration of $12,750.  Underwriting  discounts
and offering  expenses were $2,008,  resulting in net proceeds to the Company of
$10,742.

Note 8: Stock Plans

         The  Company has  reserved  25,000  shares of Class A common  stock for
issuance  pursuant to an outside  director  stock option plan.  The term of each
option  shall be six  years  from the  grant  date.  Options  vest on the  first
anniversary of the grant date. Exercise price of each stock option is 85 percent
of the fair market value of the common stock on the date of grant.
         The Company has  reserved  225,000  shares of Class A common  stock for
issuance  pursuant to an incentive  stock  option plan.  Any shares which expire
unexercised or are forfeited become available again for issuance under the plan.
Under this plan, no awards of incentive stock options may be made after December
31, 2004.
         The Company  applied APB  Opinion  No. 25 in  accounting  for its stock
option plans; and,  accordingly,  no compensation expense has been recognized in
the consolidated financial statements.  Had the Company determined  compensation
based on the fair  value at the grant  date for its  outstanding  stock  options
under SFAS 123, the effect on Company's net earnings and net earnings per common
share  for 1998  and 1997  would  have  been  immaterial.  The  full  impact  of
calculating compensation cost for stock options under SFAS 123 is reflected over
the options' vesting period.
         A summary of stock option activity and weighted-average exercise prices
follows:
<TABLE>
<CAPTION>
                                                          1998              1997              1996
                                             Shares   Exercise    Shares  Exercise  Shares  Exercise
                                                         price                       price    price
                                            ---------------------------------------------------------

<S>                                         <C>       <C>         <C>      <C>      <C>      <C>

Outstanding at beginning of year            114,000      $9.25    88,000   $9.42    85,000    $9.50
Granted                                      35,000      12.00    28,000    8.73     3,000     7.23
Exercised                                         -         -          -       -         -        -
Forfeited                                         -         -     (2,000)   9.50         -        -
                                            -------      -----   -------   ------   ------    -----           
Outstanding at end of year                  149,000      $9.90   114,000   $9.25    88,000    $9.42
                                            =======      =====   =======   =====    ======    =====

Options exercisable at end of year           97,400      $9.21    48,700   $9.20    16,600    $9.50
  Weighted-average fair value of options      
  granted during the year                    $5.25                $2.22             $2.72

</TABLE>

         At December 31, 1998, the weighted-average  remaining  contractual life
of the  outstanding  options was 7.0 years and the exercise  prices  ranged from
$7.23 to $14.05 per share.
         The Company used the  Black-Scholes  option  pricing model to determine
the fair value of stock options for the years ended December 31, 1998, 1997, and
1996. The following assumptions were used in determining the fair value of these
options: weighted-average risk-free interest rate, 5.46% in 1998, 6.12% in 1997,
and 6.44% in 1996;  weighted-average  expected life, 5 years in 1998, 5 years in
1997 and 3 years in 1996; and weighted-average expected volatility, 41% in 1998,
21% in 1997, and 20% in 1996. There were no expected dividends.
         The  Company  adopted  an  independent  contractor  driver  bonus  plan
effective  January 1, 1997. The maximum number of shares to be awarded under the
plan are 50,000  shares of Class A common stock.  The Company  awarded 5,696 and
3,211 shares under the plan in 1998 and 1997, respectively.
         The Company also adopted a Class A common stock profit  incentive  plan
in 1997.  Under the plan,  the  Company  will set aside for  delivery to certain
participants  the number of shares of Class A common stock having a market value
on the distribution date equal to a designated  percentage (as determined by the
board of directors)  of the  Company's  consolidated  net earnings for the
applicable  fiscal year. In 1998, the Company  awarded $80 to certain  employees
for which common stock will be issued in 1999. In 1998 the Company  issued 6,079
shares of Class A common stock to participants in the plan.
     In 1996,  the  Company  granted  a common  stock  bonus of 2,254  shares of
nonvested Class A common stock with a fair value of $8.88 on the grant date.


                                       36

<PAGE>



During 1998 and 1997, 564 and 563 shares,  respectively, became vested and  were
issued by the Company. The remaining 1,127 shares will vest and be issued during
1999.

Note 9:  Earnings per Share

         A summary of the basic and diluted  earnings per share  computations is
presented below:

<TABLE>
<CAPTION>
                                                 
                                                     Years ended December 31,
                                                  1998       1997         1996
                                               ---------------------------------
<S>                                            <C>        <C>          <C>    

Net earnings available to common  stockholders $   5,329  $   5,673    $   3,950
                                               =========  =========    =========
Basic weighted-average shares outstanding      5,012,450  5,000,860    4,249,893
Effect of dilutive stock options                  24,069     18,011          158
Effect of dilutive stock awards                      221        376            -
                                               ---------  ---------    ---------        
Diluted weighted-average shares outstanding    5,036,740  5,019,247    4,250,051
                                               =========  =========    =========
Basic earnings per share                           $1.06      $1.13        $0.93
Diluted earnings per share                         $1.06      $1.13        $0.93

</TABLE>

Note 10:  Employees' Profit Sharing and Savings Plan and ESOP

         The Company has an Employees' Profit Sharing and Savings Plan, which is
a  qualified  plan under the  provisions  of  Sections  401(a) and 501(a) of the
Internal  Revenue  Code.  Eligible  employees  are allowed to contribute up to a
maximum of 15 percent of pretax  compensation into the plan.  Employers may make
savings,   matching,  and  discretionary   contributions,   subject  to  certain
restrictions.  During the years ended December 31, 1998, 1997, and 1996, Company
contributions totaled $152, $150, and $-0-, respectively.  The plan owns 475,140
shares of the Company's Class A common stock at December 31, 1998.
         The  Company  previously  sponsored  an ESOP which was merged  into the
Employees' Profit Sharing and Savings Plan,  effective January 1, 1997. The ESOP
had  previously  incurred a note  payable with a balance at December 31, 1996 of
$243 in connection  with the purchase of common stock of the Company.  This debt
was retired by the ESOP during 1996 with the  proceeds  the ESOP  received  from
stock it sold in the initial public  offering.  Actual  interest  expense on the
ESOP debt was $11 during the year ended December 31, 1996.

Note 11:  Lease Commitments

         The Company has entered into various noncancelable operating leases for
transportation  equipment  and  buildings  which will  expire over the next four
years. Under the leases for transportation equipment, the Company is responsible
for all  repairs,  maintenance,  insurance,  and all other  operating  expenses.
Certain leases on transportation  equipment require the Company to guarantee the
residual  value at the maturity of the lease at amounts  varying from 10 percent
to 20 percent of the original equipment cost. The maximum  contingent  liability
under such leases is approximately $234 from 1999 to 2002.
         Approximate future minimum lease payments under noncancelable operating
leases as of December 31, 1998,  totaled $601 and are payable as follows:  1999,
$405; 2000, $185; and 2001, $11.
          Rent  charged to  expense on the above  leases,  expired  leases,  and
short-term rentals was $974 in 1998; $1,740 in 1997; and $1,462 in 1996.

Note 12:  Commitments and Contingent Liabilities

     The  Company's   insurance   program  for  personal   liability,   physical
damage, workers'   compensation,   and   cargo   losses   and   damage  involves
self-insurance  for losses up to $50 per claim,  $50 per claim,  $100 per claim,
and $50 per claim, respectively.  At December 31, 1998 and 1997, the Company had
approximately $1,204 and $905, respectively, accrued for its estimated liability
for  incurred  losses  related  to  these  programs.  Losses  in  excess  of the
self-insured amount per claim are covered by insurance companies.
         The  insurance  companies  require  the  Company to provide  letters of
credit to provide funds for payment of the self-insured amounts. At December 31,
1998 and 1997, the Company had a $2,000 and $1,000 letter of credit issued under
the credit agreement  described in note 5. In addition,  funds totaling $201 and
$683 were held by the  insurance  companies as deposits at December 31, 1998 and
1997, respectively.


                                       37

<PAGE>







         The Company's health insurance program is provided as an employee
benefit for all eligible employees and contractors.  The plan is self funded for
losses up to $60,000 per covered member and has an aggregate  excess loss cap of
125% of  expected  claims.  At  December  31,  1998 and 1997,  the  Company  had
approximately $325 and $250,  respectively,  accrued for its estimated liability
related to these claims.
         The  Company  has agreed to pay $645 for real  estate and  improvements
owned by the former  owners of JHT,  Inc. The  commitment  to purchase this real
estate is contingent upon satisfactory environmental assessments. The Company is
leasing the property until the transaction occurs.
         The Company is also involved in certain  legal actions and  proceedings
arising  from  the  normal  course  of  operations.   Management  believes  that
liability, if any, arising from such legal actions and proceedings will not have
a material adverse effect on the financial position of the Company.

Note 13:  Transactions with Related Parties

         During the year ended  December  31,  1998,  the Company  paid $150 for
financial  advisory services to an investment  banking firm whose president is a
member of the board of directors of the Company.

Note 14:  Quarterly Financial Data (Unaudited)
         Summarized  quarterly  financial data for the Company for 1998 and 1997
is as follows:

<TABLE>
<CAPTION>


1998                          March 31   June 30   September 30     December 31
<S>                           <C>        <C>       <C>              <C>    

Operating revenue             $ 33,391  $ 40,835       $ 42,424        $ 44,725
Earnings from operations         2,493     2,396          3,528           3,651
Net earnings                     1,143     1,021          1,604           1,561
Basic and diluted earnings        0.23      0.20           0.32            0.31
     per share  
1997
Operating revenue             $ 26,908  $ 30,614       $ 31,834        $ 30,761
Earnings from operations         1,955     3,107          3,369           2,569
Net earnings                       951     1,536          1,695           1,492
Basic and diluted earnings        0.19      0.31           0.34            0.30
     per share
</TABLE>

   As a result of  rounding,  the total of the four  quarters  may not equal the
Company's results for the year.


                                       38