UNITED STATES
                       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, 2002

                                       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              (I.R.S. Employer Identification No.)
of Incorporation or Organization)

    2031 Quail Avenue
    Fort Dodge, Iowa                                       50501
---------------------------------------     ---------------------------------
(Address of Principal Executive Offices)                 (Zip Code)

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. [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). YES [ ] NO [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  was  $3,590,739 as of March 17, 2003 (based upon the $1.43 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  10% of a class of
outstanding common stock, and no other persons, are affiliates, and has excluded
stock options.

As of March 17, 2003,  the  registrant  had  3,846,821  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  2003  annual  meeting  of
stockholders that will be filed no later than April 30, 2003.

                                       1
<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.
<TABLE>
                              Document and Location

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

                                     Part II

Item 5       Market for Registrant's Common Equity and Related
             Stockholder Matters                                           Page 8 herein
Item 6       Selected Financial and Operating Data                         Page 9 herein
Item 7       Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                     Page 10 through 20 herein
Item 7A      Quantitative and Qualitative Disclosures About Market Risk    Page 20 herein
Item 8       Financial Statements and Supplementary Data                   Page 21 herein
Item 9       Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                      Page 21 herein

                                    Part III

Item 10      Directors and Executive Officers of the Registrant            Proxy Statement
Item 11      Executive Compensation                                        Proxy Statement
Item 12      Security Ownership of Certain Beneficial Owners and
             Management                                                    Page 22 herein and Proxy Statement
Item 13      Certain Relationships and Related Party Transactions          Proxy Statement
Item 14      Controls and Procedures                                       Page 22 herein

                                     Part IV

Item 15      Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K                                                      Page 23 through 24 herein
</TABLE>
-----------------------------

     This report contains  "forward-looking  statements."  These  statements are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially  from  those  anticipated.  See  "Management  Discussion  and
Analysis of  Financial  Condition  and Results of  Operations - Factors That May
Affect Future  Results" for additional  information and factors to be considered
concerning forward-looking statements.

                                       2
<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 23  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,  formed the
Smithway Network of locations,  and implemented systems to support the Company's
growth.

     Smithway  acquired the operations of nine trucking  companies  between June
1995 and March  2001.  Through  acquisitions  and  internal  growth the  Company
expanded  from $77 million in revenue in 1995 to $199 million in 2000.  However,
the Company experienced its first net loss since going public in 2000, and since
that time revenues have declined and net losses have increased.

     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, and its wholly owned subsidiaries,  Smithway Motor Xpress, Inc., an
Iowa  corporation,  East West Motor Express,  Inc., a South Dakota  corporation,
SMSD Acquisition  Corp., a South Dakota  corporation,  and New Horizons Leasing,
Inc., an Iowa corporation.

     The Company's  headquarters  are located at 2031 Quail Avenue,  Fort Dodge,
Iowa 50501, and the Company's website address is www.smxc.com.

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 22 terminals,  field offices, and
independent  agencies.  The  headquarters and 19 terminals and field offices are
managed  by  Smithway  employees,  while  the  three  agencies  are  managed  by
independent  commission agents. The customer sales representatives and agents at
each  location  have  front-line  responsibility  for  booking  freight 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.  Sales and dispatch  functions for traffic are generally
performed at terminals within the sales region.

     Agents 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.  Agent  contracts  typically are
cancelable  on 14 days'  notice.  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.  The  Company's  number of agents  has  decreased  over the past three
years.

Customers and Marketing

     Smithway's sales force includes eleven sales representatives,  personnel at
20  terminals  and field  offices,  and  three  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

                                       3
<PAGE>
believes that few other carriers  operating  principally in the Midwest  flatbed
market offer similar size and service. Consequently, the Company seeks primarily
service-sensitive  freight rather than competing for all freight on the basis of
price.

     In 2002,  the  Company's  top 50,  25, 10, and 5  customers  accounted  for
approximately  52%,  41%,  28%,  and 20% of  revenue,  respectively.  No  single
customer accounted for 10% or more of the Company's revenue during 2002.

Technology

     Management  believes that advances in technology  can enhance the Company's
operating  efficiency and customer  service.  During  February 2002, the Company
purchased new operating system and freight selection  software that was expected
to improve the efficiency of its operations.  The Company installed the software
in the summer of 2002, and experienced  difficulties in the integration  process
and obtaining  the  necessary  information  to analyze its  operations.  Many of
theses  difficulties  have been  overcome,  but the  Company is still  trying to
optimize  the  software to receive  the  benefits  of full  functionality.  This
software  was  designed  specifically  for the  trucking  industry  to allow the
Company's  managers to coordinate  available  equipment with the  transportation
needs  of  customers,  monitor  truck  productivity  and fuel  consumption,  and
schedule regular equipment  maintenance.  It also is designed to allow immediate
access  to  current  information  regarding  driver  and  equipment  status  and
location, special load and equipment instructions, routing, and dispatching.

     Smithway operates  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  electronic  data  interchange,  which
allows  customers to communicate  directly with the Company via computer link or
the  Internet  and obtain  location  updates  of  in-transit  freight,  expected
delivery times, and account payment instructions.

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. 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 several factors may cause  fluctuations in the fleet
mix from time-to-time.

     Beginning in 2001 and continuing through 2002, the combination of high fuel
prices,  a slowing  economy,  and  tightened  credit  standards  placed  extreme
pressure on independent contractors. Many were forced to exit their business. At
year-end,   Smithway's  number  of  independent  contractors  had  decreased  by
approximately 9% from year-end 2001.

     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 operates over relatively
short-to-medium  distances  (664-mile  average length of haul in 2002) 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, 2002, the Company had
722 Company drivers, 270 non-driver employees,  and 523 independent contractors.
Management  believes that the Company has good  relationships with its employees
and independent contractors.

                                       4
<PAGE>
Safety and Insurance

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

     The Company currently  maintains  insurance  covering losses in excess of a
$250,000 self-insured retention for its casualty insurance, which includes cargo
loss, personal injury,  property damage, and physical damage claims. The Company
has a $250,000 self-insured retention for workers' compensation claims in states
where a self-insured retention is allowed. Its primary casualty insurance policy
has a limit of $2.0  million  per  occurrence,  and the Company  carries  excess
liability coverage up to $40.0 million, which management believes is adequate to
cover exposure to claims exceeding its retention limit.  Prior to July 2002, the
Company maintained a $50,000  self-insured  retention for its casualty insurance
and a $100,000 self-insured  retention for its workers' compensation  insurance.
All  policies  are up for  renewal  in July 2003.  The  insurance  markets  have
experienced  significant  change  over the past two  years.  If we are unable to
renew these  policies on acceptable  terms,  we may  significantly  increase the
Company's self-insured retention levels or modify the Company's excess coverage.

Revenue Equipment

     Smithway's  equipment  strategy  for its  owned  tractors  (as  opposed  to
independent  contractors'  tractors)  is to operate  tractors  for a period that
balances  capital   expenditure   requirements,   disposition   values,   driver
acceptability,  repair and maintenance expense, and fuel efficiency. As a result
of  advances  in the  manufacturing  of tractors  and major  components  and the
depressed  value of used  equipment,  in 2000 the Company  extended  its average
trade cycle mileage from 550,000 to 600,000 miles.  The Company  expects minimal
capital  expenditures  for  tractors  and  trailers  in  2003,  due  to  capital
constraints.  This is expected to increase  the number of  high-mileage  trucks,
which could increase  maintenance  expenses and lower resale values.  Generally,
mileage in excess of 500,000 miles exceeds warranty limits.  Management has seen
an increase in  maintenance  expense in recent  periods,  further  increases  in
repair and  maintenance  expense are  possible as the Company  extends its trade
cycle.  There also is much  uncertainty  surrounding the performance of tractors
built after October 2002 with new engines that meet higher  emissions  standards
mandated  by the EPA.  Changes in the market for used  tractors,  and  difficult
market  conditions faced by tractor  manufacturers may result in price increases
and  increased  operating  expenses  if the  Company  is  able to  purchase  new
tractors.

     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 also is inspected and maintained each time it
passes through a Smithway maintenance facility. Smithway's company-owned tractor
fleet had an average age of 34.2 months at December  31,  2002.  The average age
decreased  in 2002 as the  Company  reduced  its fleet size  through the sale of
older units.

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  approximately  860  company  drivers  and
independent contractors dedicated to its flatbed operation at December 31, 2002,
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.

                                       5

<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 options, 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.  The Company did not have any options,
futures  contracts,  or price swap  agreements in place at any time during 2002.
Most of the Company's contracts with customers contain fuel surcharge provisions
and the Company also attempts to recover increases in fuel prices through higher
rates. However,  increases in fuel prices generally are not fully offset through
these measures.

     Shortages  of fuel,  increases  in fuel  prices,  or rationing of petroleum
products  could  have  a  materially   adverse  effect  on  the  operations  and
profitability   of  the  Company.   Throughout  2000  the  Company   experienced
significant  increases in the cost of diesel  fuel.  There was a short period of
decreased  fuel prices  starting at the end of 2001 and  continuing  through the
first  quarter of 2002.  Since the second  quarter of 2002 fuel has continued to
increase, including into 2003. It is uncertain whether fuel prices will continue
to increase or will decrease,  or the extent the Company can recoup a portion of
these costs through fuel surcharges.

Regulation

     The  Company is a common  and  contract  carrier  of  general  commodities.
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 has
had a material effect on the Company's  operations.  The Company's employees and
independent  contractor  drivers  also 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 DOT has rated the Company "satisfactory" which
is the highest safety and fitness rating.

     Over the past three years,  the DOT has  considered  proposals to amend the
hours-in-service  requirements applicable to truck drivers. The DOT sent a final
rule,  which has not been  published,  to the  Office of  Management  and Budget
("OMB") in January 2003,  for OMB review and approval.  Any change which reduces
the  potential or practical  amount of time that drivers can spend driving could
adversely affect the Company.  Management is unable to predict the nature of any
changes  that may be  adopted.  The DOT also is  considering  requirements  that
trucks be equipped with certain  equipment that the DOT believes would result in
safer operations. The cost of the equipment, if required, could adversely affect
the  Company's  profitability  if shippers are  unwilling to pay higher rates to
fund the purchase of such equipment.

     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.  The  Company's  Fort  Dodge,  Iowa
headquarters  and Black Hawk,  South Dakota and Des Moines,  Iowa 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.

                                       6

<PAGE>
Non-Audit Services Performed by Independent Accountants

     Pursuant to Section  10A(i)(2) of the  Securities  Exchange Act of 1934, as
added  by  Section  202 of  the  Sarbanes-Oxley  Act of  2002,  the  Company  is
responsible for disclosing to investors the non-audit  services  approved by the
Company's Audit Committee to be performed by KPMG LLP, our independent auditors.
Non-audit  services  are  defined  as  services  other than  those  provided  in
connection  with an audit or a review  of the  Company's  financial  statements.
Following the adoption of the  Sarbanes-Oxley  Act of 2002, the Company's  Audit
Committee preapproved non-audit services, consisting of tax compliance services,
which  subsequently were performed by KPMG LLP.  Additional  non-audit  services
will be preapproved in the future.

ITEM 2.  PROPERTIES

         Smithway's headquarters consists of 38,340 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:
<TABLE>
                                                    Driver
       Company Locations          Maintenance     Recruitment    Dispatch     Sales    Ownership
       -----------------          -----------     -----------    --------     -----    ---------
<S>                                    <C>             <C>          <C>         <C>      <C>
Birmingham, Alabama.................   X                            X           X        Leased
Black Hawk, South Dakota............   X               X            X           X        Owned
Chicago, Illinois...................                                X           X        Owned
Cohasset, Minnesota.................   X                            X           X        Owned
Dallas, Texas.......................                   X            X           X        Leased+
Denver, Colorado....................                                X           X        Leased+
Des Moines, Iowa ...................   X                            X           X        Owned
Enid, Oklahoma .....................                                X                    Leased+
Fort Dodge, Iowa....................   X               X            X           X        Owned
Houston, Texas......................                                X           X        Leased
Joplin, Missouri....................   X                            X           X        Owned
Kansas City, Missouri...............                                X           X        Leased
McPherson, Kansas...................   X                            X           X        Owned
Oklahoma City, Oklahoma.............   X               X            X           X        Owned
Oshkosh, Wisconsin..................                                X           X        Leased+
Phoenix, Arizona....................                                X           X        Leased
Stockton, California................                   X            X           X        Leased
St. Louis, Missouri.................                                X           X        Leased+
St. Paul, Minnesota.................                                X           X        Leased+
Youngstown, Ohio....................                   X            X           X        Leased+
        Agent Locations
        ---------------
Chambersburg, Pennsylvania..........                                X           X
Detroit, Michigan ..................                                X           X
Toledo, Ohio .......................                                X           X
</TABLE>
+ Month-to-month leases.

ITEM 3.  LEGAL PROCEEDINGS

     The Company from  time-to-time is a party to litigation and  administrative
proceedings  arising in the ordinary course of its business.  These  proceedings
primarily involve 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, 2002,  no
matters were submitted to a vote of security holders.

                                       7

<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 prices
for the  Company's  Class A Common  Stock as reported by Nasdaq from  January 1,
2001, to December 31, 2002.


          Period                   High                 Low
---------------------------    --------------     ----------------
Calendar Year 2002
       1st Quarter             $        2.72      $          1.76
       2nd Quarter             $        2.29      $          1.55
       3rd Quarter             $        1.86      $          1.03
       4th Quarter             $        1.45      $          0.71

          Period                   High                 Low
---------------------------    --------------     ----------------
Calendar Year 2001
       1st Quarter             $        3.25      $          1.63
       2nd Quarter             $        3.13      $          2.06
       3rd Quarter             $        2.98      $          1.85
       4th Quarter             $        2.65      $          1.20

     As of February 28, 2003, the Company had 326  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 any  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.






                                       8

<PAGE>

ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
                                                                      Years Ended December 31,
                                                      1998         1999         2000         2001         2002
                                                      ----         ----         ----         ----         ----
Statement of Operations Data:                            (In thousands, except per share and operating data)
<S>                                                 <C>          <C>          <C>          <C>           <C>
Operating revenue...............................    $  161,375   $  196,945   $ 198,990    $ 190,826     $ 169,468
Operating expenses:
  Purchased transportation......................        66,495       79,735      77,755       70,129        62,364
  Compensation and employee benefits............        38,191       49,255      51,718       54,394        51,834
  Fuel, supplies, and maintenance...............        19,738       23,754      30,995       32,894        27,722
  Insurance and claims..........................         2,745        4,212       3,426        5,325         7,324
  Taxes and licenses............................         3,048        4,045       3,943        3,817         3,444
  General and administrative....................         6,237        7,491       8,319        8,294         7,153
  Communications and utilities..................         1,838        2,190       2,052        2,123         1,783
  Depreciation and amortization.................        11,015       15,800      19,325       18,778      19,725(1)
                                                  ------------------------------------------------------------------
     Total operating expenses...................       149,307      186,482     197,533      195,754       181,349
                                                  ------------------------------------------------------------------
     Earnings (loss) from operations............        12,068       10,463       1,457       (4,928)      (11,881)
Interest expense (net)..........................         2,965        3,715       4,029        3,004         1,915
                                                  ------------------------------------------------------------------
Earnings (loss) before income taxes.............         9,103        6,748      (2,572)      (7,932)      (13,796)
Income taxes (benefit)..........................         3,774        2,822        (581)      (2,721)       (5,118)
                                                  ------------------------------------------------------------------
Net earnings (loss).............................         5,329        3,926      (1,991)      (5,211)    (8,678)(2)
                                                  ==================================================================
Basic and diluted earnings (loss) per common
share...........................................    $     1.06   $     0.78   $   (0.40)   $   (1.07)    $   (1.79)
                                                  ==================================================================
Operating Data: (3)
Operating ratio (4).............................         92.5%        94.7%       99.3%       102.6%        107.0%
Average revenue per tractor per week(5).........    $    2,330   $    2,299   $   2,261    $   2,189     $   2,162
Average revenue per loaded mile(5)..............    $     1.33   $     1.33   $    1.32    $    1.34     $    1.37
Average length of haul in miles.................           659          678         712          697           664
Company tractors at end of period...............           815          844         887          939           773
Independent contractor tractors at end of period           711          689         614          575           521
Weighted average tractors during period.........         1,236        1,532       1,515        1,530         1,410
Trailers at end of period.......................         2,720        2,783       2,679        2,781         2,480
Weighted averages shares outstanding:
  Basic.........................................         5,012        5,031       5,009        4,852         4,846
  Diluted.......................................         5,037        5,032       5,009        4,852         4,846
Balance Sheet Data (at end of period):
Working capital.................................    $    6,811   $    5,159   $   3,300    $     (55)    $  (4,128)
Net property and equipment......................        87,137       94,305      86,748       79,045        67,570
Total assets....................................       115,494      125,014     115,828      106,436        89,409
Long-term debt, including current maturities....        61,703       59,515      52,334       49,742        43,820
Total stockholders' equity......................        35,405       39,508      37,233       31,866        23,193
</TABLE>
-----------------------------------

(1) Includes an impairment charge for goodwill of $3,300 pre-tax.
(2) Includes an impairment charge for goodwill of $2,057 net of tax.
(3) Excludes brokerage activities except as to operating ratio.
(4) Operating expenses as a percentage of operating revenue.
(5) Net of fuel surcharges.

                                       9

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

Introduction

     Except for the historical  information  contained herein, the discussion in
this annual report on Form 10-K contains forward-looking statements that involve
risk,  assumptions,  and uncertainties that are difficult to predict. Words such
as "believe," "may," "could,"  "expects,"  "likely,"  variations of these words,
and  similar   expressions,   are  intended  to  identify  such  forward-looking
statements.  The Company's  actual  results could differ  materially  from those
discussed  herein.  Factors that could cause or contribute  to such  differences
include,  but are not limited to, those discussed below in the section  entitled
"Factors  That May Affect  Future  Results," as well as those  discussed in this
item and elsewhere in this annual report on Form 10-K.

General

     Beginning in 2000 and continuing  through the present,  truckload  carriers
have operated in a very difficult  business  environment.  A combination of high
fuel  prices,  rising  insurance  premiums,  a depressed  used truck  market,  a
declining  number  of  independent  contractors,   and  slowing  freight  demand
associated with an economic downturn affected the profitability of many trucking
companies,  including  Smithway.  In addition to these general industry factors,
the  impact  of the  economic  downturn  on  Smithway's  customer  base has been
particularly  severe,  resulting in a more pronounced weakening in the Company's
freight demand than that experienced by truckload carriers generally.  Since the
fourth  quarter  of 2000,  approximately  thirty  of the  Company's  significant
customers have declared bankruptcy, and several others have experienced economic
difficulties.

     Over the past three years the size of the Company's business has decreased,
and the  Company  has  experienced  a net loss in each year.  From 2000 to 2002,
operating  revenue decreased 14.8%, to $169 million in 2002 from $199 million in
2000.  For the year 2002,  Smithway  experienced  a net loss of $8.7  million or
$1.79 per basic and  diluted  share.  The  operating  losses have had an adverse
effect on the Company's liquidity and the Company was in default at December 31,
2002, under its primary  financing  arrangement.  Although a waiver was received
and  financial   covenants  were  subsequently   amended  to  reflect  financial
performance that management believes is reasonably  achievable,  there can be no
assurance  the  Company  will  maintain  compliance  with all  covenants  in its
borrowing obligations,  or if unable to maintain compliance that it will be able
to obtain a waiver or amendment  thereof,  or that it will have  sufficient cash
flow to meet its liquidity requirements.  See "Liquidity and Capital Resources -
Uses and Sources of Cash" and "Factors That May Affect Future Results--Operating
Losses and Liquidity Concerns" for a more detailed discussion.

     The loss in 2002 included a fourth-quarter  $3.3 million pre-tax  write-off
of goodwill  associated with one of the Company's  reporting  units,  and a $1.8
million  pre-tax  increase in auto  liability  and  workers'  compensation  loss
reserves.  The increase in liability  reserves relates  primarily to a change in
estimating  the ultimate  costs of claims that occurred in prior years.  Despite
the increase in auto liability reserves, in 2002 the Company had its best safety
year, in terms of accidents per million miles, since going public in 1996.

     Smithway's  revenue was primarily  impacted by reduced  revenue per tractor
per week and  brokerage  revenue  versus  the  prior  year,  caused by a slowing
economy and lower  productivity  from the Company's  flatbed fleet. In addition,
higher fuel  prices and  insurance  premiums  and tighter  credit  standards  by
lending  institutions  caused the number of  independent  contractors  providing
tractors  to  Smithway  to drop by  approximately  9% during  2002.  With  fewer
independent contractors and lower production, Smithway's revenue base suffered.

     On the expense side,  Smithway's  profitability  was affected  primarily by
higher insurance premiums,  higher than historical fuel prices,  increased parts
and  maintenance  expense  associated  with an aging fleet,  and the  previously
mentioned adjustments relating to reserves and goodwill.

     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

                                       10

<PAGE>
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 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.

Results of Operations

     The following table sets forth the percentage relationship of certain items
to revenue for the periods indicated:
<TABLE>
                                                          2000            2001             2002
                                                          ----            ----             ----
<S>                                                      <C>             <C>              <C>
Operating revenue...................................     100.0%          100.0%           100.0%
Operating expenses:
         Purchased transportation...................      39.1            36.8             36.8
         Compensation and employee benefits.........      26.0            28.5             30.6
         Fuel, supplies, and maintenance............      15.6            17.2             16.4
         Insurance and claims.......................       1.7             2.8              4.3
         Taxes and licenses.........................       2.0             2.0              2.0
         General and administrative.................       4.2             4.3              4.2
         Communication and utilities................       1.0             1.1              1.1
         Depreciation and amortization..............       9.7             9.8             11.6
                                                     -------------------------------------------------
         Total operating expenses...................      99.3           102.6            107.0
                                                     -------------------------------------------------
Earnings (loss) from operations.....................       0.7            (2.6)            (7.0)
Interest expense, net...............................       2.0             1.6              1.1
                                                     -------------------------------------------------
Loss before income taxes............................      (1.3)           (4.2)            (8.1)
Income taxes (benefit)..............................      (0.3)           (1.4)            (3.0)
                                                     -------------------------------------------------
Net loss............................................      (1.0)%          (2.7)%           (5.1)%
                                                     =================================================
</TABLE>


Comparison of year ended December 31, 2002 to year ended December 31, 2001.

     Operating  revenue  decreased $21.4 million  (11.2%),  to $169.5 million in
2002 from $190.8 million in 2001.  Lower  weighted-average  tractors,  decreased
fuel surcharge revenue,  decreased brokerage revenue,  and lower average revenue
per tractor per week were  responsible  for the decrease in  operating  revenue.
Weighted-average  tractors  decreased to 1,410 in 2002 from 1,530 in 2001 as the
Company disposed of a portion of its unseated company owned tractors in the last
half of 2002 and  contracted  with fewer  independent  contractor  providers  of
equipment.  Management expects weighted-average  tractors will remain at current
levels as few tractors are scheduled to be added in 2003. Fuel surcharge revenue
decreased $3.2 million to $3.1 million in 2002 from $6.3 million in 2001. During
2002 and 2001, approximately $1.8 million and $3.5 million, respectively, of the
fuel  surcharge  revenue  collected  helped to offset  Company  fuel costs.  The
remainder was passed  through to  independent  contractors.  Additionally,  soft
freight  demand  caused a $2.2 million  decrease in brokerage  revenue,  to $7.3
million in 2002 from $9.5 million in 2001. Finally,  average revenue per tractor
per week  (excluding  revenue from  brokerage  operations  and fuel  surcharges)
decreased  to  $2,162 in 2002 from  $2,189  in 2001,  primarily  due to a higher
number of  unseated  company  tractors  during  the first half of 2002 and lower
weekly  production  caused by soft freight demand.  These factors were partially
offset by an increase in revenue per loaded mile, net of surcharges, to $1.37 in
2002 from $1.34 in 2001.

     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  decreased  $7.8 million  (11.1%),  to $62.4 million in 2002 from
$70.1  million  in  2001,  as the  Company  contracted  with  fewer  independent
contractor  providers of revenue equipment.  Management  believes the decline in
independent  contractors as a percentage of the Company's  fleet is attributable
to high fuel costs,  high insurance costs,  tighter credit  standards,  and slow
freight demand, which have diminished the pool of drivers interested in becoming
or remaining  independent  contractors.  As a percentage  of revenue,  purchased
transportation

                                       11

<PAGE>
remained constant at 36.8% in both years, as the drop in total operating revenue
more than exceeded the drop in owner-operator revenue.

     Compensation and employee benefits  decreased $2.6 million (4.7%), to $51.8
million  in 2002  from  $54.4  million  in 2001.  As a  percentage  of  revenue,
compensation  and  employee  benefits  increased  to 30.6% in 2002 from 28.5% in
2001. The increase was primarily attributable to a $650 increase in reserves for
workers' compensation losses,  including losses which have been incurred but not
yet  reported to the Company.  Additionally,  wages paid to drivers for unloaded
miles  increased  during the year as weak freight  demand  caused an increase in
deadhead miles.  Finally,  health claims and premiums increased in 2002 compared
with 2001, and management expects this trend to continue in future periods.

     Fuel,  supplies,  and maintenance  decreased $5.2 million (15.7%), to $27.7
million in 2002 from $32.9 million in 2002.  As a percentage  of revenue,  fuel,
supplies,  and  maintenance  decreased to 16.4% of revenue in 2002 compared with
17.2% in 2001.  This decrease was  attributable  primarily to lower fuel prices,
which decreased  approximately 9% to an average of $1.25 per gallon in 2002 from
$1.38 per gallon in 2001.  The price  decrease  was  partially  offset by higher
non-billable  miles for which  the  Company  incurs  fuel  expense  but does not
receive  fuel  surcharges.  Although  average  fuel  prices were lower than 2001
levels,  fuel prices have risen over the last three  quarters of 2002,  and have
continued to rise in 2003. Accordingly,  fuel expense as a percentage of revenue
is  expected  to  increase  in the  first  quarter  of 2003 and  perhaps  beyond
depending on fuel prices.  Cost  savings  resulting  from lower fuel prices were
partially offset by higher maintenance expense resulting from (i) an increase in
the percentage of the Company's fleet supplied by Company-owned  equipment,  and
(ii) a slightly  older fleet,  as a result of the Company's  decision to further
extend its trade cycle for  tractors.  Although the average age of the Company's
tractor fleet decreased  during 2002 due to the sale of older equipment that was
not replaced,  the Company incurred increased  maintenance  expense on the aging
units that remained in service.  The extension of the trade cycle is expected to
continue to impact maintenance expense in future periods.

     Insurance and claims  increased  $2.0 million  (37.5%),  to $7.3 million in
2002 from $5.3 million in 2001. As a percentage of revenue, insurance and claims
increased to 4.3% of revenue in 2002  compared  with 2.8% in 2001.  The increase
was  attributable  to a $1.2  million  increase in reserves  for auto  liability
losses.  The increase in  liability  reserves  relates  primarily to a change in
estimating  the ultimate  costs of claims that occurred in prior years.  Despite
the increase in reserves, in 2002 the Company had its best safety year, in terms
of  accidents  per  million  miles,  since  going  public  in 1996.  The cost of
insurance and claims  increased  substantially on July 1, 2002, when the Company
increased its  self-insured  retention  from $50,000 to $250,000 per  occurrence
without a premium  reduction  that fully offset the increase in  retention.  The
higher  self-insured  retention  increases the Company's  risk  associated  with
frequency and severity of accidents and could increase the Company's expenses or
make them more  volatile  from  period to period.  The  insurance  policies  are
scheduled  for  renewal on July 1, 2003.  If the  Company is unable to renew the
policies  on their  current  terms,  we may  modify the  Company's  self-insured
retention, and/or excess coverage, or evaluate other alternatives.

     Taxes and licenses  decreased $373,000 (9.8%), to $3.4 million in 2002 from
$3.8  million  in 2001,  reflecting  a decrease  in the number of Company  owned
tractors subject to annual license and permit costs. As a percentage of revenue,
taxes and licenses remained constant at 2.0% of revenue in 2002 and 2001.

     General and administrative expenses decreased $1.1 million (13.8%), to $7.2
million in 2002 from $8.3 million in 2001. As a percentage  of revenue,  general
and administrative  expenses remained  relatively constant at 4.2% of revenue in
2002 compared with 4.3% of revenue in 2001.

     Communications  and utilities  decreased  $340 (16.0%),  to $1.8 million in
2002 from $2.1 million in 2001. As a percentage of revenue,  communications  and
utilities remained constant at 1.1% of revenue in both years.

     Depreciation and amortization  increased  $947,000 (5.0%), to $19.7 million
in 2002 from $18.8  million  in 2001.  During  the  annual  goodwill  impairment
analysis required by Statement of Financial  Accounting Standard (SFAS) 142, the
Company determined that a portion of its goodwill had become impaired during the
year  primarily as a result of continuing  operating  losses.  As a result,  the
Company  wrote off $3.3  million of goodwill in the fourth  quarter of 2002.  In
2001,  the  Company  committed  to a plan to replace  its  proprietary  computer
operating system with third party software.  Accordingly,  the Company wrote off
the $707,000  carrying value of its existing  software during the fourth quarter
of 2001. In accordance with industry practices,  the gain or loss on retirement,
sale, or write-down of equipment is included in depreciation  and  amortization.
In 2002 and 2001, depreciation and

                                       12

<PAGE>
amortization  included  net gains from the sale of  equipment  of  $792,000  and
$187,000,  respectively.  In addition,  2002  included $3.3 million for goodwill
impairment  and  2001  included  $707,000  for the  write-off  of a  proprietary
operating  system.  Increasing  costs of new  equipment  continued  to  increase
depreciation  per  tractor.  As  a  percentage  of  revenue,   depreciation  and
amortization  increased to 11.6% of revenue in 2002  compared with 9.8% in 2001,
primarily as a result of these factors.  Excluding the write-offs,  depreciation
and amortization remained constant at 9.5% of revenue in 2001 and 2002.

     Interest expense,  net, decreased $1.1 million (36.2%),  to $1.9 million in
2002 from $3.0 million in 2001. This decrease was attributable to lower interest
rates and lower average debt outstanding.  As a percentage of revenue,  interest
expense, net, decreased to 1.1% of revenue in 2002 compared with 1.6% in 2001.

     As a result of the foregoing,  the Company's  pre-tax  margin  decreased to
(8.1%) in 2002 from (4.2%) in 2001.

     The Company's income tax benefit was $5.1 million,  or 37.1% of loss before
income  taxes.  The Company's  income tax benefit in 2001 was $2.7  million,  or
34.3% of loss before  income  taxes.  In both years,  the  effective tax rate is
different  from 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 level of
the Company's pre-tax earnings.

     As a result of the factors  described  above,  net loss was $8.7 million in
2002 (5.1% of revenue),  compared with net loss of $5.2 million in 2001 (2.7% of
revenue).

Comparison of year ended December 31, 2001 to year ended December 31, 2000.

     Operating  revenue decreased $8.2 million (4.1%), to $190.8 million in 2001
from  $199.0  million in 2000.  Lower  average  revenue  per  tractor  per week,
decreased   brokerage  revenue,   and  decreased  fuel  surcharge  revenue  were
responsible for the decrease in operating  revenue.  Average revenue per tractor
per week  (excluding  revenue from  brokerage  operations  and fuel  surcharges)
decreased  to  $2,189 in 2001 from  $2,261  in 2000,  primarily  due to a higher
number of unseated  company  tractors,  lower weekly  production  caused by soft
freight demand,  and lower weekly  production of tractors  acquired from Skipper
Transportation,  Inc. In  addition,  soft freight  demand  caused a $2.9 million
decrease in brokerage  revenue,  to $9.5  million in 2001 from $12.3  million in
2000. Finally,  fuel surcharge revenue decreased $1.0 million to $6.3 million in
2001 from $7.3 million in 2000. During 2001 and 2000, approximately $3.5 million
and $3.9 million,  respectively,  of the fuel surcharge revenue collected helped
to offset  Company fuel costs.  The remainder was passed  through to independent
contractors.  These factors were partially  offset by an increase in revenue per
loaded mile, net of surcharges, to $1.34 in 2001 from $1.32 in 2000.

     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  decreased  $7.6 million  (9.8%),  to $70.1  million in 2001 from
$77.8  million  in  2000,  as the  Company  contracted  with  fewer  independent
contractor providers of revenue equipment. As a percentage of revenue, purchased
transportation  decreased to 36.8% in 2001 from 39.1% in 2000.  This  reflects a
decrease in the  percentage  of the  Company's  fleet  supplied  by  independent
contractors.   Management   believes  the  decline  in  independent   contractor
percentage is attributable  to high fuel costs,  high insurance  costs,  tighter
credit  standards,  and slow freight  demand,  which have diminished the pool of
drivers interested in becoming or remaining independent contractors.

     Compensation and employee benefits  increased $2.7 million (5.2%), to $54.4
million  in 2001  from  $51.7  million  in 2000.  As a  percentage  of  revenue,
compensation  and  employee  benefits  increased  to 28.5% in 2001 from 26.0% in
2000.  The  increases  were  primarily  attributable  to  the  increase  in  the
percentage  of the  Company's  fleet  represented  by  Company-owned  equipment.
Additionally, wages paid to drivers for unloaded miles increased during the year
as weak freight demand caused an increase in deadhead miles.  Finally,  workers'
compensation claims and premiums increased in 2001 compared with 2000.

     Fuel,  supplies,  and maintenance  increased $1.9 million (6.1%),  to $32.9
million in 2001 from $31.0 million in 2000.  As a percentage  of revenue,  fuel,
supplies,  and  maintenance  increased to 17.2% of revenue in 2001 compared with
15.6% in  2000.  This  was  attributable  primarily  to (i) an  increase  in the
percentage of the Company's

                                       13

<PAGE>
fleet  supplied  by  Company-owned  equipment,  (ii) a slightly  older  fleet of
Company-owned  equipment  as the  Company  has  extended  its  trade  cycle  for
tractors,  and (iii) higher non-billable miles for which the Company incurs fuel
expense,  but does not recoup  increased  costs through fuel  surcharges.  These
factors were partially  offset by a decrease in fuel prices,  which decreased 4%
to an average  of $1.38 per  gallon in 2001 from $1.45 per gallon in 2000.  Fuel
surcharge  revenue  attributable  to loads  hauled by  Company  trucks  remained
relatively constant at $3.5 million in 2001 compared with $3.9 million in 2000.

     Insurance and claims  increased  $1.9 million  (55.4%),  to $5.3 million in
2001 from $3.4 million in 2000. As a percentage of revenue, insurance and claims
increased to 2.8% of revenue in 2001  compared  with 1.7% in 2000.  The increase
was  attributable  to a  substantial  increase in insurance  premiums on July 1,
2001,  when  the  Company's  insurance  policies  were  renewed.   Additionally,
liability claims paid and reserved increased.

     Taxes and licenses  decreased $126,000 (3.2%), to $3.8 million in 2001 from
$3.9 million in 2000, reflecting a decrease in the number of shipments requiring
special  permits.  The special  permits are paid for by the  shippers,  which is
included in freight  revenue.  As a  percentage  of revenue,  taxes and licenses
remained constant at 2.0% of revenue in 2001 and 2000.

     General and administrative  expenses remained  essentially constant at $8.3
million  in 2001 and 2000.  During the fourth  quarter  of 2001,  steel  company
bankruptcies  caused the Company to increase its allowance for doubtful accounts
by $332,000. Similarly, during the fourth quarter of 2000, three major customers
declared  bankruptcy  causing the Company to increase its allowance for doubtful
accounts  by   $775,000.   General  and   administrative   expenses,   excluding
bankruptcies,  increased  $418,000 in 2001 as the Company  incurred higher costs
associated with recruiting and training new drivers. As a percentage of revenue,
general and  administrative  expenses  remained  relatively  constant at 4.3% of
revenue in 2001  compared  with 4.2% of revenue in 2000.  However,  without  the
increases in allowance for doubtful  accounts during 2001 and 2000,  general and
administrative expenses would have increased to 4.2% of revenue in 2001 compared
with 3.8% in 2000.

     Communications and utilities remained  essentially constant at $2.1 million
in 2001 and 2000.  As a  percentage  of revenue,  communications  and  utilities
remained  relatively  constant at 1.1% of revenue in 2001  compared with 1.0% of
revenue in 2000.

     Depreciation and amortization  decreased  $547,000 (2.8%), to $18.8 million
in 2000 from $19.3 million in 2000. In 2001, the Company  committed to a plan to
replace its  proprietary  computer  operating  system with third party software.
Accordingly,  the Company wrote off the $707,000  carrying value of its existing
software during the fourth  quarter.  In 2000 and 2001, the market value of used
tractors  declined in the United States.  In response,  management  assessed the
valuation of its long-lived assets and identified  tractors with carrying values
in excess of recoverable value. The carrying value of these tractors was reduced
by $1.0 million in 2000. In accordance with industry practices, the gain or loss
on retirement,  sale, or write-down of equipment is included in depreciation and
amortization.  In 2001 and 2000, the Company  recognized net gains on equipment,
excluding  one-time  write-downs,   of  $187,000  and  $119,000,   respectively.
Additionally,   increasing   costs  of  new  equipment   continued  to  increase
depreciation  per  tractor.  As  a  percentage  of  revenue,   depreciation  and
amortization  remained  essentially constant at 9.8% of revenue in 2001 and 9.7%
in 2000.

     Interest expense,  net, decreased $1.0 million (25.4%),  to $3.0 million in
2001 from $4.0 million in 2000. This decrease was attributable to lower interest
rates and lower average debt outstanding.  As a percentage of revenue,  interest
expense, net, decreased to 1.6% of revenue in 2001 compared with 2.0% in 2000.

     As a result of the foregoing,  the Company's  pre-tax  margin  decreased to
(4.2%) in 2001 from (1.3%) in 2000.

     The Company's income tax benefit was $2.7 million,  or 34.3% of loss before
income taxes. The Company's income tax benefit in 2000 was $581,000, or 22.6% of
loss before  income  taxes.  In both years,  the effective tax rate is different
from 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  level of the
Company's pre-tax earnings.

                                       14

<PAGE>
     As a result of the factors  described  above,  net loss was $5.2 million in
2001 (2.7% of revenue),  compared with net loss of $2.0 million in 2000 (1.0% of
revenue).

Liquidity and Capital Resources

     Uses and Sources of Cash

     The Company  requires  cash to fund  working  capital  requirements  and to
service its debt.  The Company has  historically  financed  acquisitions  of new
equipment with borrowings under installment notes payable to commercial  lending
institutions and equipment manufacturers, borrowings under lines of credit, cash
flow from operations, and equipment leases from third-party lessors. 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  have been funds  provided by
operations and borrowings under credit arrangements with financial  institutions
and equipment  manufacturers.  The Company is  experiencing a period of negative
cash flow as continuing losses and declining revenue have resulted in lower cash
generated from operations and reduced borrowing capacity. As of the date of this
report,  the Company has little  borrowing  availability  on its line of credit.
Accordingly,  the Company expects minimal capital  expenditures during 2003. The
Company's ability to fund its cash requirements in future periods will depend on
its ability to comply with  covenants  contained in financing  arrangements  and
improve its operating  results and cash flow.  The Company's  ability to achieve
the  required  improvements  will  depend  on  general  shipping  demand  by the
Company's  customers,  fuel prices,  the availability of drivers and independent
contractors,  insurance and claims experience, and other factors.  Management is
in the process of  implementing  several  steps that are intended to improve the
Company's operating results and achieve compliance with the financial covenants.
These steps include:  expanding the size of the Company's  tractor fleet through
the  addition  of two  identified  dedicated  fleet  operations  and  recruiting
approximately 20 owner-operators  over the remainder of the year;  improving the
utilization  per tractor  through a full-time  production  manager and  expected
increases in general freight levels;  implementing a yield management program in
which the Company seeks additional  favorable freight while ceasing to haul less
favorable  freight;  and  identifying  additional  areas  for cost  containment,
including,  personnel costs and liability  insurance and claims.  In addition to
these  steps,  management  is working  with a  consulting  firm to identify  and
evaluate  additional  measures  to achieve and  enhance  profitability  over the
longer term. Although management believes that seasonal improvements in shipping
demand  and  the  actions   being   evaluated   should   generate  the  required
improvements, there is no assurance that the improvements will occur as planned.

     Although there can be no assurance, management believes that cash generated
by operations  and available  sources of financing for  acquisitions  of revenue
equipment,  although  such  sources  are  limited,  will be adequate to meet its
currently  anticipated working capital requirements and other cash needs through
2003.  To the extent that  actual  results or events  differ  from  management's
financial  projections  or  business  plans,  the  Company's  liquidity  may  be
adversely  affected  and  the  Company  may be  unable  to  meet  its  financial
covenants.  Specifically,  the Company's  liquidity may be adversely affected by
one or more of the following  factors:  continuing weak freight demand or a loss
in  customer  relationships  or  volume;  the  ability  to  attract  and  retain
sufficient  numbers of  qualified  drivers and  owner-operators;  elevated  fuel
prices  and the  ability to  collect  fuel  surcharges;  costs  associated  with
insurance  and claims;  inability  to maintain  compliance  with,  or  negotiate
amendments to, loan covenants;  the ability to finance the tractors and trailers
delivered and scheduled for delivery;  and the possibility of shortened  payment
terms by the Company's suppliers and vendors worried about the Company's ability
to meet payment obligations.  Except for financing for approximately 30 tractors
and 25 trailers,  the Company  expects to fund its cash  requirements  primarily
with cash generated  from  operations  and revolving  borrowings  under its bank
financing.

     Net cash provided by operating activities was $18.5 million, $14.3 million,
and $9.3  million  for the  years  ended  December  31,  2000,  2001,  and 2002,
respectively.  Historically, the Company's principal use of cash from operations
is to service debt and to internally finance  acquisitions of revenue equipment.
Total receivables decreased $1.4 million, $2.8 million, and $2.4 million for the
years ended December 31, 2000, 2001, and 2002, respectively.  The average age of
the Company's trade accounts  receivable was  approximately 37 days for 2000, 37
days for 2001, and 34 days for 2002.

     Net cash (used in) provided by  investing  activities  was ($2.6)  million,
($4.0)  million,  and $3.3 million for the years ended December 31, 2000,  2001,
and 2002, respectively.  Such amounts related primarily to purchases, sales, and
trades of revenue  equipment  and payments made for the  acquisition  of Skipper
Transportation, Inc. in 2001.

     Net cash used in financing  activities of $16.3 million,  $9.9 million, and
$13.2  million  for  the  years  ended  December  31,  2000,   2001,  and  2002,
respectively,  consisted  primarily  of net  payments  of  principal  under  the
Company's long-term debt agreements.
                                       15
<PAGE>
     The Company has a financing arrangement with LaSalle Bank, which expires on
April 1, 2004, and provides for automatic  month-to-month renewals under certain
conditions. LaSalle may terminate the arrangement prior to April 1, 2004, in the
event of default,  and may terminate at anytime during the renewal terms.  Prior
to recent  amendments,  the  arrangement  expired  on  December  31,  2004.  The
arrangement  provides  for a term loan,  a revolving  line of credit,  a capital
expenditure  loan, and financing for letters of credit.  The  combination of all
loans with LaSalle Bank cannot exceed the lesser of $32.5 million or a specified
borrowing base.

     At  December  31,  2002,  the term loan had a  principal  balance  of $12.9
million,  payable  in 60  remaining  equal  monthly  principal  installments  of
$215,000. The revolving line of credit allows for borrowings up to 85 percent of
eligible receivables. At December 31, 2002, total borrowings under the revolving
line were $1.7 million.  The capital expenditure loan allows for borrowing up to
80  percent  of the  purchase  price of revenue  equipment  purchased  with such
advances,  provided borrowings under the capital expenditure loan are limited to
$2.0 million  annually,  and $4.0 million over the term of the  arrangement.  At
December  31, 2002,  the amount owed under  capital  expenditure  notes was $1.2
million.  At December 31, 2002,  the Company had  outstanding  letters of credit
totaling $7.4 million for  self-insured  amounts  under its insurance  programs.
These  letters of credit  directly  reduce the  amount of  potential  borrowings
available  under  the  financing  arrangement.   Any  increase  in  self-insured
retention,  as well as  increases  in claim  reserves,  may  require  additional
letters of credit to be posted,  which  would  negatively  affect the  Company's
liquidity.  At  December  31,  2002,  the  Company's  borrowing  limit under the
financing  arrangement was $24.4 million,  leaving approximately $1.2 million in
remaining  availability  at such  date.  At the date  hereof,  the  Company  has
relatively little availability.

     The  Company is required  to pay a facility  fee on the  LaSalle  financing
arrangement of .25% of the maximum loan limit ($32.5 million).  Borrowings under
the arrangement are secured by liens on revenue equipment,  accounts receivable,
and certain other assets. In connection with an early March 2003 amendment,  the
interest rate on outstanding borrowings under the arrangement was increased from
LaSalle's prime rate to the prime rate plus two percent.

     The  LaSalle  financing   arrangement   requires  compliance  with  certain
financial  covenants,  including  compliance with a minimum  tangible net worth,
capital  expenditure  limits, and a fixed charge coverage ratio. The Company was
not in  compliance  with the  tangible  net worth or fixed  charge  covenants at
December 31, 2002,  or the  tangible net worth  covenant at March 31, 2003,  but
waivers were received.  These  covenants have since been amended to requirements
that  management  believes are reasonably  achievable,  although there can be no
assurance that the required financial performance will be achieved. In addition,
equipment  financing provided by a manufacturer  contains a minimum tangible net
worth  requirement.  The Company was in  compliance  with the  required  minimum
tangible net worth  requirement for December 31, 2002, but was not in compliance
on March 31,  2003.  A waiver  was  obtained  and this  covenant  has since been
amended.  Management  expects  to remain in  compliance  going  forward.  If the
Company  fails to maintain  compliance  with these  financial  covenants,  or to
obtain a waiver of any noncompliance, the lenders will have the right to declare
all sums  immediately  due and  pursue  other  remedies.  In such an event,  the
Company's  liquidity  would  be  materially  and  adversely  impacted,  and  the
Company's  ability to continue as a going  concern would be called into question
if alternative financing could not be found.

     Contractual Obligations and Commercial Commitments

     The  following  tables  set forth  the  contractual  obligations  and other
commercial commitments as of December 31, 2002:
<TABLE>
                                                                Principal Payments Due by Year
                                                                        (In Thousands)
                                                                Less than                                  After
  Contractual Obligations                          Total        One year       2-3 years     4-5 years    5 years
  ------------------------------------------------------------------------------------------------------------------
  <S>                                             <C>            <C>            <C>           <C>             <C>
  Long-term debt                                  $42,128        $11,595        $18,987       $11,470         $76
  Operating leases                                    320            295             25             -           -
                                                --------------------------------------------------------------------
  Total contractual cash obligations              $42,448        $11,890        $19,013       $11,470         $76
                                                ====================================================================
</TABLE>
The Company had no other commercial commitments at December 31, 2002.

                                       16

<PAGE>
Critical Accounting Policies

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make decisions based upon estimates,  assumptions,  and factors it
considers as relevant to the circumstances. Such decisions include the selection
of  applicable   accounting   principles  and  the  use  of  judgment  in  their
application,  the results of which  impact  reported  amounts  and  disclosures.
Changes in future economic conditions or other business circumstances may affect
the outcomes of  management's  estimates and  assumptions.  Accordingly,  actual
results  could  differ  from those  anticipated.  A summary  of the  significant
accounting  policies  followed in  preparation  of the  financial  statements is
contained in Note 1 of the consolidated  financial  statements  attached hereto.
Other footnotes  describe various  elements of the financial  statements and the
assumptions on which specific amounts were determined.

     The Company's critical accounting policies include the following:

     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.

     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 years  for  tractors,  7 years  for
trailers,  and 3 to 10 years for other  equipment.  Tires  purchased  as part of
revenue equipment are capitalized as a cost of the equipment.  Replacement tires
are expensed  when placed in service.  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.  The  gain or loss on
retirement  or  sale  is  included  in  depreciation  and  amortization  in  the
consolidated statements of operation.  Gains or losses on trade-ins are included
in the basis of the new asset.

     Estimated Liability for Insurance Claims

     Losses   resulting  from  auto   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.
The Company accrues for claims reported,  as well as for claims incurred but not
reported,  based upon the Company's past  experience.  Expenses depend on actual
loss  experience and changes in estimates of settlement  amounts for open claims
which have not been fully resolved.  However,  final  settlement of these claims
could  differ  materially  from the amounts the Company has accrued at year-end.
Management's judgment concerning the ultimate cost of claims and modification of
initial reserved  amounts is an important part of establishing  claims reserves,
and is of increasing significance with higher self-insured retention.

     Impairment of Long-Lived Assets

     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net  undiscounted  cash
flows expected to be generated by the asset.  Management's  judgment  concerning
future cash flows is an important part of this determination. If such assets are
considered  to be impaired,  the  impairment to be recognized is measured by the
amount by which the carrying  amount of the assets exceeds the fair value of the
assets.  Assets to be  disposed  of are  reported  at the lower of the  carrying
amount or fair value less the costs to sell. The Company has decided to maintain
its revenue equipment for the foreseeable future and not replace aging tractors.
If resale  values  remain at current  levels or

                                       17

<PAGE>
decline,  the Company may incur increased  maintenance costs and a lower gain or
loss on sale resulting from retaining equipment even longer.

New Accounting Pronouncements

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
associated with Exit or Disposal Activities." SFAS 146 supercedes EITF No. 94-3.
The principal  difference  between SFAS 146 and EITF No. 94-3 relates to when an
entity can recognize a liability  related to exit or disposal  activities.  SFAS
146 requires a liability be  recognized  for a cost  associated  with an exit or
disposal  activity  when the  liability  is  incurred.  EITF No. 94-3  allowed a
liability, related to an exit or disposal activity, to be recognized at the date
an entity  commits to an exit plan.  The provisions of SFAS 146 are effective on
January  1,  2003.  Accordingly,  we will  apply  this  standard  to all exit or
disposal activities initiated after January 1, 2003.

     In  November  2002,  the  Financial   Accounting   Standards  Board  issued
Interpretation No. 45, "Guarantor's  Accounting and Disclosure  Requirements for
Guarantees,  Including  Indirect  Guarantees  of  Indebtedness  of Others." This
interpretation  elaborates  on  disclosure  requirements  of  obligations  by  a
guarantor  under  certain  guarantees.   This  interpretation  also  requires  a
guarantor to  recognize,  at the  inception of a guarantee,  a liability for the
fair value of an obligation undertaken in issuing a guarantee. We will apply the
provisions of  Interpretation  No. 45 for initial  recognition  and  measurement
provisions  to  guarantees  issued or  modified  after  December  31,  2002,  as
required.  We did not have any  guarantees,  including  indirect  guarantees  of
indebtedness of others, as of December 31, 2002, which would require  disclosure
under Interpretation No. 45.

Related Party Transactions

     During the years ended  December 31, 2000,  2001,  and 2002,  there were no
material transactions with related parties.

Inflation and Fuel Costs

     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, the compensation paid to drivers, and fuel prices. 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  attempts  to limit the  effects of  inflation
through increases in freight rates and certain cost control efforts. The failure
to obtain rate  increases in the future could  adversely  affect  profitability.
High  fuel  prices  also  decrease  the  Company's  profitability.  Most  of the
Company's contracts with customers contain fuel surcharge  provisions.  Although
the Company  attempts to pass  through  increases in fuel prices to customers in
the form of surcharges and higher rates,  the fuel price 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.

Factors That May Affect Future Results

     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:

                                       18

<PAGE>
     Operating Losses and Liquidity Concerns. The Company has reported operating
losses for the past three  years.  Failure to turn around the  operating  losses
could result in further violation of bank covenants,  which could accelerate the
Company's  debt  at  several  financial  institutions.  In such  an  event,  the
Company's  liquidity  would  be  materially  and  adversely  impacted,  and  the
Company's  ability to continue as a going  concern would be called into question
if alternative  financing could not be found.  Continued  operating  losses also
could  impair the  Company's  ability to replace  capital  assets on the desired
schedule,  which could raise operating  expenses.  If operating losses continue,
suppliers  and  vendors  worried  about the  Company's  ability to meet  payment
obligations  could  shorten  payment  terms or  refuse to do  business  with the
Company, which would further heighten liquidity concerns. In addition, customers
could reduce or eliminate the amount of business  they do with the Company.  Any
of the  foregoing  could  have a  materially  adverse  effect  on the  Company's
operating results and liquidity.

     General Economic and Business Factors.  The Company's business is dependent
upon a number  of  factors  that may have a  materially  adverse  effect  on its
results of  operations,  many of which are beyond the Company's  control.  These
factors include excess capacity in the trucking industry,  significant increases
or rapid fluctuations in fuel prices,  interest rates, fuel taxes, and insurance
and claims costs, to the extent not offset by increases in freight rates or fuel
surcharges.   The  Company's   results  of  operations   also  are  affected  by
recessionary  economic  cycles and  downturns  in  customers'  business  cycles,
particularly  in market  segments  and  industries  in which the  Company  has a
concentration of customers. In addition, the Company's results of operations are
affected by seasonal  factors.  Customers  tend to reduce  shipments  during the
winter  months.  Due to pending  concerns  in the Middle  East and the strike in
Venezuela,  fuel  prices have risen over the last three  quarters  of 2002,  and
continuing into 2003.  Shortages of fuel, increases in fuel prices, or rationing
of petroleum  products  could have a materially  adverse effect on the Company's
operating results.

     Capital  Requirements.  The trucking  industry is very  capital  intensive.
Historically,  the  Company  has  depended  on cash from  operations,  operating
leases,  and debt financing for funds to maintain its revenue  equipment  fleet.
The Company has slowed its growth and  extended  its trade cycle on tractors and
trailers,  and  expects  only  minimal  capital  expenditures  in  2003.  If the
Company's  operating  results do not  improve,  and the Company is unable in the
future to enter into acceptable financing arrangements,  it might be required to
operate its revenue  equipment  for even longer  periods or downsize  its fleet,
which could have a materially adverse effect on the Company's operating results.
The failure of the  Company to maintain  compliance  with all  covenants  in its
borrowing  obligations,  or obtain a waiver or amendment  thereof,  could have a
materially adverse effect on the Company's liquidity and operating results.

     Revenue  Equipment.  The  Company  has  decided  to  maintain  its  revenue
equipment  for the  foreseeable  future and not replace aging  tractors.  If the
resale value of the Company's  revenue  equipment were to remain low or decline,
the Company  could find it necessary to dispose of its equipment at a lower gain
or a loss,  or  retain  some of its  equipment  even  longer,  with a  resulting
increase in operating  expenses,  all of which could have a  materially  adverse
effect on the Company's operating results.

     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.  The
Company has suffered from an excessive number of Company-owned  tractors without
drivers for the past several quarters. In addition, independent contractors have
decreased  industry-wide  for a  variety  of  economic  reasons.  The  Company's
shortage  of  drivers  and  independent   contractors  has  constrained  revenue
production.  Failure to recruit additional  drivers and independent  contractors
could force the Company to increase  compensation or limit fleet size, either of
which could have a materially adverse effect on operating results.

     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.

     Acquisitions.  A significant  portion of the Company's growth prior to 1999
occurred through acquisitions. In March 2001, the Company acquired the assets of
Skipper   Transportation,   Inc.,  a  small  flatbed  carrier  headquartered  in
Birmingham,  Alabama.  This is the only  acquisition the Company has made during
the past three years, and no further acquisitions are contemplated at this time.

                                       19

<PAGE>
     Insurance.  As the Company renews its insurance  policies in July 2003, the
Company could be forced to implement significantly higher self-insured retention
amounts or modify its excess coverage to reduce its premium costs to a level the
Company can afford.  An increase in the number or severity of accidents,  a loss
in excess of the Company's  coverage  limits,  stolen  equipment,  or other loss
events over those  anticipated  could have a  materially  adverse  effect on the
Company's profitability.

     Regulation.  The  trucking  industry  is subject  to  various  governmental
regulations.  The DOT sent a final rule,  which has not been  published,  to the
Office of  Management  and Budget  ("OMB") in January  2003,  for OMB review and
approval.  That rule, if approved, may limit the hours-in-service during which a
driver may operate a tractor.  The DOT is also considering a proposal that would
require installing certain safety equipment on tractors. The EPA has promulgated
air emission standards that are expected to increase the cost of tractor engines
and reduce fuel mileage. Although the Company is unable to predict the nature of
any  changes  in  regulations,  the cost of any  changes,  if  implemented,  may
adversely affect the Company's profitability.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     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

     In connection with an early March 2003 amendment,  the Company's  financing
arrangement  with LaSalle Bank was amended to provide a variable  interest  rate
based on  LaSalle's  prime  rate plus two  percent,  provided  there has been no
default.  Prior to the amendment the variable  interest rate was LaSalle's prime
rate.  In addition,  approximately  $24.9  million of the  Company's  other debt
carries variable  interest rates.  This variable interest exposes the Company to
the risk that interest rates may rise. Assuming borrowing levels at December 31,
2002, a one-point  increase in the prime rate would increase interest expense by
approximately  $389,000. The remainder of the Company's other debt carries fixed
interest rates and exposes the Company to the risk that interest rates may fall.
At December 31, 2002, approximately 93% of the Company's debt carries a variable
interest rate and the remainder is fixed.

Commodity Price Risk

     The Company in the past has used derivative instruments,  including heating
oil price swap  agreements,  to reduce a portion of its  exposure  to fuel price
fluctuations.  During the year ended  December 31, 2002, the Company had no such
agreements in place.  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.







                                       20

<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's  audited  financial  statements,  including its  consolidated
balance  sheets  and   consolidated   statements  of  operations,   cash  flows,
stockholders'  equity, and notes related thereto, are included at pages 28 to 43
of this report. The supplementary quarterly financial data follows:
<TABLE>
                                                                            (Unaudited)
                                                                      Quarterly Financial Data
                                                         (Dollars in thousands, except earnings per share)
                                                 ------------------------------------------------------------------
                                                  First Quarter   Second Quarter    Third Quarter   Fourth Quarter
                                                      2002             2002             2002            2002
                                                 --------------  ---------------  ----------------  ---------------
<S>                                                <C>             <C>               <C>             <C>
Operating revenue................................  $  41,200       $  45,239         $  43,272       $  39,737
Loss from operations.............................     (2,700)         (1,263)             (648)         (7,270)
Loss before income taxes.........................     (3,254)         (1,777)           (1,140)         (7,625)
Income taxes (benefit)...........................       (687)           (616)             (383)         (2,902)
Net loss.........................................     (2,037)         (1,161)             (757)         (4,723)
Basic and diluted loss per share.................  $   (0.42)      $   (0.24)        $   (0.16)      $   (0.97)

                                                  First Quarter   Second Quarter    Third Quarter   Fourth Quarter
                                                      2001             2001             2001            2001
                                                 --------------  ---------------  ----------------  ---------------
Operating revenue................................  $  47,379       $  51,754         $  48,571       $  43,122
(Loss) earnings from operations..................     (1,127)            338            (1,114)         (3,025)
Loss before income taxes.........................     (1,975)           (469)           (1,845)         (3,643)
Income taxes (benefit)...........................       (687)            (85)             (633)         (1,316)
Net loss.........................................     (1,288)           (384)           (1,212)         (2,327)
Basic and diluted loss per share.................  $   (0.26)      $   (0.08)        $   (0.25)      $   (0.48)

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

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, 2002,  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" of the  Registrant's  Proxy Statement for the 2003 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;
provided,  that the  "Audit  Committee  Report  for 2002"  and the  Stock  Price
Performance  Graph  contained in the Proxy  Statement  are not  incorporated  by
reference.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  respecting  executive  compensation  set forth  under the
caption "Executive  Compensation" in 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.

                                       21

<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 Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated  herein
by reference.

     Securities  Authorized For Issuance Under Equity  Compensation  Plans.  The
following  table  provides  information  as  of  December  31,  2002,  regarding
compensation  plans under which the Company's  equity  securities are authorized
for issuance:
<TABLE>
                                                                                      Number of securities
                                                                                     remaining available for
                                                                                      future issuance under
                               Number of securities to       Weighted-average          equity compensation
                               be issued upon exercise       exercise price of          plans (excluding
                               of outstanding options,     outstanding options,      securities reflected in
                                warrants, and rights       warrants, and rights            column (a))
   Plan Category                        (a)                        (b)                           (c)
--------------------------     -----------------------     ----------------------    ------------------------
<S>                                    <C>                         <C>                        <C>
Equity compensation plans
approved by security holders           372,525                     $4.72                      552,475

Equity compensation plans
not approved by security
holders                                 12,000                     $2.60                            0
                              ------------------------   ------------------------    ------------------------
           Total                       384,525                     $4.66                      552,475
</TABLE>

     On July 27, 2000,  the Company  made a one-time  grant to each of its three
non-employee  directors of an option to purchase  4,000 shares of the  Company's
Class A Common Stock.  The exercise price was set at 85% of the closing price on
the date of the grant ($2.60),  and the options vested immediately.  The options
expire on July 27, 2006. These grants were not subject to stockholder approval.

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" in the Proxy Statement is
incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

     The Company maintains  disclosure controls and procedures that are designed
to ensure that  information  required to be disclosed  in its  periodic  reports
filed with the  Securities  and  Exchange  Commission  is  recorded,  processed,
summarized,  and  reported  within the time  periods  specified in the rules and
forms  of  the  Commission  and  that  such   information  is  accumulated   and
communicated  to the  Company's  management.  In designing  and  evaluating  the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable  assurance of achieving the desired control objectives and management
necessarily  was required to apply its judgment in evaluating  the  cost-benefit
relationship of possible controls and procedures.

     Within the 90 days prior to the date of this  report,  the Company  carried
out an  evaluation,  under the  supervision  and with the  participation  of the
Company's management,  including the Company's Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls and  procedures  (as defined in Rules 13a-14 and
15d-14 of the  Securities  Exchange Act of 1934,  as  amended).  Based upon that
evaluation,  the Company's Chief Executive  Officer and Chief Financial  Officer
concluded that the Company's  disclosure  controls and procedures are effective.
There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date the  Company  carried  out its  evaluation,  including  any  corrective
actions with regard to significant deficiencies and material weaknesses.

                                       22

<PAGE>
                                     PART IV

ITEM 15. 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:
<TABLE>
<S>                                                                                    <C>
Independent Auditors' Report.......................................................... Page 28 herein
Consolidated Balance Sheets........................................................... Page 29 through 30 herein
Consolidated Statements of Operations................................................. Page 31 herein
Consolidated Statements of  Stockholders' Equity...................................... Page 32 herein
Consolidated Statements of Cash Flows................................................. Page 33 through 34 herein
Notes to Consolidated Financial Statements............................................ Page 35 through 43 herein
</TABLE>
     2.  Financial Statement Schedules.

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

     3.  Exhibits

     See list under Item 14(c) below,  with  management  compensatory  plans and
arrangements  being listed under 10.1,  10.2,  10.3, 10.5, 10.7, 10.8, 10.9, and
10.10.

(b)      Reports on Form 8-K

         None








                                       23

<PAGE>

(c)      Exhibits
<TABLE>
Exhibit
Number                                                      Description
<S>        <C>          <C>
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       *            401(k) Plan adopted August 14, 1992, as amended.
10.4       *            Form of Agency Agreement between Smithway Motor Xpress, Inc. and its independent
                        commission agents.
10.5       *            Memorandum of officer incentive compensation policy.
10.6       *            Form of Independent Contractor Agreement between Smithway Motor Xpress, Inc. and its
                        independent contractor providers of tractors.
10.7       **           1997 Profit Incentive Plan, adopted May 8, 1997.
10.8       ***          Amendment No. 2 to Smithway Motor Xpress Corp. Incentive Stock Plan, adopted May 7, 1999.
10.9       ****         Form of Outside Director Stock Option Agreement dated July 27, 2000, between Smithway
                        Motor Xpress Corp. and each of its non-employee directors.
10.10      *****        New Employee Incentive Stock Plan, adopted August 6, 2001.
10.11      *****        Amended and Restated Loan and Security Agreement dated December 28, 2001, between LaSalle
                        Bank National Association, Smithway Motor Xpress, Inc., as Borrower, and East West Motor
                        Xpress, Inc., as Borrower.
21         +            List of Subsidiaries.
23         #            Consent of KPMG LLP, independent auditors.

---------------------
*    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 March 31, 2000. Commission File
     No. 000-20793, dated May 5, 2000.

***  Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999.  Commission File
     No. 000-20793, dated August 13, 1999.

**** Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2000.  Commission
     File No. 000-20793, dated November 3, 2000.

*****Incorporated  by  reference  from the  Company's  Annual  report on Form 10-K for the fiscal  year  ended  December  31,  2001.
     Commission File No. 000-20793, dated March 28, 2002.

+    Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Commission
     File No. 000-20793, dated March 29, 2000.

#    Filed herewith.
</TABLE>

                                       24

<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: April 15, 2003              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.
<TABLE>
Signature                                                   Position                                Date
<S>                                <C>                                                         <C>
/s/ William G. Smith               Chairman of the Board, President, and Chief Executive
--------------------------         Officer; Director (principal executive officer)             April 15, 2003
William G. Smith

/s/ G. Larry Owens                 Executive Vice President, Chief Administrative Officer,
--------------------------         and Chief Financial Officer; Director                       April 15, 2003
G. Larry Owens

/s/ Douglas C. Sandvig             Senior Vice President, Controller, and Chief Accounting
--------------------------         Officer (principal financial and accounting officer)        April 15, 2003
Douglas C. Sandvig

/s/ Herbert D. Ihle                Director                                                    April 15, 2003
--------------------------
Herbert D. Ihle

/s/ Robert  E. Rich                Director                                                    April 15, 2003
--------------------------
Robert E. Rich

/s/ Terry G. Christenberry         Director                                                    April 15, 2003
--------------------------
Terry G. Christenberry
</TABLE>






                                       25

<PAGE>

                                 CERTIFICATIONS

I, William G. Smith, certify that:

1.   I have reviewed  this annual  report on Form 10-K of Smithway  Motor Xpress
     Corp.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: April 15, 2003              /s/ William G. Smith
                                --------------------------------
                                 William G. Smith
                                 Chief Executive Officer

                                       26

<PAGE>

I, G. Larry Owens, certify that:

1.   I have reviewed  this annual  report on Form 10-K of Smithway  Motor Xpress
     Corp.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: April 15, 2003              /s/ G. Larry Owens
                                --------------------------------
                                 G. Larry Owens
                                 Chief Financial Officer



                                       27

<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, 2002 and 2001, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the years in the  three-year  period  ended  December  31,  2002.  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 auditing standards generally accepted
in the  United  States of  America.  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, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December 31,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

As discussed in Note 2 to the  consolidated  financial  statements,  the Company
adopted the  provisions of Statement of Financial  Accounting  Standard No. 142,
Goodwill and Other Intangible Assets, on January 1, 2002.



/s/ KPMG LLP

Des Moines,  Iowa
February 14, 2003,  except for note 1 - liquidity and note 4,
  which are as of April 15, 2003






                                       28

<PAGE>

                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                  (Dollars in thousands, except per share data)
<TABLE>

                                                                         December 31,
                                                         ------------------------------------------
                                                                   2001                 2002
                                                         ---------------------  -------------------

                         ASSETS
<S>                                                         <C>                  <C>
Current assets:
  Cash and cash equivalents..............................   $             722    $             105
  Receivables:
     Trade (note 4)......................................              13,649               13,496
     Other...............................................               1,020                  622
     Recoverable income taxes............................               1,820                    7
  Inventories............................................               1,561                  868
  Deposits, primarily with insurers (note 10)............                 539                  753
  Prepaid expenses.......................................                 926                1,492
  Deferred income taxes (note 5).........................               1,726                2,263
                                                         ---------------------  -------------------
            Total current assets.........................              21,963               19,606
                                                         ---------------------  -------------------
Property and equipment (note 4):
  Land...................................................               1,548                1,548
  Buildings and improvements.............................               8,175                8,210
  Tractors...............................................              79,472               71,221
  Trailers...............................................              44,784               42,517
  Other equipment........................................               7,318                8,105
                                                         ---------------------  -------------------
                                                                      141,297              131,601
   Less accumulated depreciation.........................              62,252               64,031
                                                         ---------------------  -------------------
            Net property and equipment...................              79,045               67,570
                                                         ---------------------  -------------------
Goodwill (note 2)........................................               5,016                1,745
Other assets.............................................                 412                  488
                                                         ---------------------  -------------------
                                                            $         106,436    $          89,409
                                                         =====================  ===================
</TABLE>




          See accompanying notes to consolidated financial statements.

                                       29


<PAGE>
                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                  (Dollars in thousands, except per share data)
<TABLE>
                                                                                             December 31,
                                                                           ---------------------------------------------
                                                                                      2001                  2002
                                                                           ----------------------  ---------------------
<S>                                                                          <C>                   <C>
                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt (note 4)............................  $            12,052   $             11,595
  Accounts payable.........................................................                4,589                  4,556
  Accrued loss reserves (note 10)..........................................                2,327                  3,882
  Accrued compensation.....................................................                2,258                  2,152
  Checks in excess of cash balances........................................                    -                  1,086
  Other accrued expenses...................................................                  792                    463
                                                                           ---------------------- ----------------------
            Total current liabilities......................................               22,018                 23,734
Long-term debt, less current maturities (note 4)...........................               37,105                 30,533
Deferred income taxes (note 5).............................................               14,862                 10,257
Line of credit (note 4)....................................................                  585                  1,692
                                                                           ---------------------- ----------------------
             Total liabilities.............................................               74,570                 66,216
                                                                           ---------------------- ----------------------
Stockholders' equity (notes 6 and 7):
  Preferred stock (.01 par value; authorized 5 million shares; issued none)                    -                      -
  Common stock:
    Class A (.01 par value; authorized 20 million shares;
              issued 2001 and 2002 - 4,035,989 shares).....................                   40                     40
    Class B (.01 par value; authorized 5 million shares;
              issued 1 million shares).....................................                   10                     10
  Additional paid-in capital...............................................               11,394                 11,393
  Retained earnings........................................................               20,842                 12,164
  Reacquired shares, at cost (2001 - 192,009 shares; 2002 - 189,168 shares)                (420)                  (414)
                                                                           ---------------------- ----------------------
            Total stockholders' equity.....................................               31,866                 23,193
Commitments (note 10)
                                                                           ---------------------- ----------------------
                                                                             $           106,436   $             89,409
                                                                           ====================== ======================
</TABLE>







          See accompanying notes to consolidated financial statements.

                                       30

<PAGE>
                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                  (Dollars in thousands, except per share data)
<TABLE>

                                                                          Years ended December 31,
                                                          ----------------------------------------------------------
                                                                   2000                2001                2002
                                                          ------------------ ------------------- -------------------
<S>                                                       <C>                <C>                 <C>
Operating revenue:
     Freight..............................................$        198,247   $         190,165   $         168,918
     Other................................................             743                 661                 550
                                                          ------------------ ------------------- -------------------
           Operating revenue..............................         198,990             190,826             169,468
                                                          ------------------ ------------------- -------------------
Operating expenses:
     Purchased transportation.............................          77,755              70,129              62,364
     Compensation and employee benefits...................          51,718              54,394              51,834
     Fuel, supplies, and maintenance......................          30,995              32,894              27,722
     Insurance and claims.................................           3,426               5,325               7,324
     Taxes and licenses...................................           3,943               3,817               3,444
     General and administrative...........................           8,319               8,294               7,153
     Communications and utilities.........................           2,052               2,123               1,783
     Depreciation and amortization (note 2)...............          19,325              18,778              19,725
                                                          ------------------ ------------------- -------------------
           Total operating expenses.......................         197,533            195,754              181,349
                                                          ------------------ ------------------- -------------------
         Earnings (loss) from operations..................           1,457              (4,928)            (11,881)
Financial (expense) income
     Interest expense.....................................          (4,124)             (3,052)             (1,955)
     Interest income......................................              95                  48                  40
                                                          ------------------ ------------------- -------------------
         Loss before income taxes.........................          (2,572)             (7,932)            (13,796)
Income tax benefit (note 5)...............................            (581)             (2,721)             (5,118)
                                                          ------------------ ------------------- -------------------
          Net loss........................................$         (1,991)  $          (5,211)  $          (8,678)
                                                          ================== =================== ===================
Basic and diluted loss per share (note 8).................$          (0.40)  $           (1.07)  $           (1.79)
                                                          ================== =================== ===================
</TABLE>











          See accompanying notes to consolidated financial statements.


                                       31

<PAGE>
                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 2000, 2001, and 2002
                             (Dollars in thousands)

<TABLE>

                                                              Additional                                    Total
                                                   Common      paid-in      Retained     Reacquired      stockholders'
                                                   stock       capital      earnings       shares           equity
                                                ----------------------------------------------------------------------
<S>                                                <C>        <C>          <C>            <C>              <C>
Balance at December 31, 1999....................   $   50     $ 11,414     $  28,044      $     -          $ 39,508
Net loss........................................        -            -        (1,991)           -            (1,991)
Treasury stock acquired (167,922 shares)........        -            -             -         (456)             (456)
Treasury stock reissued (48,297 shares).........        -          (18)            -          190               172
                                                ----------------------------------------------------------------------
Balance at December 31, 2000....................       50       11,396        26,053         (266)           37,233
Net loss........................................        -            -        (5,211)           -            (5,211)
Treasury stock acquired (77,900 shares).........        -            -             -         (166)             (166)
Treasury stock reissued (5,516 shares)..........        -           (2)            -           12                10
                                                ----------------------------------------------------------------------
Balance at December 31, 2001....................       50       11,394        20,842         (420)           31,866
Net loss........................................        -            -        (8,678)           -            (8,678)
Treasury stock reissued (2,841 shares)..........        -           (1)            -            6                 5
                                                 ---------------------------------------------------------------------
Balance at December 31, 2002....................   $   50     $ 11,393     $  12,164      $  (414)         $ 23,193
                                                 =====================================================================
</TABLE>













          See accompanying notes to consolidated financial statements.



                                       32

<PAGE>


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

                                                                              Years ended December 31,
                                                                   ------------------------------------------------
                                                                        2000            2001             2002
                                                                   ---------------  --------------  ---------------
<S>                                                                    <C>             <C>              <C>
Cash flows from operating activities:
  Net loss.........................................................    $  (1,991)      $  (5,211)       $  (8,678)
                                                                   ---------------  --------------  ---------------
  Adjustments to reconcile net loss to cash provided by operating
  activities:
      Depreciation and amortization................................       19,325          18,778           19,725
      Deferred income taxes (benefit)..............................         (489)           (129)          (5,142)
      Change in:
           Receivables.............................................        1,389           2,783            2,364
           Inventories.............................................           25              29              693
           Deposits, primarily with insurers.......................          121            (379)            (214)
           Prepaid expenses........................................         (331)             95             (566)
           Accounts payable and other accrued liabilities..........          486          (1,653)           1,087
                                                                   ---------------  --------------  ---------------
               Total adjustments...................................       20,526          19,524           17,947
                                                                   ---------------  --------------  ---------------
                 Net cash provided by operating activities.........       18,535          14,313            9,269
                                                                   ---------------  --------------  ---------------
Cash flows from investing activities:
  Payments for acquisitions........................................            -          (2,954)               -
  Purchase of property and equipment...............................       (4,366)         (2,537)          (1,149)
  Proceeds from sale of property and equipment.....................        1,905           1,541            4,519
  Other............................................................          (97)            (71)             (76)
                                                                   ---------------  --------------  ---------------
             Net cash (used in) provided by investing activities...       (2,558)         (4,021)           3,294
                                                                   ---------------  --------------  ---------------
Cash flows from financing activities:
   Net borrowings on line of credit................................            -             585            1,107
   Proceeds from long-term debt....................................        8,500          24,759                -
   Principal payments on long-term debt............................      (24,529)        (35,107)         (15,378)
   Change in checks issued in excess of cash balances..............            -               -            1,086
   Treasury stock reissued.........................................          172              10                5
   Other...........................................................         (456)           (166)               -
                                                                   ---------------  --------------  ---------------
            Net cash used in financing activities..................      (16,313)         (9,919)         (13,180)
                                                                   ---------------  --------------  ---------------
            Net (decrease) increase in cash and cash equivalents...         (336)            373             (617)
Cash and cash equivalents at beginning of year.....................          685             349              722
                                                                   ---------------  --------------  ---------------
Cash and cash equivalents at end of year...........................     $    349        $    722         $    105
                                                                   ===============  ==============  ===============
</TABLE>






          See accompanying notes to consolidated financial statements.

                                       33


<PAGE>
                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)
<TABLE>
                                                                              Years ended December 31,
                                                                   ------------------------------------------------
                                                                        2000            2001             2002
                                                                   ---------------  --------------  ---------------
<S>                                                                    <C>             <C>              <C>
Supplemental disclosure of cash flow information:
   Cash paid (received) during year for:
          Interest.................................................    $   4,181       $   3,075        $   2,003
          Income taxes.............................................       (1,096)           (788)          (1,790)
                                                                   ===============  ==============  ===============

Supplemental schedules of noncash investing and financing
activities:
   Notes payable issued for tractors and trailers..................    $   8,848       $   7,171        $   8,349
   Treasury stock reissued.........................................          172              10                5
                                                                   ===============  ==============  ===============

Cash payments for acquisitions:
   Revenue equipment...............................................      $     -       $   2,088          $     -
   Intangible assets...............................................            -             526                -
   Land, buildings, and other assets...............................            -             340                -
                                                                   ---------------  --------------  ---------------
                                                                         $     -       $   2,954          $     -
                                                                   ===============  ==============  ===============
</TABLE>














          See accompanying notes to consolidated financial statements.

                                       34

<PAGE>
                  SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
             (Dollars in thousands, except share and per share data)

Note 1:  Summary of Significant Accounting Policies

Operations

     Smithway Motor Xpress Corp. and  subsidiaries  (the Company) 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 the
central  United States.  The Company also operates in the southern  provinces of
Canada. Canadian revenues, based on miles driven, were approximately $670, $649,
and $477 for the years ended December 31, 2000,  2001,  and 2002,  respectively.
The  consolidated  financial  statements  include the accounts of Smithway Motor
Xpress  Corp.  and  its  three  wholly  owned   subsidiaries.   All  significant
intercompany balances and transactions have been eliminated in consolidation.

Liquidity

     The Company incurred significant losses in 2001 and 2002, and has continued
to incur losses in the first quarter of 2003. In addition,  working capital is a
negative  $4,128 at December 31, 2002.  The Company was in violation of its bank
covenants at December 31, 2002, and March 31, 2003, but received waivers.  Since
the  beginning of 2003,  there have been  several  amendments  to the  financing
arrangement.  These  amendments have  temporarily  increased the borrowing base,
permanently  increased the interest rate, and revised the financial covenants to
reflect financial performance that management believes is reasonably achievable,
although there can be no assurance that the required financial  performance will
be  achieved.  The  Company's  2002  cash  flows  from  operations  would not be
sufficient to cover the 2003 debt service requirements.

     During 2002, the Company's primary sources of liquidity were funds provided
by  operations  and  borrowings   under  credit   arrangements   with  financial
institutions and equipment  manufacturers.  The Company is experiencing a period
of negative cash flow as continuing  losses and declining  revenue have resulted
in lower cash generated from operations and reduced  borrowing  capacity.  As of
the date of this report,  the Company has little  borrowing  availability on its
line of credit.  Accordingly,  the Company expects minimal capital  expenditures
during  2003.  The  Company's  ability to fund its cash  requirements  in future
periods  will  depend on its  ability  to comply  with  covenants  contained  in
financing  arrangements  and improve its  operating  results and cash flow.  The
Company's  ability to achieve the required  improvements  will depend on general
shipping demand by the Company's  customers,  fuel prices,  the  availability of
drivers and independent contractors,  insurance and claims experience, and other
factors.  Management  is in the process of  implementing  several steps that are
intended to improve the Company's  operating results and achieve compliance with
the  financial  covenants.  These  steps  include:  expanding  the  size  of the
Company's  tractor fleet through the addition of two identified  dedicated fleet
operations and recruiting approximately 20 owner-operators over the remainder of
the year;  improving the utilization per tractor through a full-time  production
manager and expected  increases in general freight levels;  implementing a yield
management program in which the Company seeks additional favorable freight while
ceasing to haul less favorable  freight;  and identifying  additional  areas for
cost containment, including, personnel costs and liability insurance and claims.
In addition to these steps,  management  is working  with a  consulting  firm to
identify and evaluate additional  measures to achieve and enhance  profitability
over the longer term. Although management believes that seasonal improvements in
shipping  demand and the actions being  evaluated  should  generate the required
improvements,  there is no  assurance  the  improvements  will occur as planned.
Assuming the improvements do occur as planned, management believes there will be
sufficient  cash  flow to meet the  Company's  liquidity  requirements  at least
through  December 31, 2003.  To the extent that actual  results or events differ
from  management's  financial  projections  or  business  plans,  the  Company's
liquidity  may be  adversely  affected and the Company may be unable to meet its
financial covenants.  In such event, the Company's liquidity would be materially
and adversely impacted, and the Company's ability to continue as a going concern
would be called into question if alternative financing could not be found.

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, 2000,  2001,  and 2002.  The  Company's 10 largest
customers accounted for approximately 25 percent, 24 percent,  and 28 percent of
the  Company's   total  operating   revenues   during  2000,   2001,  and  2002,
respectively.  The Company's largest  concentration of customers is in the steel
and building materials industries, which together accounted for approximately 41
percent, 42 percent, and 43 percent of the Company's total operating revenues in
2000, 2001, and 2002, respectively.

                                       35

<PAGE>
Drivers

     The Company faces intense industry  competition in attracting and retaining
qualified  drivers and independent  contractors.  This  competition from time to
time results 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. The Company
did not hold any cash equivalents as of December 31, 2001 or 2002.

Receivables

     Trade  receivables are stated net of an allowance for doubtful  accounts of
$1,265 and $1,520 at December  31, 2001 and 2002,  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,  however  at  December  31,  2001 and 2002,  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.

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 a limited  number of
operating leases.  Rent expense is charged to operations as it is incurred under
the  terms  of the  respective  leases.  Under  the  leases  for  transportation
equipment, the Company is responsible for all repairs,  maintenance,  insurance,
and all other  operating  expenses.  The  Company  is also a lessee of  terminal
property under various short term operating leases.

     Rent charged to expense on the above leases, expired leases, and short-term
rentals was $543 in 2000; $1,058 in 2001; and $1,030 in 2002.

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 years  for  tractors,  7 years  for
trailers,  and 3 to 10 years for other  equipment.  Tires  purchased  as part of
revenue equipment are capitalized as a cost of the equipment.  Replacement tires
are expensed  when placed in service.  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.  The  gain or loss on
retirement  or  sale  is  included

                                       36

<PAGE>
in depreciation and  amortization in the consolidated  statements of operations.
Gains or losses on trade-ins are included in the basis of the new asset.  During
2000, 2001, and 2002,  depreciation and amortization included net gains from the
sale of equipment  of $881,  $187,  and $792,  respectively.  In addition,  2000
included  $1,033 for the  write-down  of tractors,  2001  included  $707 for the
write-off  of a  proprietary  operating  system,  and 2002  included  $3,300 for
goodwill impairment.

Impairment of Long-Lived Assets

     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net  undiscounted  cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.  Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.

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.

Stock Option Plans

     The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards 148, "Accounting for Stock-Based  Compensation - Transition
and  Disclosure"  (SFAS 148).  SFAS 148 amends the  disclosure  requirements  of
Statement of Financial  Accounting  Standards 123,  "Accounting  for Stock-Based
Compensation"  (SFAS  123).  As of  December  31,  2002,  the  Company has three
stock-based employee  compensation plans, which are described more fully in Note
7. The Company  accounts for these plans under the  recognition  and measurement
principles of Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to  Employees,"  and related  Interpretations.  No  stock-based  employee
compensation cost is reflected in net income, as all options granted under these
plans had an exercise price equal to the market value of the common stock on the
date of the grant.

                                       37

<PAGE>
     Had the  Company  determined  compensation  based on the fair  value at the
grant date for its outstanding  stock options under SFAS 123 for 2000, 2001, and
2002 pro forma net loss would have been $2,117, $5,317 and $8,684, and pro forma
basic and  diluted  loss per share  would  have been  $.42,  $1.10 and $1.79 per
share, respectively.  For purposes of pro forma disclosures,  the estimated fair
value of options is amortized to expense over the options' vesting periods.

     The Company used the  Black-Scholes  option  pricing model to determine the
fair value of stock  options for the years ended  December 31, 2000,  2001,  and
2002. The following assumptions were used in determining the fair value of these
options: weighted-average risk-free interest rate, 5.05% in 2000, 4.26% in 2001,
and 4.55% in 2002;  weighted-average  expected life, 5 years in 2000, 5 years in
2001,  and 5 years in 2002; and  weighted-average  expected  volatility,  55% in
2000, 60% in 2001, and 61% in 2002. There were no expected dividends.

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.
Because the Company  suffered a net loss for the years ended  December  31, 2001
and 2002,  the  effects of  potential  common  shares  were not  included in the
calculation as their effects would be anti-dilutive.  Stock options  outstanding
at December 31, 2001 and 2002 totaled 623,000 and 384,525, respectively.

Note 2:  Goodwill

     In 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible  Assets."
SFAS 142 requires that  goodwill no longer be  amortized,  but instead be tested
for impairment at least  annually.  The Company's  impairment at January 1, 2002
was based on an independent  appraisal and indicated no impairment.  At December
31, 2002 the Company updated its impairment  analysis as required under SFAS 142
using  a  combination  of  available  market  data  for  similar  transportation
companies and an internal  update of the appraisal.  The analysis  indicated the
goodwill  in  one  of the  Company's  reporting  units  is  impaired,  triggered
primarily as a result of the continued  losses during 2002. The Company recorded
an  impairment  charge of $3.3  million  during  the  fourth  quarter,  which is
included in  depreciation  and  amortization  in the statement of operations and
cash flows.

     The following table reflects the consolidated  results,  adjusted as though
the adoption of SFAS 142 occurred as of the beginning of the year ended December
31, 2000.
<TABLE>
(Dollars in thousands, except per share amounts)                                Years Ended December 31,
                                                                        -----------------------------------------
                                                                            2000          2001           2002
                                                                        ------------  ------------   ------------
<S>                                                                       <C>           <C>            <C>
Net loss:
    As reported                                                           $ (1,991)     $ (5,211)      $ (8,678)
    Goodwill amortization, net of tax                                          483           466              -
    Goodwill impairment charge, net of tax                                       -             -          2,057
                                                                        ------------  ------------   ------------
Adjusted net loss                                                         $ (1,508)     $ (4,745)      $ (6,621)
                                                                        ============  ============   ============
Loss per share - basic and diluted:
    As reported                                                           $  (0.40)     $  (1.07)      $  (1.79)
    Goodwill amortization, net of tax                                         0.10          0.09              -
    Goodwill impairment charge, net of tax                                       -             -           0.42
                                                                        -----------   ------------   ------------
Adjusted basic and diluted net loss per share                             $  (0.30)     $  (0.98)      $  (1.37)
                                                                        ===========   ============   ============
</TABLE>

                                       38
<PAGE>

     A roll-forward of goodwill for the years ending December 31, is as follows:

                                       Years ended December 31,
                                   -------------------------------
                                        2001            2002
                                   -------------------------------
Balance at beginning of year           $5,191         $5,016
    Goodwill acquired                     526              -
    Goodwill amortization                (701)             -
    Impairment charge                       -         (3,271)
                                   -------------------------------
Balance at end of year                 $5,016        $1,745
                                   ===============================

     In March 2001, the Company acquired tractors,  trailers,  and certain other
assets owned or leased by Skipper Transportation,  Inc. of Birmingham,  Alabama.
In  exchange  for these  assets,  the Company  assumed and repaid  approximately
$1,483 in  equipment  financing  secured  by these  assets  and paid $944 to the
former  owners of the acquired  assets.  In addition,  the Company paid $526 for
goodwill.  This  acquisition  was  accounted  for  by  the  purchase  method  of
accounting. There were no acquisitions during 2002.

Note 3:  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, 2002, the carrying amounts of cash and cash equivalents,  trade receivables,
other receivables,  line of credit,  accounts payable,  and accrued liabilities,
approximate fair value because of the short maturity of those  instruments.  The
fair value of the Company's long-term debt,  including current  maturities,  was
$49,227  and $42,150 at December  31,  2001 and 2002,  respectively,  based upon
estimated market rates.

Note 4:  Long-Term Debt

     The Company has a financing arrangement with LaSalle Bank, which expires on
April 1, 2004, and provides for automatic  month-to-month renewals under certain
conditions. LaSalle may terminate the arrangement prior to April 1, 2004, in the
event of default,  and may terminate at anytime during the renewal terms.  Prior
to a recent amendment, the arrangement expired on December 31, 2004.

     The agreement  provides for a term loan, a revolving line of credit,  and a
capital  expenditure loan. The term loan has a balance of $12,900 and is payable
in 60 equal monthly  installments  of $215 in principal.  The revolving  line of
credit  allows for  borrowings  up to 85 percent of  eligible  receivables.  The
capital  expenditure  loan allows for borrowing up to 80 percent of the purchase
price of revenue  equipment  purchased  with such advances  provided  borrowings
under the capital  expenditure loan are limited to $2,000  annually,  and $4,000
over the term of the agreement.  The capital  expenditure  loan has a balance of
$1,169 and is payable in equal monthly  installments  of $18 in  principal.  The
combination  of all loans with LaSalle Bank cannot exceed $32,500 or a specified
borrowing base. At December 31, 2002,  total borrowings under the revolving line
were $1,692.

     The financing arrangement also includes financing for letters of credit. At
December 31, 2002, the Company had outstanding letters of credit totaling $7,449
for  self-insured  amounts under its insurance  programs.  (See note 10).  These
letters of credit directly reduce the amount of potential  borrowings  available
under the financing  arrangement  discussed  above. Any increase in self-insured
retention,  as well as  increases  in claim  reserves,  may  require  additional
letters of credit to be posted,  which  would  negatively  affect the  Company's
liquidity.

     At December 31, 2002,  the  Company's  borrowing  limit under the financing
arrangement was $24.4 million,  leaving  approximately $1.2 million in remaining
availability at such date. At the date hereof, the Company has relatively little
availability.

                                       39

<PAGE>
     The  LaSalle  financing   arrangement   requires  compliance  with  certain
financial  covenants,  including  compliance with a minimum  tangible net worth,
capital  expenditure  limits, and a fixed charge coverage ratio. The Company was
not in  compliance  with the  tangible  net worth or fixed  charge  covenants at
December 31, 2002,  or the  tangible net worth  covenant at March 31, 2003,  but
waivers were received.  These  covenants have since been amended to requirements
that  management  believes are reasonably  achievable,  although there can be no
assurance that the required financial performance will be achieved.

     The weighted  average  interest  rates on debt  outstanding at December 31,
2001 and  2002  were  approximately  4.75 and  3.80  percent,  respectively.  In
connection with an early March 2003 amendment,  the interest rate on outstanding
borrowings  under the arrangement was increased from LaSalle's prime rate to the
prime rate plus two  percent.  The Company is required to pay a facility  fee on
the  financing  arrangement  of  .25%  of  the  maximum  loan  limit  ($32,500).
Borrowings  under the  agreement  are  secured  by liens on  revenue  equipment,
accounts receivable, and certain other assets.

     Long-term debt also includes  equipment  notes with balances of $30,656 and
$28,059 at  December  31,  2001 and 2002,  respectively.  Interest  rates on the
equipment notes range from 2.51 percent to 7.54 percent with maturities  through
2007. The equipment notes are  collateralized by the underlying  equipment,  and
contain a minimum tangible net worth requirement.  The Company was in compliance
with the required minimum tangible net worth  requirement for December 31, 2002,
but was not in  compliance  on March 31,  2003.  A waiver was  obtained and this
covenant  has since been  amended.  Management  expects to remain in  compliance
going forward.

     If the Company fails to maintain compliance with financial covenants in its
borrowing obligations,  or to obtain a waiver of any noncompliance,  the lenders
will  have the  right to  declare  all sums  immediately  due and  pursue  other
remedies.  In such an event,  the Company's  liquidity  would be materially  and
adversely  impacted,  and the  Company's  ability to continue as a going concern
would be called into question if alternative financing could not be obtained.

     Future  maturities  on long-term  debt at December 31, 2002 are as follows:
2003,  $11,595;  2004,  $11,323;  2005,  $7,664;  2006,  $6,012;  2007,  $5,458;
thereafter, $76.

Note 5:  Income Taxes

     Income taxes  consisted  of the  following  components  for the three years
ended December 31:
<TABLE>
                         2000                               2001                                 2002
              ----------------------------    ----------------------------------    -------------------------------
              Federal    State    Total        Federal      State       Total        Federal    State      Total
              ----------------------------    ----------------------------------    -------------------------------
<S>             <C>      <C>       <C>          <C>           <C>      <C>           <C>         <C>      <C>
Current         $ (74)   $ (18)    $ (92)       $(2,541)      $ (51)   $(2,592)      $     -     $  24    $    24
Deferred         (391)     (98)     (489)          (112)        (17)      (129)       (4,147)     (995)    (5,142)
              ----------------------------    ----------------------------------    -------------------------------
                $(465)   $(116)    $(581)       $(2,653)      $ (68)   $(2,721)      $(4,147)    $(971)   $(5,118)
              ============================    ==================================    ===============================
</TABLE>

     Total  income tax  benefit  differs  from the amount of income tax  benefit
computed by applying  the normal  United  States  federal  income tax rate of 34
percent to income  before income tax benefit.  The reasons for such  differences
are as follows:
<TABLE>
                                                                           Years Ended December 31,
                                                               -------------------------------------------------
                                                                       2000             2001             2002
                                                               -------------------------------------------------
<S>                                                                  <C>             <C>             <C>
Computed "expected" income tax benefit                               $  (677)        $  (2,696)      $  (4,691)
State income tax expense, net of federal taxes                           (77)             (313)           (641)
Permanent differences, primarily nondeductible
  portion of driver per diem and  travel expenses                        278               288             214
Other                                                                   (105)                -               -
                                                               -------------------------------------------------
                                                                     $  (581)        $  (2,721)      $  (5,118)
                                                               =================================================
</TABLE>

                                       40

<PAGE>
     Temporary  differences  between the financial statement basis of assets and
liabilities and the related  deferred tax assets and liabilities at December 31,
2001 and 2002, were as follows:
<TABLE>
   Deferred tax assets:                                                      2001              2002
                                                                     -----------------  -----------------
     <S>                                                                   <C>                <C>
     Net operating loss carryforwards                                      $    5,041         $    6,126
     Alternative minimum tax (AMT) credit carryforwards                           271                271
     Accrued expenses                                                           1,656              2,336
     Goodwill                                                                       -              1,265
     Other                                                                        156                 20
                                                                     -----------------  -----------------
         Total gross deferred tax assets                                        7,124             10,018
                                                                     -----------------  -----------------
   Deferred tax liabilities:
     Property and equipment                                                   (20,260)           (18,012)
                                                                     -----------------  -----------------
         Net deferred tax liabilities                                      $  (13,136)        $   (7,994)
                                                                     =================  =================
</TABLE>
     At December 31, 2002, the Company has net operating loss  carryforwards for
income tax  purposes of  approximately  $15,482  which are  available  to offset
future taxable income.  These net operating  losses expire during the years 2019
through 2022. The AMT credit carryforwards are available  indefinitely to reduce
future income tax liabilities to the extent they exceed AMT liabilities.

     The Company has reviewed the need for a valuation allowance relating to the
deferred tax assets, and has determined that no allowance is needed. The Company
believes  the future  deductions  will be realized  principally  through  future
reversals of existing  taxable  temporary  differences,  and to a lesser extent,
future  taxable  income.  In  addition,  the  Company  has  the  ability  to use
tax-planning  strategies to generate  taxable income if necessary to realize the
deferred tax assets.

Note 6:  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.

Note 7:  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.  The  exercise  price of each stock option is 85 percent of the fair
market value of the common stock on the date of grant. In July, 2000 the Company
granted outside directors 12,000 stock options not covered by this plan.

     The  Company  has  reserved  500,000  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  has  reserved  400,000  shares  of Class A common  stock  for
issuance  pursuant to a new employee  incentive stock option plan adopted during
2001.  Any shares which expire  unexercised  or are forfeited  become  available
again for issuance under the plan.  Under this plan, no award of incentive stock
options may be made after August 6, 2011.

                                       41

<PAGE>
     A summary of stock option  activity and  weighted-average  exercise  prices
follows:
<TABLE>
                                                   2000                    2001                     2002
                                          --------------------------------------------------------------------------
                                                      Exercise                Exercise                  Exercise
                                            Shares      price      Shares       price       Shares        price
                                          --------------------------------------------------------------------------
<S>                                         <C>         <C>        <C>          <C>         <C>           <C>
Outstanding at beginning of year            152,000     $9.85      345,000      $5.50       623,000       $4.25
    Granted                                 193,000      2.07      278,000       2.70        27,525        2.31
    Exercised                                     -         -            -          -             -           -
    Forfeited                                     -         -            -          -       266,000        3.47
                                          --------------------------------------------------------------------------
Outstanding at end of year                  345,000     $5.50      623,000      $4.25       384,525       $4.66
                                          ==========================================================================
Options exercisable at end of year          220,400     $6.71      296,400      $5.77       301,725       $5.20
Weighted-average fair value of
options granted during the year                         $1.66                   $1.49                     $1.28
</TABLE>
     A summary of stock options  outstanding  and exercisable as of December 31,
2002, follows:
<TABLE>
                                      Options outstanding                                Options exercisable
                   -----------------------------------------------------------    ----------------------------------
 Range of exercise     Number       Weighted average      Weighted average            Number     Weighted average
      prices        outstanding  remaining life (years)    exercise price          exercisable    exercise price
------------------------------------------------------------------------------    ----------------------------------
<S>                    <C>                <C>                 <C>                   <C>                 <C>
$ 1.55 - $ 3.47        261,525            7.61                $ 2.17                185,125             $ 2.27
$ 7.23 - $ 9.50         88,000            2.54                $ 9.11                 88,000             $ 9.11
$11.81 - $14.05         35,000            4.77                $12.00                 28,600             $12.05
                   -----------------------------------------------------------    ----------------------------------
                       384,525            6.19                $ 4.66                301,725             $ 5.20
                   ===========================================================    ==================================
</TABLE>

     The Company has reserved 55,000 shares of Class A common stock for issuance
pursuant to an independent  contractor  driver bonus plan.  The Company  awarded
33,646,   -0-,  and  -0-  shares  under  the  plan  in  2000,  2001,  and  2002,
respectively.

     The Company  also has a Class A common stock  profit  incentive  plan under
which 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 2000
the Company issued 13,401 shares of Class A common stock to  participants in the
plan. No shares were awarded in 2001 and 2002 under the plan.

Note 8:  Loss per Share

     A summary of the basic and diluted loss per share computations is presented
below:
<TABLE>
Years ended December 31                                                  2000             2001             2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>              <C>
Net loss applicable to common stockholders                           $   (1,991)      $   (5,211)      $   (8,678)
                                                                ---------------------------------------------------
Basic weighted-average shares outstanding                             5,008,759        4,852,067        4,845,652
     Effect of dilutive stock options                                         -                -                -
                                                                ---------------------------------------------------
Diluted weighted-average shares outstanding                           5,008,759        4,852,067        4,845,652
                                                                ===================================================
Basic loss per share                                                 $    (0.40)      $    (1.07)      $    (1.79)
Diluted loss per share                                               $    (0.40)      $    (1.07)      $    (1.79)
                                                                ---------------------------------------------------
</TABLE>
Note 9:  Employees' Profit Sharing and Savings Plan

     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 pre-tax  compensation into the plan. Employers may make
savings,   matching,  and  discretionary   contributions,   subject  to  certain
restrictions.  During the years ended December 31, 2000, 2001, and

                                       42

<PAGE>
2002, Company contributions totaled $180, $-0-, and $-0-, respectively. The plan
owns 525,693 shares of the Company's Class A common stock at December 31, 2002.

Note 10: Commitments and Contingent Liabilities

     Prior to July 1, 2002, the Company's  insurance program for auto liability,
physical damage,  and cargo losses involves a deductible of $50 per incident and
the Company's insurance program for workers'  compensation involves a deductible
of $100 per incident. In response to increasing costs of insurance premiums, the
Company  increased  its  deductible  for  both  insurance  programs  to $250 per
incident  beginning July 1, 2002. At December 31, 2001 and 2002, the Company had
$2,327  and  $3,882,  respectively,  accrued  for its  estimated  liability  for
incurred losses related to these programs.

     The insurance companies require the Company to provide letters of credit to
provide funds for payment of the  deductible  amounts.  At December 31, 2001 and
2002,  the  Company  had $5,513 and $7,449  letters of credit  issued  under the
financing arrangement described in note 4. In addition,  funds totaling $413 and
$654 were held by the  insurance  companies as deposits at December 31, 2001 and
2002, respectively.

     The Company's  obligations under non-cancelable  operating lease agreements
are as follows:  2003, $295; 2004, $20; 2005, $5;  thereafter $-0-. There are no
equipment  re-purchase  commitments or lease residual guarantees in place on the
Company's fleet. In addition, the Company has no fuel purchase commitments as of
December 31, 2002.

     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 $125 per covered  member.  At December 31, 2001 and 2002,  the Company had
approximately $871 and $943,  respectively,  accrued for its estimated liability
related to these claims.

     The Company is 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 materially
adverse effect on the financial statements of the Company.

Note 11: Transactions with Related Parties

     During the years ended  December  31,  2000,  2001,  and 2002 there were no
material transactions with related parties.

Note 12: Quarterly Financial Data (Unaudited)

     Summarized quarterly financial data for the Company for 2001 and 2002 is as
follows:
<TABLE>
                                                March 31         June 30        September 30      December 31
                                          ----------------------------------------------------------------------
<S>                                             <C>               <C>             <C>               <C>
2001
Operating revenue                               $47,379           $51,754         $48,571           $43,122
Earnings (loss) from operations                  (1,127)              338          (1,114)           (3,025)
Net loss                                         (1,288)             (384)         (1,212)           (2,327)
Basic and diluted loss per share                 ($0.26)           ($0.08)         ($0.25)           ($0.48)

2002
Operating revenue                               $41,220           $45,239         $43,272           $39,737
Loss from operations                             (2,700)           (1,263)           (648)           (7,270) (1)
Net loss                                         (2,037)           (1,161)           (757)           (4,723) (1)
Basic and diluted loss per share                 ($0.42)           ($0.24)         ($0.16)           ($0.97)
</TABLE>

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

(1)  Fourth  quarter  2002  includes a charge of $3,271  ($1,998  after tax) for
impairment of goodwill in one of the Company's  reporting  units as discussed in
note 2 and a charge of $1,800  ($1,100  after tax) for a revision  of  estimates
related to auto liability and workers' compensation loss reserves.





                                       43