<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

 [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       or

 [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

                           COMMISSION FILE NO. 0-15057

                      P.A.M. TRANSPORTATION SERVICES, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                          71-0633135
      (State or other jurisdiction of                        (I.R.S. employer
      incorporation or organization)                         identification no.)

                                Highway 412 West
                                  P.O. Box 188
                            Tontitown, Arkansas 72770
                                 (501) 361-9111
          (Address of principal executive offices, including zip code,
                   and telephone number, including area code)


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

Securities registered pursuant to section 12(g) of the Act: Common Stock, $.01
par value

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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant on March 12, 1999 was $18,547,227. Solely for
the purposes of this response, executive officers, directors and beneficial
owners of more than five percent of the Company's common stock are considered
the affiliates of the Company at that date.

The number of shares outstanding of the issuer's common stock, as of March 12,
1999: 8,371,257 shares of $.01 par value common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
      The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held in 1999 is incorporated by reference in answer to Part
III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.



<PAGE>   2



Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, general economic conditions, competition in the
transportation industry and other uncertainties detailed from time to time in
the Company's Securities and Exchange Commission filings.

                                     PART I

ITEM 1.  BUSINESS.

      P.A.M. Transportation Services, Inc. (the "Company"), operating through
its wholly-owned subsidiaries, is an irregular route, common and contract motor
carrier authorized to transport general commodities throughout the continental
United States and the Canadian provinces of Ontario and Quebec, pursuant to
operating authorities granted by the former Interstate Commerce Commission
("ICC"), various state regulatory agencies and Canadian regulatory agencies.
Under its operating authorities, the Company may transport all types of freight
(except household goods, commodities in bulk and certain explosives) intrastate
within any state, and from any point in the continental United States, Ontario
or Quebec to any other point in the continental United States or in Ontario or
Quebec over any route selected by the Company. The Company transports dry
freight commodities ("freight") in 48-foot and 53-foot long, high cube
conventional and specialized freight vans ("trailers"). The freight consists
primarily of automotive parts, consumer goods, such as general retail store
merchandise and products from the manufacturing sector, such as heating and air
conditioning units. All freight is transported as truckload quantities.

      The Company is a holding company organized under the laws of the State of
Delaware in June 1986 and conducts its operations through its wholly-owned
subsidiaries, P.A.M. Transport, Inc. ("P.A.M. Transport"), P.A.M. Special
Services, Inc., T.T.X., Inc., P.A.M. Dedicated Services, Inc., P.A.M. Logistics
Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Allen Freight
Services, Inc. and Decker Transport Co. Inc. The Company's operating authorities
are held by P.A.M. Transport, P.A.M. Dedicated Services, Inc., Choctaw Express,
Inc., Choctaw Brokerage, Inc., Allen Freight Services, Inc. and Decker Transport
Co. Inc. Although not organized until June 1986, the Company is, for financial
accounting purposes, the successor to P.A.M. Transport, which was organized
under the laws of the State of Arkansas in 1980. Unless the context otherwise
requires, all references to the Company in this Annual Report on Form 10-K
include P.A.M. Transportation Services, Inc. and its subsidiaries. At December
31, 1998, the Company operated a transport fleet consisting of 1,127
over-the-road tractors ("tractors") and 2,784 trailers.

       On January 11, 1999, the Company acquired, through a wholly-owned
subsidiary, substantially all of the assets and liabilities of Decker Transport
Inc. ("Decker") and Van Houten Ltd. (individually, "Van Houten" and collectively
with Decker, "Sellers") of Riverdale, New Jersey. The assets include, but are
not limited to, Sellers' tractors, trailers, personal property, equipment and
other real and personal property leases, and business contracts. Prior to the
acquisition, Decker conducted an irregular route, common and

                                        2

<PAGE>   3



contract motor carrier business and was authorized to transport general
commodities throughout the continental United States and the Canadian provinces
of Quebec and Ontario. Van Houten was an equipment leasing company. The Company
intends to continue using the assets in the same manner as they were used by
Sellers. Under the terms of the acquisition, the aggregate purchase price for
Sellers' assets and for certain non-competition covenants entered into by
Sellers and William Van Houten, Sellers' sole shareholder, was approximately
$13.8 million (subject to certain post closing adjustments as set forth below)
plus assumed liabilities of approximately $14.1 million. The transaction price
was determined through arms-length negotiations between the Company and William
Van Houten.

      The Company is headquartered and maintains its primary terminal,
maintenance facilities and corporate and administrative offices in Tontitown in
the northwest corner of Arkansas, a major center for the trucking industry and
where the support services (including warranty repair services) of most major
tractor and trailer equipment manufacturers are readily available.

MARKETING/MAJOR CUSTOMERS

      The Company's marketing emphasis is directed to that segment of the
truckload market which is generally service-sensitive, as opposed to being
solely price competitive. Since 1990, the Company has diversified its marketing
efforts to gain access to non-traditional freight traffic, including
international (Mexico and Canada), domestic regional short-haul, dedicated
fleetservices and intermodal transportation. The Company also participates in
various "core carrier" partnerships with its larger customers. The Company
estimates that approximately 60% of its deliveries to customers are made on a
JIT ("just in time") basis, whereby products and raw materials are scheduled for
delivery as they are needed on the retail customer's shelves or in the
manufacturing customer's production line. Such requirements place a premium on
the freight carrier's delivery performance and reliability. With respect to
these JIT deliveries, approximately 40% require the use of two-man driver teams
to meet the customer's schedule. The need for this service is a product of
modern manufacturing and assembly methods which are designed to drastically
decrease inventory levels and handling costs.

      The Company's marketing efforts are conducted by seven outside sales
persons domiciled within the Company's major markets. Field personnel are
supervised from Company headquarters, emphasizing an even flow of freight
traffic (balance between originations and destinations in a given geographical
area) and minimization of movement of empty equipment.

      During 1998, the Company's five largest customers, for which the Company
provides carrier services covering a number of geographic locations, accounted
for approximately 58% of total revenues. General Motors Corporation accounted
for approximately 35% of 1998 revenues and Delphi Automotive System Corporation
accounted for approximately 12% of 1998 revenues. A total loss of this business,
however unlikely, would have an adverse impact on the Company's operations, at
least over the short term.

      The Company also provides transportation services to other manufacturers
who are suppliers for automobile manufacturers. As a result, concentration of
the Company's business within the industry is greater than the concentration in
a single customer. Of the Company's revenues for 1998 that were attributable to
its top ten customers, approximately 48% were derived from transportation
services provided to the automobile industry.

                                        3

<PAGE>   4



      The Company is no longer required to file tariffs with the Interstate
Commerce Commission ("ICC") or any successor agency. See "Regulation."

OPERATIONS

      The Company maintains 24-hour dispatch offices at its headquarters, as
well as its offices in Jacksonville, Florida; Columbia, Mississippi; Warren,
Ohio; and Oklahoma City, Oklahoma; with a toll free WATS line to facilitate
communications with both customers and drivers. The location, status and contact
assignment of all of the Company's equipment are available on an up-to-date
basis through the Company's computer system, which permits the Company to better
meet delivery schedules, respond to customer inquiries and match equipment with
the next available load.

      The Company has installed Qualcomm Omnitracs(TM) display units in all of
its tractors. The Omnitracs system is a satellite-based global positioning and
communications system that allows fleet managers to communicate directly with
drivers. Drivers can provide location status and updates directly to the
customer's computer, saving telephone usage cost, lost productivity, and
inconvenience. The Omnitracs system provides customer service with accurate
estimated time of arrival information which optimizes load selection and service
levels to the Company's customers.

      The Company communicates through electronic data interchange with many of
its customers, providing live status reports of freight shipments and arrival
time information. This system provides the Company's customers flexibility and
convenience by allowing the customer to tender freight electronically.

      The Company has contractual arrangements with some customers to move
freight in dedicated lanes within the United States. A majority of this freight
is moved on a round-trip basis, and due to the volume involved, the Company has
agreed to dedicate equipment and personnel to handle this part of its business.
The Company has found that dedicated service promotes increased utilization of
equipment and greater driver satisfaction due to the greater regularity of the
routes and schedules, which allows the drivers to be at home more often. There
exists a large volume of dedicated-type business throughout the continental
United States. The Company has enjoyed considerable success in entering this
market, and is aggressively seeking to expand its share of the dedicated
services market.

OVER-THE-ROAD EQUIPMENT

      The Company operated a fleet of 1,127 tractors and 2,784 trailers at
December 31, 1998. All of the trailers and all except 94 tractors are owned or
leased by the Company. The trailer fleet is made up of 765 48' by 102" dry vans
and 2,019 53' by 102" dry vans. In 1993, the Company began its trailer fleet
conversion to air ride equipment and the Company intends to purchase only air
ride trailers in the future. The Company also has certain specialized drop-frame
trailers. The tractors that are not Company owned are leased from
owner/operators on a per mile basis.

      At the end of the respective years, the average age of the Company's
tractors was 1.85 in 1996, 1.94 in 1997, and 1.74 in 1998. The average age of
the Company's trailer fleet was 2.60, 2.85, and 3.31 at the end of 1996, 1997,
and 1998, respectively.

                                        4

<PAGE>   5



      During 1998, the Company purchased 403 new tractors and 770 new trailers
and disposed of 251 tractors and 664 trailers. During 1999, the Company expects
to purchase 370 new tractors and 455 new trailers while continuing to sell or
trade older equipment.

MAINTENANCE

      The Company has a strictly enforced comprehensive preventive maintenance
program for the tractors and trailers it operates. Inspections and various
levels of repair and preventive maintenance are performed at set mileage
intervals on both tractors and trailers. Although a significant portion of
maintenance is performed at the Company's maintenance facility in Tontitown,
Arkansas, the Company's subsidiaries have additional maintenance facilities in
Columbia, Mississippi; Springfield, Missouri; Riverdale, New Jersey; Willard and
Warren, Ohio; Oklahoma City, Oklahoma; and Irving, Laredo and El Paso, Texas.
These facilities enhance the Company's preventive and routine maintenance
operations and are strategically located on major transportation routes where a
majority of the Company's freight originates and terminates. A maintenance and
safety inspection is performed on all vehicles each time they return to a
terminal. The Company's primary maintenance facilities consist of thirteen
mechanical repair bays, four body-shop bays and three safety and maintenance
inspection bays. The Company believes that its current maintenance facilities
will be adequate to accommodate its fleet for the foreseeable future.

      The Company's tractors carry full warranty coverage of at least 100,000
miles. Extended warranties are negotiated with the manufacturer and major
component manufacturer (i.e., engine, transmission, differential) for up to
750,000 miles. Trailers are also warranted by the manufacturer and major
component manufacturer for up to five years.

      Manufacturers of tractors are required to certify that new tractors meet
federal emission standards and the Company receives such certifications on each
new tractor it acquires. Certain governmental regulations require the Company to
adhere to a fuel and oil spillage prevention plan and to comply with regulations
concerning the discharge and disposal of waste oil. The Company believes it is
in compliance with applicable waste disposal and emission regulations. The
Company also maintains insurance to cover clean up expense in the event of a
spill.

DRIVERS

      At December 31, 1998, the Company utilized 1,367 drivers in its
operations. All drivers are recruited, screened, drug tested and trained and are
subject to the control and supervision of the Company's operations and safety
departments. The Company's driver training program stresses the importance of
safety and reliable, on-time delivery. Drivers are required to report to their
dispatchers daily and at the earliest possible moment when any condition en
route occurs which might delay their scheduled delivery time.

      The Company's drivers are selected only after strict application screening
and drug testing. Before being permitted to operate a vehicle for the Company,
drivers must undergo classroom instruction on Company policies and procedures,
safety techniques and proper operation of equipment and then must pass both
written and road tests. Instruction in defensive driving and safety techniques
continues after hiring, with the Company holding seminars at its terminals in
Tontitown, Arkansas; Jacksonville, Florida;

                                        5

<PAGE>   6



Columbia, Mississippi; Riverdale, New Jersey; Warren, Ohio; and Oklahoma City,
Oklahoma. The Company currently employs approximately 41 persons on a full-time
basis in its driver recruiting, training and safety instruction programs.

      The Company's drivers are compensated on the basis of miles driven,
loading and unloading, extra stop pay and layovers in transit. Drivers can earn
bonuses by recruiting other qualified drivers who become employed by the Company
and both cash and non-cash prizes are awarded for consecutive periods of safe,
accident-free driving.

      Intense competition in the trucking industry for qualified drivers over
the last several years, along with difficulties and added expense in recruiting
and retaining qualified drivers, has had a negative impact on the industry. The
Company's operations have also been impacted and from time to time the Company
has experienced under-utilization and increased expenses due to a shortage of
qualified drivers. Management places the highest of priorities on the
recruitment and retention of an adequate supply of qualified drivers.

EMPLOYEES

      At December 31, 1998, the Company employed 1,656 persons, of which 1,367
are drivers, 78 are maintenance personnel, 98 are employed in operations, 21 are
employed in marketing, 41 are employed in safety and personnel, and 51 are
employed in general administration and accounting. Of the total number of
employees, 167 of the Company's employees are salaried, and the remainder are
employed on an hourly or mileage basis. The Company also has 94 owner/operators
under contract who are compensated on a per mile basis. None of these employees
are represented by a collective bargaining unit and the Company believes that
its employee relations are good.

REGULATION

      The Company is a common and contract motor carrier that is regulated by
certain state and Canadian regulatory agencies. Prior to January 1, 1996, the
Company was also regulated by the ICC. The ICC governed such activities as the
authority to engage in motor carrier operations, rates and charges, accounting
systems, certain mergers, consolidations, acquisitions and periodic financial
reporting. On January 1, 1996, however, the ICC Termination Act of 1995 (the
"Termination Act") was enacted, terminating the ICC and substantially
deregulating the rail and motor carrier industries.

      The Termination Act substantially revises the Motor Carrier Act of 1980,
eliminating numerous unnecessary provisions and streamlining many of the ICC's
functions regarding the regulation of the motor carrier industry. The majority
of the remaining ICC functions are transferred to the Department of
Transportation ("DOT"), with limited responsibilities transferred to a newly
formed Surface Transportation Board. Some of the ICC functions that have been
eliminated include: tariff filings, except for non-contiguous domestic trade;
rate regulation, except for non-contiguous domestic trade and individual
household goods movements; federal grants of operating authority; price
regulation and tariff filing requirements for office and exhibit moves; the
possibility of future undercharge claims; restrictions on intermodal ownership;
review of motor carrier mergers; and state regulation of transportation
intermediaries. In addition, registration and insurance filings under the Motor
Carrier Act are streamlined

                                        6

<PAGE>   7



into a single federal registration and insurance system to eliminate duplicative
and burdensome filing requirements. Exemption authority to permit administrative
deregulation has also been substantially broadened, with restrictions remaining
on only cargo loss and damage, insurance, safety fitness and antitrust immunity.

      Prior to the enactment of the Termination Act, most of the ICC's authority
to oversee the commercial operation of the motor carrier industry had already
been transferred to the DOT. The primary remaining functions which are
transferred to the DOT by the Termination Act are motor carrier registration and
the setting and maintenance of minimum levels of liability insurance. In
addition, the maintenance of nationwide motor carrier industry commercial rules
(such as leasing rules, uniform cargo loss and damage rules, rules for shipper
payment, and perfecting security interests) are transferred to the DOT.

      Currently, the ICC and the DOT operate separate registration systems. The
ICC requires that interstate, for hire carriers receive a license (operating
authority) with the standards for granting of authority limited to a showing of
safety and fitness and insurance coverage at a specified level. The DOT
registration system extends to all carriers, including private and exempt
carriers not regulated by the ICC. The DOT assigns each carrier an
identification number. Carriers are not required to show proof of insurance at
the time of DOT registration, nor is any fee currently charged. The Termination
Act continues the two registration systems for a period of twenty-four months,
during which time the Secretary of Transportation shall conduct a rule-making
and implement changes to consolidate these two registration systems into one
system. The new system will serve as a clearing house and depository of
information on and identification of all domestic and foreign motor carriers,
brokers, freight forwarders and others required to register. The DOT will
utilize the information in overseeing safety fitness and compliance with
required levels of insurance. Registrations will be renewed periodically and the
on-line system will be available to state authorities and the public.

      The Termination Act also continues antitrust immunity granted by the ICC
but contains reforms intended to prevent any potential market abuses.

      On January 1, 1995, federal legislation went into effect eliminating
intrastate regulation of motor carrier operations. This action allows the
Company to better compete for intrastate business, possibly reducing empty
miles, and should result in more comprehensive service to the Company's existing
customers.

      Motor carrier operations are also subject to safety requirements
prescribed by the United States Department of Transportation governing
interstate operation. Such matters as weight and dimensions of equipment are
also subject to federal and state regulations.

      The Company believes that it is in compliance in all material respects
with applicable regulatory requirements relating to its trucking business and
operates with a satisfactory rating from the United States Department of
Transportation.


                                        7

<PAGE>   8



COMPETITION

      The trucking industry is highly competitive. The Company competes
primarily with other irregular route long-haul truckload carriers, with private
carriage conducted by its existing and potential customers, and, to a lesser
extent, with the railroads. Increased competition has resulted from deregulation
of the trucking industry and has generally exerted downward pressure on prices.
The Company competes on the basis of its quality of service and delivery
performance as well as price. Many of the other irregular route long-haul
truckload carriers have substantially greater financial resources, own more
equipment or carry a larger total volume of freight than the Company.

EXECUTIVE OFFICERS

       The executive officers of the Company are as follows:

<TABLE>
<CAPTION>

                   Name                       Position with Company
                   ----                       ---------------------
              <S>                       <C>   
              Robert W. Weaver          President and Chief Executive Officer

              W. Clif Lawson            Executive Vice President and Chief
                                        Operating Officer

              Larry J. Goddard          Vice President-Finance, Chief Financial
                                        Officer, Secretary and Treasurer
</TABLE>

      ROBERT W. WEAVER, age 49, is a co-founder of the Company and served as its
Vice President from March 1980 to June 1986. He was President and Chief
Operating Officer from June 1986 until he resigned in February 1987. Between
February 1987 and September 1989, he was self-employed as a transportation
consultant. In September 1989, Mr. Weaver returned to the Company as President
and Chief Operating Officer and a director. On February 22, 1990, he was
appointed Chief Executive Officer.


      W. CLIF LAWSON, age 45, has been Executive Vice President of the Company
since August 1989 and Chief Operating Officer since March 1992. He joined the
Company in June 1984 and served in various operations and sales capacities until
August 1989.

      LARRY J. GODDARD, age 40, has been Vice President-Finance and Chief
Financial Officer since January 1991 and served as Controller of the Company
from May 1989 to January 1991. In addition, he has served as Secretary since
September 1989, and Treasurer since May 1991. From November 1987 to May 1989, he
served as General Accounting Manager of the Company.

ITEM 2.  PROPERTIES.

      The Company's executive offices and primary terminal facilities are
located in Tontitown, Arkansas. The Company's facilities are located on
approximately 45 acres and consist of 79,193 square feet of office

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space and maintenance and storage facilities. The Company's facilities in
Tontitown are owned by the Company.

      The Company's subsidiaries also lease terminal facilities in Jacksonville,
Florida; Springfield, Missouri; Riverdale, New Jersey; Willard and Warren, Ohio;
Oklahoma City, Oklahoma; Memphis, Tennessee; and Laredo, El Paso, and Irving,
Texas; the terminal facilities in Columbia, Mississippi are owned. These
facilities are leased primarily on a month-to-month basis, and provide
on-the-road maintenance and trailer drop and relay stations. The Company's
subsidiaries also lease an aggregate of 18 other locations as trailer drop and
relay stations only.

      The Company has access to trailer drop and relay stations in various
locations across the country. Certain of these facilities are leased by the
Company on a month-to-month basis from an affiliate of its majority shareholder.

      The Company believes that all of the properties owned or leased by the
Company are suitable for their purposes and adequate to meet the Company's
needs.

ITEM 3.  LEGAL PROCEEDINGS.

      The nature of the Company's business routinely results in litigation,
primarily involving claims for personal injuries and property damage incurred in
the transportation of freight, and management of the Company believes all such
litigation is adequately covered by insurance and that adverse results in one or
more of those cases would not have a material adverse effect on the Company's
financial condition.

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

      No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 31, 1998.


                                        9

<PAGE>   10



                                    PART II


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


      The Company's Common Stock is traded on the Nasdaq National Market System
under the Nasdaq symbol PTSI. The following table sets forth, for the fiscal
quarters indicated, the range of the high and low sales price per share for the
Common Stock as quoted on the Nasdaq National Market System.

<TABLE>
<CAPTION>

Fiscal Year Ended December 31, 1998
                                                    High          Low
                                                    ----          ---
<S>                                                <C>          <C>  
First Quarter                                      $11 3/4      $8 3/4

Second Quarter                                          12       8 3/4

Third Quarter                                           10       6 1/4

Fourth Quarter                                           9       6 1/2
</TABLE>

<TABLE>
<CAPTION>

Fiscal Year Ended December 31, 1997
                                                    High          Low
                                                    ----          ---
<S>                                                <C>          <C>    
First Quarter                                      $ 7 1/4      $4 3/8

Second Quarter                                       8 1/2       5 1/4

Third Quarter                                       10 1/8       7 7/8

Fourth Quarter                                      12 1/4       7 3/4
</TABLE>

      As of March 12, 1999, the number of stockholders of record was
approximately 354. The Company has not declared or paid any cash dividend on its
common stock. The policy of the Board of Directors of the Company is to retain
earnings for the expansion and development of the Company's business. Future
dividend policy and the payment of dividends, if any, will be determined by the
Board of Directors in light of circumstances then existing, including the
Company's earnings, financial condition and other factors deemed relevant by the
Board of Directors.


                                       10

<PAGE>   11
\


ITEM 6.  SELECTED FINANCIAL DATA.

      The following selected financial data should be read in conjunction with
the Consolidated Financial Statements and notes thereto included elsewhere
herein.

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                       1998                1997        1996           1995         1994  
                                                       ----                ----        ----           ----         ----
                                                                       (in thousands, except per share amounts)
<S>                                                  <C>             <C>            <C>             <C>           <C>
Statements of Operations:
Operating revenues                                   $ 143,164       $ 127,211      $ 113,021       $  91,595     $  76,147
                                                     ---------       ---------      ---------       ---------     ---------
Operating Expenses:
  Salaries, wages and benefits                          65,169          57,662         52,444          40,020        33,647
  Operating supplies                                    26,511          24,666         21,909          16,719        14,688
  Rent and purchased transportation                      1,082           1,655          1,824           1,538           991
  Depreciation and amortization                         14,003          12,995         11,999           9,428         7,142
  Operating taxes and licenses                           8,388           7,581          6,734           5,608         5,078
  Insurance and claims                                   6,069           5,571          5,004           4,163         3,816
  Communications and utilities                           1,583           1,001          1,090             852           868
  Other                                                  3,131           2,394          2,077           1,666         1,279
  (Gain) loss on sale or disposal of
      property and equipment                               168              71            375             159          (334)
                                                     ---------       ---------      ---------       ---------     ---------
               Total operating expenses                126,104         113,596        103,456          80,153        67,175
                                                     ---------       ---------      ---------       ---------     ---------

Operating income                                        17,060          13,615          9,565          11,442         8,972
Interest expense                                        (3,830)         (3,423)        (4,137)         (3,521)       (2,926)
Other                                                        1               0             31             166           217
                                                     ---------       ---------      ---------       ---------     ---------

Income before income taxes and
  dividends on redeemable preferred stock               13,231          10,192          5,459           8,087         6,263
Income taxes                                             5,158           3,892          2,147           3,073         2,493
                                                     ---------       ---------      ---------       ---------     ---------

Income before dividends on
  redeemable preferred stock                             8,073           6,300          3,312           5,014         3,770
Accrued dividends on redeemable preferred stock              0               0              0               0            30
                                                     ---------       ---------      ---------       ---------     ---------
Net income                                           $   8,073       $   6,300      $   3,312       $   5,014     $   3,740
                                                     =========       =========      =========       =========     =========

Earnings per common share:
  Basic                                              $     .97       $     .77      $     .66       $    1.01     $     .76
                                                     =========       =========      =========       =========     =========
  Diluted                                            $     .96       $     .76      $     .44       $     .65     $     .50
                                                     =========       =========      =========       =========     =========

Average common shares outstanding- Basic                 8,306           8,192          5,035           4,970         4,921
                                                     =========       =========      =========       =========     =========
Average common shares outstanding- Diluted               8,444(1)        8,290(1)       7,578(1)        7,654(1)      7,520(1)
                                                     =========       =========      =========       =========     =========
</TABLE>

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

(1)  Income per share for 1998, 1997, 1996, 1995 and 1994 assumes the exercise
     of stock purchase warrants an stock options to purchase an aggregate of
     317,040, 347,850, 3,545,280, 3,529,278 and 3,454,549 shares of Common
     Stock, respectively.


                                       11

<PAGE>   12


<TABLE>
<CAPTION>

                                               Balance Sheet Data
                                                 At December 31,
                             1998          1997         1996         1995         1994  
                             ----          ----         ----         ----         ----
                                                  (in thousands)

<S>                       <C>           <C>           <C>          <C>          <C> 
Total assets              $126,471      $100,688      $94,895      $86,808      $65,324
Long-term debt              44,816        28,226       34,938       37,966       32,206
Shareholders' equity        41,457        33,162       26,312       18,232       13,034
</TABLE>


<TABLE>
<CAPTION>

                                                                               Operating Data
                                                                        For the Year Ended December 31,
                                              1998             1997             1996              1995             1994
                                              ----             ----             ----              ----             ----
<S>                                         <C>              <C>              <C>              <C>              <C>   
Operating ratio(1)                              88.1%            89.4%            91.5%            87.5%            88.2%
Average number of truckloads per week          3,425            2,874            2,437            1,913            1,617
Average miles per trip                           767              786              845              899              859
Total miles traveled (in thousands)          131,847          115,622          102,946           85,588           69,128
Average miles per tractor                    125,569          125,404          122,250          118,424          116,181
Average revenue per tractor per week        $  2,716         $  2,694         $  2,684         $  2,711         $  2,668
Average revenue per loaded mile             $   1.15         $   1.17         $   1.17         $   1.14         $   1.18
Empty mile factor                                 .5%             5.8%             6.1%             6.2%             6.8%

AT END OF PERIOD:
Total Company-owned/leased tractors            1,127(2)           975(2)           912(3)           716(4)           595(5)
Average age of all tractors (in years)          1.74             1.94             1.85             1.26             1.70
Total trailers                                 2,784(6)         2,678(7)         2,398(8)         1,638(9)         1,434(8)
Average age of trailers (in years)              3.31             2.85             2.60             2.34             2.09
Number of employees                            1,656            1,446            1,438            1,192              859
</TABLE>


(1)  Total operating expenses as a percentage of total operating revenues.
(2)  Includes 94 owner operator tractors.
(3)  Includes 126 owner operator tractors.
(4)  Includes 45 owner operator tractors.
(5)  Includes 40 owner operator tractors.
(6)  Includes 46 trailers leased from an affiliate of the Company's majority 
     shareholder.
(7)  Includes 66 trailers leased from an affiliate of the Company's majority 
     shareholder.
(8)  Includes 74 trailers leased from an affiliate of the Company's majority 
     shareholder.
(9)  Includes 82 trailers leased from an affiliate of the Company's majority 
     shareholder.




                                       12

<PAGE>   13



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

         Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results and plans for future
business development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, general economic conditions, competition in the
transportation industry and other uncertainties detailed from time to time in
the Company's Securities and Exchange Commission filings.

      The following table sets forth the percentage relationship of revenue and
expense items to operating revenues for the periods indicated.


<TABLE>
<CAPTION>
                                            Percentage of Operating Revenues
                                            --------------------------------

                                                Years ended December 31,       
                                                ------------------------       
                                            1998          1997          1996   
                                            ----          ----          ----   
<S>                                         <C>           <C>           <C> 
Operating revenues                          100%          100%          100%
                                            ----          ----          ----
Operating expenses:
  Salaries, wages and benefits              45.5          45.3          46.4
  Operating supplies                        18.5          19.4          19.4
  Rent and purchased transportation           .8           1.3           1.6
  Depreciation and amortization              9.8          10.2          10.6
  Operating taxes and licenses               5.9           6.0           6.0
  Insurance and claims                       4.2           4.4           4.4
  Communications and utilities               1.1           0.8           1.0
  Other                                      2.2           1.9           1.8
 Loss on sale or disposal of
    property and equipment                   0.1           0.1           0.3
                                            ----          ----          ----
        Total operating expenses            88.1          89.4          91.5
                                            ----          ----          ----
Operating income                            11.9          10.6           8.5
Interest expense                            (2.7)         (2.7)         (3.7)
Other, net                                    --            --            --
                                            ----          ----          ----
Income before income taxes                   9.2           7.9           4.8
Federal and state income taxes              (3.6)         (3.1)         (1.9)
                                            ----          ----          ----
Net income                                   5.6           4.8           2.9
                                            ====          ====          ====
</TABLE>



                                       13

<PAGE>   14



RESULTS OF OPERATIONS

1998 COMPARED TO 1997

        For the year ended December 31, 1998, revenues increased 12.5% to $143
million as compared to $127 million for the year ended December 31, 1997. The
Company's utilization (revenue per tractor per work day) increased .74% from
$539 in 1997 to $543 in 1998.

        The Company's operating ratio improved from 89.4% in 1997 to 88.1% in
1998.

        Operating supplies and expenses decreased from 19.4% of revenues in 1997
to 18.5% of revenues in 1998, reflecting a decrease of 1.9% in fuel costs for
1998. This decrease was partially offset by an increase of .8% in driver
recruiting and training costs.

        Rent and purchased transportation decreased from 1.3% of revenues in
1997 to 0.8% of revenues in 1998. This decrease was due to the replacement of
rental trailers with Company-owned trailers and a planned decrease in intermodal
operations, thus reducing purchased transportation costs.

        The Company's effective tax rate increased from 38.2% in 1997 to 39.0%
in 1998.

        At December 31, 1998, the Company's deferred tax assets were $7.8
million and deferred tax liabilities were $20.9 million. In assessing the need
for a valuation allowance against deferred tax assets at December 31, 1998,
management considered the following factors: 1) the Company has recorded $13.1
million in deferred tax liabilities for future taxable temporary differences
(primarily depreciation related) which will result in additional taxable income
in future periods; 2) the Company's recent operating results have produced a
total of more than $28.9 million of pretax accounting income for 1998, 1997 and
1996 and net operating loss carryovers have offset all taxable income in these
years; 3) the Company has various alternatives, such as equipment leasing to
utilize net operating losses, which might otherwise expire; and 4) the Company's
carryover periods for its deferred tax assets are extensive, with expiration
beginning in 2003 for net operating losses and 1999 for investment credits.

1997 COMPARED TO 1996

        For the year ended December 31, 1997, revenues increased 12.6% to $127
million as compared to $113.0 million for the year ended December 31, 1996. The
Company's utilization (revenue per tractor per work day) increased .37% from
$537 in 1996 to $539 in 1997.

        The Company's operating ratio improved from 91.5% in 1996 to 89.4% in
1997.

        Salaries, wages and benefits decreased from 46.4% of revenues in 1996 to
45.3% in 1997. The major factor for the decrease was a 1.8% decrease in the
amounts paid to Allen Freight Services, Inc. (AFS) fleet owners. This decrease
was partially offset by an increase of .6% in amounts paid to the AFS company
drivers that replaced the AFS fleet owners.

                                       14

<PAGE>   15




        Interest expense decreased $714,507 in 1997 when compared to 1996,
primarily as a result of the Company reducing its long term debt and its
borrowings under its line of credit during the fourth quarter 1996 using
proceeds of $4.6 million received by the Company in connection with the exercise
of stock purchase warrants by its majority shareholder.

        The Company's effective tax rate decreased from 39.3% in 1996 to 38.2%
in 1997 as a result of discontinuing the practice of reimbursing nondeductible
per diem expenses to AFS's company drivers. The Company's effective tax rate
reflects the statutory federal tax rate and the average tax rate of the states
in which the Company conducts business.

LIQUIDITY AND CAPITAL RESOURCES

        During 1998, the Company generated $23.5 million in cash from operating
activities. The ratio of current assets to current liabilities was 1.2 at the
end of 1998, compared to 1.0 at the end of 1997 and 1996.

       Investing activities used $38.3 million in cash in 1998 compared to $16.5
million and $16.9 million in 1997 and 1996, respectively. The cash used in all
three years related primarily to the purchase of revenue equipment used in the
Company's operations.

        Financing activities provided $14.3 million in cash in 1998 primarily
from long term debt incurred to finance the purchase of revenue equipment used
in the Company's operations.

        The Company's principal subsidiary, P.A.M. Transport, Inc., has a $15.0
million secured bank line of credit subject to borrowing limitations. The line
of credit includes a provision that allows the Company to finance general
working capital needs and equipment at a reduced interest rate of LIBOR as of
the first day of the month plus 1.50% (7.12% at December 31, 1998). The maximum
amount of working capital and/or equipment that may be financed under this
provision is $7.5 million with the remaining $7.5 million representing a general
working capital line of credit at an interest rate of LIBOR as of the first day
of the month plus 1.85% (7.47% at December 31, 1998). Outstanding advances on
this line of credit at December 31, 1998 consisted solely of $1.5 million in
letters of credit. The Company's borrowing limitation at December 31, 1998 was
$13.5 million. This line of credit is guaranteed by the Company and matures May
31, 2000. The line of credit agreement contains restrictive covenants which
require the Company to maintain a net worth of $12.5 million and a debt service
coverage ratio of not less than 1.0 to 1.0. The line of credit agreement also
includes restrictions on dividend payments and certain corporate acts such as
mergers and consolidations. At December 31, 1998, the Company was in compliance
with all such covenants.

        In addition to cash flow from operations, the Company uses its existing
line of credit on an interim basis to finance capital expenditures and repay
long-term debt. Longer-term transactions, such as installment notes (generally
three and four year terms at fixed rates) are typically entered into for the
purchase of revenue equipment; however, the Company purchased additional revenue
equipment during 1998 with a cost of approximately $2.3 million using its
existing line of credit. Three subsidiaries of the Company, P.A.M. Transport,
Inc., P.A.M. Dedicated Services, Inc., and Choctaw Express, Inc.,

                                       15

<PAGE>   16



entered into installment obligations in 1998 for the purchase of replacement
revenue equipment which totaled approximately $2.9 million, $28.5 million, and
$12.4 million, respectively, payable in 36, 48, and 60 monthly installments at
interest rates ranging from 5.75% to 7.50%. The Company's weighted average
interest rates on all borrowings were 7.68%, 7.69% and 7.67% for 1998, 1997 and
1996, respectively.

        During 1998, the Company sold or traded revenue equipment for
approximately $7.8 million. The Company plans to replace 455 trailers and 370
tractors in 1999, which would result in additional debt of approximately $37.4
million. Management expects that the Company's existing working capital and its
available line of credit will be sufficient to meet the Company's capital
commitments as of December 31, 1998, to repay indebtedness coming due in the
current year, and to fund its operating needs during fiscal 1999.

INSURANCE

        Auto liability and collision coverage are generally subject to a $2,500
deductible per occurrence while cargo loss coverage generally has a $1,000
deductible. The Company maintains a reserve for estimated losses for claims
incurred, and maintains a reserve for claims incurred but not reported (based on
the Company's historical experience). During 1998, the Company changed from
being self-insured for workers' compensation coverage in Arkansas, Oklahoma,
Mississippi and Florida with excess coverage maintained for claims exceeding
$250,000, to being fully-insured through an insurance company for workers'
compensation coverage in those states. The Company continues to be self-insured
for workers' compensation coverage in Ohio with excess coverage maintained for
claims exceeding $350,000. The Company has reserved for estimated losses to pay
such claims as incurred as well as claims incurred but not reported. The Company
has not experienced any adverse trends involving differences in claims
experienced versus claims estimates for workers' compensation reserves. The
Company contracts a third-party licensed associate of risk management and a
certified Hazard Control Manager to develop its workers' compensation reserves
using the Company's historical data of past injuries. Letters of credit are held
by a bank as security for workers' compensation claims in Arkansas, Oklahoma,
Mississippi, and Florida, respectively, and two letters of credit are held by a
bank for auto liability claims.

SEASONALITY

        The Company's revenues do not exhibit a seasonal pattern, due primarily
to its varied customer mix. Operating expenses are generally somewhat higher in
the winter months, primarily due to decreased fuel efficiency and increased
maintenance costs in cold weather.

ENVIRONMENTAL

   The Company has no outstanding inquiries with any federal or state
environmental agency at December 31, 1998.


                                       16

<PAGE>   17



INFLATION

   Inflation has an impact on most of the Company's operating costs. Recently,
the effect of inflation has been minimal.

   Competition for drivers has increased in recent years, leading to increased
labor costs. While increases in fuel and driver costs affect the Company's
operating costs, the effects of such increases are not greater for the Company
than for other trucking concerns.

YEAR 2000

         Many companies may face a potentially serious information systems
problem because their computer software applications and operational programs
may not properly recognize calendar dates beginning in the Year 2000. This
problem could force computers to either shut down or provide incorrect data or
information causing a temporary inability to process transactions. Accordingly,
a disruption of normal business activities may occur.

         The Company began the process of identifying the changes required to
its computer programs and hardware in 1997 and has completed its Year 2000
assessment consisting of an analysis of all information systems, data and voice
networks, physical plants, rolling stock electronic systems and external
suppliers and customers. The Company has determined its overall risk due to Year
2000 failures and has developed a strategy to repair or replace any system
determined to be non-compliant by June 30, 1999. The Company anticipates funding
all Year 2000 related expenditures, which are currently estimated at $50,000,
from operating cash flows and as of December 31, 1998 the Company had incurred
costs of approximately $10,000 related to Year 2000 issues.

         All information systems requiring replacement or remediation are under
a vendor software maintenance contract, which includes an upgrade to a Year 2000
compatible version. The software vendor has released its Year 2000 compatible
version, which has been initially installed and is being used by one of the
Company's subsidiaries in order to analyze and test Year 2000 compatability.
This version has passed all of the Company's Year 2000 tests and the Company
believes that this software version is Year 2000 compliant. The Company's
remaining subsidiaries are expected to convert to the Year 2000 software version
by June 30, 1999.

         The Company has surveyed its major suppliers and customers as well as
secondary suppliers and customers for their state of readiness. Major suppliers
and customers whose responses indicate they may not be Year 2000 compatible in a
timely fashion are being monitored on a monthly basis. The Company has also
issued certification requests to the software companies on which its computer
programs rely seeking assurance that they will be Year 2000 compliant.
Approximately 97% of the questionnaires have been returned. Respondents have
indicated that they are currently Year 2000 compliant or will be well in advance
of the Year 2000.

         The Company's contingency plans relative to the Year 2000 have not been
finalized. These plans are evolving as the testing of systems progresses and the
Company's subsidiaries continue to convert to Year 2000 compliant software.
During the testing and conversion phase (scheduled for

                                       17

<PAGE>   18



completion by June 30, 1999), management will develop and modify a "worst case
scenario" contingency plan based on testing and conversion results.

         The related costs and projected completion dates for Year 2000
compatibility are based upon management's best estimates. However, management
cannot predict the impact on the Company's business, financial condition, and
results of operations if customers and suppliers fail or delay to address Year
2000 issues.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         The Company is exposed to cash flow and interest rate risk due to
changes in interest rates with respect to its long-term debt. See note 3 to the
consolidated financial statements for details on the Company's long-term debt.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The following statements are filed with this report:

                  Report of Independent Public Accountants

                  Consolidated Balance Sheets - December 31, 1998 and 1997

                  Consolidated Statements of Income - Years ended December 31,
                  1998, 1997 and 1996

                  Consolidated Statements of Shareholders' Equity - Years ended
                  December 31, 1998, 1997 and 1996

                  Consolidated Statements of Cash Flows - Years ended December
                  31, 1998, 1997 and 1996

                  Notes to Consolidated Financial Statements

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

       No response is required to this item.



                                       18

<PAGE>   19



              P.A.M. Transportation Services, Inc. and Subsidiaries

                        Consolidated Financial Statements


                  Years ended December 31, 1998, 1997 and 1996




                                    CONTENTS

                    Report of Independent Public Accountants

                    Audited Consolidated Financial Statements

                           Consolidated Balance Sheets
                        Consolidated Statements of Income
                 Consolidated Statements of Shareholders' Equity
                      Consolidated Statements of Cash Flows
                   Notes to Consolidated Financial Statements


                                       19

<PAGE>   20



                    Report of Independent Public Accountants







To the Board of Directors and Shareholders of
P.A.M. Transportation Services, Inc.


We have audited the accompanying consolidated balance sheets of P.A.M.
Transportation Services, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 P.A.M.
Transportation Services, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

                                                  ARTHUR ANDERSEN LLP

Fayetteville, Arkansas
February 19, 1999


                                       20

<PAGE>   21



                      P.A.M. Transportation Services, Inc.

                           Consolidated Balance Sheets
                          (thousands, except par value)


<TABLE>
<CAPTION>

                                                                     DECEMBER 31,

                                                                1998            1997
                                                            -------------------------
   ASSETS (NOTE 1)
   <S>                                                      <C>             <C>   
   Current assets:
     Cash and cash equivalents                              $   5,963       $   6,401
     Accounts receivable (Note 1):
       Trade, net of allowance for doubtful accounts
       (1998--$579; 1997--$579)                                20,816          16,915
       Other                                                       63           1,703
     Equipment held for sale (Note 1)                             505           1,529
     Operating supplies and inventories                           458             449
     Prepaid expenses and deposits                              3,860           3,384
     Deferred income taxes (Note 4)                                19              61
     Income taxes refundable (Note 4)                              38             415
                                                            -------------------------
   Total current assets                                        31,722          30,857


   Property and equipment (Notes 1,3 and 8):
     Land                                                         959             959
     Structures and improvements                                2,667           2,654
     Revenue equipment                                        124,354          94,439
     Service vehicles                                           1,944           2,024
     Office furniture and equipment                             3,936           3,496
                                                            =========================
                                                              133,860         103,572
     Allowances for depreciation                              (42,429)        (37,382)
                                                            -------------------------
                                                               91,431          66,190
   Other assets:
     Excess of cost over net assets acquired, net of
     accumulated amortization (1998--$849; 1997--$726)          2,277           2,400
     Non-competition agreements, net of accumulated
     amortization (1998--$1,549; 1997--$1,109)                    297             737
   Other                                                          744             504
                                                            -------------------------
                                                                3,318           3,641
                                                            -------------------------
   Total assets                                             $ 126,471       $ 100,688
                                                            =========================
</TABLE>




                                       21

<PAGE>   22



<TABLE>
<CAPTION>


                                                                            DECEMBER 31,

                                                                       1998               1997
                                                                    ==========================
<S>                                                                 <C>               <C>
  LIABILITIES AND SHAREHOLDERS' EQUITY 
  Current liabilities:
    Trade accounts payable                                          $  8,494          $  9,233
    Accrued expenses (Note 2)                                          5,178             4,835
    Current portion of long-term debt (Notes 3 and 8)                 13,362            15,544
                                                                    --------          --------
Total current liabilities                                             27,034            29,612

Long-term debt, less current portion (Notes 3 and 8)                  44,816            28,226


Deferred income taxes (Note 4)                                        13,164             9,376

Non-competition agreements                                                 _               312

Shareholders' equity (Note 5):                                                            
  Common stock, $.01 par value:                                                           
  Authorized shares--20,000,000                                                         
  Issued and outstanding shares: 1998--8,324,957;                                      
    1997--8,275,157                                                       83                83
  Additional paid-in capital                                          18,814            18,592
  Retained earnings                                                   22,560            14,487
                                                                    --------          --------
Total shareholders' equity                                            41,457            33,162
                                                                    --------          --------
Total liabilities and shareholders' equity                          $126,471          $100,688
                                                                    ========          ========

</TABLE>

See accompanying notes.


                                       22

<PAGE>   23



                      P.A.M. Transportation Services, Inc.

                        Consolidated Statements of Income
                       (thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,

                                                               1998           1997            1996
                                                           =========================================
   <S>                                                     <C>             <C>             <C>

   Operating revenues (Notes 1 and 7)                      $ 143,164       $ 127,211       $ 113,021
   Operating expenses and costs:
   Salaries, wages and benefits                               65,169          57,662          52,444
   Operating supplies and expenses                            26,511          24,666          21,909
   Rents and purchased transportation                          1,082           1,655           1,824
   Depreciation and amortization                              14,003          12,995          11,999
   Operating taxes and licenses                                8,388           7,581           6,734
   Insurance and claims                                        6,069           5,571           5,004
   Communications and utilities                                1,583           1,001           1,090
   Other                                                       3,131           2,394           2,077
   Loss on sale or disposal of property and equipment            168              71             375
                                                           -----------------------------------------
                                                             126,104         113,596         103,456
                                                           =========================================
Operating income                                              17,060          13,615           9,565
Other income (expense):
   Interest expense                                           (3,830)         (3,423)         (4,137)
   Other                                                           1               -              31
                                                           -----------------------------------------
                                                              (3,829)         (3,423)         (4,106)
                                                           -----------------------------------------
Income before income taxes                                    13,231          10,192           5,459
Federal and state income taxes:
   Current                                                     1,323           1,120             259
   Deferred                                                    3,835           2,772           1,888
                                                           -----------------------------------------
                                                               5,158           3,892           2,147
                                                           -----------------------------------------
   Net income                                              $   8,073       $   6,300       $   3,312
                                                           =========================================
   Earnings per common share (Note 6):

      Basic                                                $     .97       $     .77       $     .66

      Diluted                                              $     .96       $     .76       $     .44
                                                           -----------------------------------------
   Average common shares outstanding:
      Basic                                                    8,306           8,192           5,035
      Diluted                                                  8,444           8,290           7,578
                                                           =========================================
</TABLE>



   See accompanying notes.


                                       23


<PAGE>   24



                      P.A.M. Transportation Services, Inc.

                 Consolidated Statements of Shareholders' Equity
                                   (thousands)

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                  Additional
                                               Common               Paid-In             Retained
                                                Stock               Capital             Earnings               Total
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                   <C>                   <C>   
Balances at January 1, 1996                      $50                $13,307              $4,875               $18,232
  Net income                                       -                      -               3,312                 3,312
  Exercise of stock options--
      shares issued (Note 5)                      31                  4,695                   -                 4,726
    Tax benefits of stock options
        (Note 5)                                   -                     42                   -                    42
---------------------------------------------------------------------------------------------------------------------
  Balances at December 31, 1996                   81                 18,044               8,187                26,312
     Net income                                    -                      -               6,300                 6,300
     Exercise of stock options--
     shares issued (Note 5)                        2                    467                   -                   469
     Tax benefits of stock options                                                               
        (Note 5)                                   -                     81                   -                    81
---------------------------------------------------------------------------------------------------------------------
  BALANCES AT DECEMBER 31, 1997                   83                 18,592              14,487                33,162
     Net income                                    -                      -               8,073                 8,073
     Exercise of stock options--
        shares issued (Note 5)                     -                    175                   -                   175
  Tax benefits of stock options                                                                  
       (Note 5)                                    -                     47                   -                    47
---------------------------------------------------------------------------------------------------------------------
  Balances at December 31, 1998                  $83                $18,814            $ 22,560               $41,457
=====================================================================================================================
</TABLE>



See accompanying notes.


                                       24

<PAGE>   25



                      P.A.M. Transportation Services, Inc.

                      Consolidated Statements of Cash Flows

                                   (thousands)

<TABLE>
<CAPTION>
                                                                        Year ended December 31,

                                                                  1998            1997           1996
                                                              =========================================
OPERATING ACTIVITIES
<S>                                                           <C>             <C>             <C>
Net income                                                    $   8,073       $   6,300       $   3,312
Adjustments to reconcile net income to net cash provided
  by operating activities:
    Depreciation and amortization                                14,003          12,995          11,999
    Non-competition agreement amortization                          440             440             408
    Provision for doubtful accounts                                   -               -             140
    Provision for deferred income taxes                           3,835           2,772           1,888
    Loss on sale or disposal of property and equipment              168              71             375

    Changes in operating assets and liabilities:

      Accounts receivable                                        (2,261)         (1,515)         (2,047)
      Prepaid expenses and other assets                            (724)           (318)            749
      Income taxes refundable                                       377            (415)              -
      Trade accounts payable                                       (739)          3,650          (2,934)
      Accrued expenses                                              343           1,018            (831)
                                                              =========================================
Net cash provided by operating activities                        23,515          24,998          13,059
INVESTING ACTIVITIES
Purchases of property and equipment                             (46,119)        (16,736)        (19,921)
Proceeds from sale or disposal of property and equipment          7,846             195           2,020
Lease payments received on direct financing lease                     -               -           1,240
AFS acquisition                                                       -               -            (200)
                                                              -----------------------------------------
Net cash used in investing activities                           (38,273)        (16,541)        (16,861)
                                                              -----------------------------------------
FINANCING ACTIVITIES
Borrowings under line of credit                                 173,227         151,616         127,766
Repayments under line of credit                                (178,449)       (153,624)       (128,445)
Borrowings of long-term debt                                     43,785          12,784          17,527
Repayments of long-term debt                                    (24,017)        (18,792)        (19,093)
Payments under non-competition agreements                          (448)           (450)           (407)
Proceeds from exercise of stock options and warrants                175             388           4,724
Tax benefits of stock options                                        47              81              42
                                                              -----------------------------------------
Net cash provided by (used in) financing activities              14,320          (7,997)          2,114
                                                              =========================================
Net (decrease) increase in cash and cash equivalents               (438)            460          (1,688)
Cash and cash equivalents at beginning of year                    6,401           5,941           7,629
                                                              -----------------------------------------
Cash and cash equivalents at end of year                      $   5,963       $   6,401       $   5,941
                                                              =========================================

</TABLE>

See accompanying notes.


                                       25

<PAGE>   26


                      P.A.M. Transportation Services, Inc.
                   Notes to Consolidated Financial Statements
                               December 31, 1998


1.  ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND CONSOLIDATION

P.A.M. Transportation Services, Inc. (the "Company"), through its subsidiaries,
operates as a truckload motor carrier.

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

Majority ownership of the Company is held by an affiliate of another
transportation company, with whom the Company has certain business
relationships. (See Note 7.)

CASH AND CASH EQUIVALENTS

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

TIRE PURCHASES

Tires purchased with revenue equipment are capitalized as a cost of the related
equipment. Replacement tires are included in other current assets and are
amortized over a 24-month period. Amounts paid for the recapping of tires are
expensed when incurred.

EXCESS OF COST OVER NET ASSETS ACQUIRED

The excess of cost over net assets acquired, or goodwill, is being amortized on
a straight-line basis over 25 years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
undiscounted cash flows expected over the remaining amortization period, the
Company's carrying value of the goodwill would be reduced by the estimated
shortfall of cash flows. No reduction of goodwill was required in 1998, 1997, or
1996.

CLAIMS LIABILITIES

With respect to cargo loss, collision and auto liability, the Company maintains
the following insurance coverage and deductibles: P.A.M. Transport, Inc., P.A.M.
Dedicated Services, Inc., and Choctaw Express, Inc. are covered under the same
insurance policy issued by St. Paul Insurance Company. The


                                       26

<PAGE>   27


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)



1.  ACCOUNTING POLICIES (continued)

auto liability and collision coverages are subject to a $2,500 deductible per
occurrence while the cargo loss coverage has a $1,000 deductible. Allen Freight
Services, Inc., is insured by Great West Insurance Company. The auto liability
coverage is not subject to a deductible while the collision deductible for
tractors and trailers are $2,500 and $500, respectively, per occurrence. The
cargo loss coverage is subject to a deductible of $5,000 per occurrence. The
Company maintains a reserve for estimated losses for claims incurred and
maintains a reserve for claims incurred but not reported (based on the Company's
historical experience). During 1998, the Company changed from being self-insured
for workers' compensation coverage in Arkansas, Oklahoma, Mississippi and
Florida with excess coverage maintained for claims exceeding $250,000, to being
fully-insured through Virginia Surety Insurance Company for workers'
compensation coverage in those states. The Company continues to be self-insured
for workers' compensation coverage in Ohio with excess coverage maintained for
claims exceeding $350,000. The Company has reserved for estimated losses to pay
such claims as incurred as well as claims incurred but not reported. The Company
has not experienced any adverse trends involving differences in claims
experienced versus claims estimates for workers' compensation reserves. The
Company contracts a third-party licensed associate of risk management and a
certified Hazard Control Manager to develop its workers' compensation reserves
using the Company's historical data of past injuries. Letters of credit in the
amounts of $300,000, $200,000, $250,000, and $500,000 are held by a bank as
security for workers' compensation claims in Arkansas, Oklahoma, Mississippi,
and Florida, respectively, and two letters of credit in the amount of $150,000
each are held by a bank for auto liability claims.

REVENUE RECOGNITION POLICY

The Company recognizes revenue based upon relative transit time in each
reporting period with expenses recognized as incurred.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. For financial reporting purposes,
the cost of such property is depreciated principally by the straight-line
method. For tax reporting purposes, accelerated depreciation or applicable cost
recovery methods are used. Gains and losses are reflected in the year of
disposal. The following is a table reflecting estimated ranges of asset lives by
major class of depreciable assets:

<TABLE>
<CAPTION>

                  Asset Class                           Estimated Asset Life
                  -----------                           --------------------
                  <S>                                   <C>      
                  Tractors                                    3-4 years
                  Trailers                                    5-7 years
                  Service Vehicles                            3-5 years
                  Office Furniture                            3-7 years

</TABLE>
                                       27

<PAGE>   28


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)

                  Buildings                       5-30 years


1.  ACCOUNTING POLICIES (continued)

EQUIPMENT HELD FOR SALE

Equipment held for sale consists of revenue equipment no longer in service that
is expected to be sold within the next year. This equipment is recorded at its
estimated net realizable value.

INCOME TAXES

The Company applies the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109
requires recognition of deferred tax liabilities and assets for expected future
consequences of events that have been included in a company's financial
statements or tax return. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statements and the
tax basis of assets and liabilities using enacted tax rates.

BUSINESS SEGMENT AND CONCENTRATIONS OF CREDIT RISK

The Company operates in one business segment, motor carrier operations. The
Company provides transportation services to customers throughout the United
States and portions of Canada and Mexico. The Company performs ongoing credit
evaluations and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.

In 1998, 1997 and 1996, one customer accounted for 35%, 25% and 22% of revenues,
respectively. A second customer accounted for 12% of revenues in 1998, 1997 and
1996. The Company's largest customer is an automobile manufacturer. The Company
also provides transportation services to other manufacturers who are suppliers
for automobile manufacturers including the Company's largest customer. As a
result, concentration of the Company's business within the automobile industry
is greater than the concentration in a single customer. Of the Company's
revenues for 1998, 1997 and 1996, 53%, 41% and 37%, respectively, were derived
from transportation services provided to the automobile manufacturing industry.

COMPENSATION TO EMPLOYEES

Stock based compensation to employees is accounted for based on the intrinsic
value method under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.


                                       28

<PAGE>   29


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)



1.  ACCOUNTING POLICIES (continued)

 RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 129, Disclosures of Information about Capital Structure, ("SFAS
No. 129") effective for the year ended December 31, 1997. This Statement
consolidates existing pronouncements on required disclosures about a company's
capital structure including a brief discussion of rights and privileges for
securities outstanding. The adoption of this Statement had no material effect on
the Company's consolidated financial statements.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, ("SFAS
No. 130"). This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The adoption of this Statement had no material effect
on the Company's consolidated financial statements.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, ("SFAS No. 131"). This Statement established
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statement periods beginning after December 15, 1997. The adoption of this
Statement had no material effect on the Company's consolidated financial
statements.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. Companies
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999; however, companies may implement the statement as
of the beginning of any fiscal quarter beginning on or after June 16, 1998.

                                       29

<PAGE>   30


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


1.  ACCOUNTING POLICIES (continued)

SFAS No. 133 cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the company's election, before January 1, 1998). The Company
has not yet quantified the impact of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of the adoption of
SFAS No. 133. However, as of December 31, 1998, the Company had no outstanding
derivative instruments.

RECLASSIFICATIONS

Certain reclassifications have been made to prior years' consolidated financial
statements to conform to the current year presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

2.  ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,

                                                            1998                1997
                                                        ============================
                                                                   (thousands)
<S>                                                     <C>                <C>  
Payroll                                                 $   1,382          $   1,818
Taxes                                                       1,094                702
Interest                                                      163                175
Driver escrows                                                681                307
Insurance                                                     461                328
Current portion of non-competition agreements                 312                448
Self-insurance claims reserves                              1,085              1,057
                                                        ----------------------------
                                                        $   5,178          $   4,835
                                                        ============================
</TABLE>





                                       30

<PAGE>   31


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


3. LONG-TERM DEBT


Long-term debt consists of the following:


<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                              1998                1997
                                                                          -------------------------------
                                                                                     (thousands)
<S>                                                                       <C>                  <C>    
Equipment financings(1)                                                   $   55,655           $   35,733
Line of credit with a bank, with interest at the LIBOR rate
   plus 1.50% or 1.85% due May 31, 2000 and
   collateralized by accounts receivable (2)                                       -                5,222
Note payable(3)                                                                  308                  364
Capitalized lease obligations(4)                                               1,269                2,451
Insurance financings(5)                                                          946                    -
                                                                              58,178               43,770
Less current maturities                                                       13,362               15,544
                                                                          -------------------------------
                                                                          $   44,816           $   28,226
                                                                          ===============================
</TABLE>


(1)   Equipment financings consist of installment obligations for revenue
      and service equipment purchases, payable in various monthly installments
      through 2004, at a weighted average interest rate of 7.68% and
      collateralized by equipment with a net book value of approximately $59.5
      million at December 31, 1998.

(2)   The line of credit agreement with a bank provides for maximum
      borrowings of $15.0 million and contains restrictive covenants which
      requires the Company to maintain, on a consolidated basis, a net worth of
      $12.5 million and a debt service coverage ratio of not less than 1.0 to
      1.0. The interest rate varies based on the use of the funds. Equipment
      financed using the line of credit is at an interest rate of LIBOR as of
      the first day of the month plus 1.50% (7.12% at December 31, 1998).
      Withdrawals for general working capital is at an interest rate of LIBOR as
      of the first day of the month plus 1.85% (7.47% at December 31, 1998). The
      line of credit agreement also includes restrictions on dividend payments
      and certain corporate acts such as mergers and consolidations.

(3)   8% real estate note to the former majority shareholder, payable in
      monthly installments through March 2003.

(4)   Capitalized lease obligations to a financial service organization for
      revenue equipment are payable in various monthly installments through
      December 1999 at rates ranging from 8.15% to 8.86%, collateralized by
      equipment with a net book value of approximately $2.3 million, as of
      December 31, 1998 (See Note 8).


                                       31

<PAGE>   32


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


3. LONG-TERM DEBT(continued)

(5)      Insurance financings consist of a premium finance agreement with an
         insurance premium funding company, payable in monthly installments
         through 2001 at an interest rate of 6%.

Scheduled annual maturities on long-term debt outstanding, excluding capital
lease obligations (see Note 8), at December 31, 1998 are:


<TABLE>
<CAPTION>
                                           (thousands)
<S>                                        <C>
1999                                       $   12,093
2000                                           15,879
2001                                           13,322
2002                                           14,120
2003                                            1,451
Thereafter                                         44
                                           ----------
                                           $   56,909
                                           ----------
</TABLE>

Interest payments of approximately $3.8 million, $3.5 million, and $4.0 million
were made during 1998, 1997 and 1996, respectively.

4. INCOME TAXES

Under SFAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.



                                       32

<PAGE>   33


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


4. INCOME TAXES (continued)

 Significant components of the Company's deferred tax liabilities and assets are
as follows:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                  1998        1997
                                                     (thousands)
                                               ---------------------

Deferred tax
liabilities:

<S>                                             <C>          <C>    
     Property and equipment                     $19,619      $14,677
     Prepaid expenses                             1,275          982
                                                --------------------
Total deferred tax liabilities                   20,894       15,659

Deferred tax assets:
     Net operating loss carryovers                  792          869
     Alternative minimum tax credit               4,106        3,037

     Investment credit carryovers                 1,096        1,096
     Allowance for doubtful accounts                220          220
     Vacation reserves                              277          220
     Self-insurance reserves                        560          454
     Non-competition agreement                      422          300

     Revenue recognition                            276          148
                                                --------------------
Total deferred tax assets                         7,749        6,344
                                                --------------------
Net deferred tax liabilities                    $13,145      $ 9,315
                                                =======      =======
</TABLE>


                                       33

<PAGE>   34



                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


4. INCOME TAXES (continued)

The reconciliation between the effective income tax rate and the statutory
Federal income tax rate is presented in the following table:


<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,

                                                       1998          1997         1996
                                                     -------------------------------------
                                                                 (thousands)
<S>                                                  <C>            <C>            <C>
Income tax at the statutory Federal rate of 34%      $ 4,499        $ 3,465        $ 1,856
Nondeductible expenses                                    60             63            108
State income taxes                                       (85)           (85)          (118)
Other                                                   (329)          (412)           (46)
Federal income taxes                                   4,145          3,031          1,800
State income taxes                                     1,013            861            347
                                                     -------        -------        -------
Total income taxes                                   $ 5,158        $ 3,892        $ 2,147
                                                     =======        =======        =======
Effective tax rate                                      39.0%          38.2%          39.3%
                                                     =======        =======        =======
</TABLE>

The current income tax provision consists of the following:


<TABLE>
<CAPTION>
                                                       1998         1997          1996
                                                     -------------------------------------
                                                                 (thousands)
   <S>                                               <C>            <C>              <C>   
   Federal                                           $1,073         $   870          $ 179
   State                                                250             250             80 
                                                     ------         ------           -----
                                                     $1,323         $ 1,120          $ 259
                                                     ======         =======          =====

</TABLE>

As of December 31, 1998, the Company has Federal net operating loss and
investment tax credit carryovers of approximately $2.1 million and $1.1 million,
respectively. The net operating loss carryovers begin to expire in 2003, and the
investment credit carryovers begin to expire in 1999. The current taxes provided
in 1998, 1997 and 1996 result from alternative minimum taxable income. The
Company has alternative minimum tax credits of approximately $4.1 million at
December 31, 1998, which carryover indefinitely.

Income taxes paid totaled approximately $1,200,000, $1,300,000 and $400,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.

5. SHAREHOLDERS' EQUITY

The Company maintains an incentive stock option plan, a nonqualified stock
option plan, and an employee stock option plan for the issuance of options to
directors, officers, key employees and others. During 1998, the incentive stock
option plan was amended to include an additional 400,000 shares

                                       34

<PAGE>   35


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


5. SHAREHOLDERS' EQUITY (continued)

available for future granting. The option price under these plans is the fair
market value of the stock at the date the options were granted, ranging from
$2.38 to $10.63 as of December 31, 1998. At December 31, 1998, approximately
700,000 shares were available for granting future options.

Outstanding incentive stock options and employee stock options at December 31,
1998, must be exercised within six years from the date of grant and vest in
increments of 20% each year. Outstanding nonqualified stock options at December
31, 1998, must be exercised within five to six years and certain nonqualified
options may not be exercised within one year of the date of grant.

Transactions in stock options under these plans are summarized as follows:


<TABLE>
<CAPTION>

                                                   SHARES
                                                    UNDER         
                                                   OPTION         Price Range
                                                 ===============================
<S>                                              <C>              <C>
Outstanding at January 1, 1996                     532,100        $2.38-$6.75
     Granted                                        10,000        $6.50-$7.38
     Exercised                                     (36,600)       $2.38-$6.00
     Canceled                                      (13,900)       $2.38-$6.75
                                                 -------------------------------
Outstanding at December 31, 1996                   491,600        $2.38-$7.38
     Granted                                         3,000        $6.00
     Exercised                                    (146,350)       $2.38-$6.00
     Canceled                                         (400)       $2.38-$6.75
                                                 -------------------------------
Outstanding at December 31, 1997                   347,850        $2.38-$7.38
     Granted                                         3,000        $10.63
     Exercised                                     (49,800)       $2.38-$5.75
Outstanding at December 31, 1998                   301,050        $2.38-$10.63
                                                 ===============================

Options exercisable at December 31, 1998           260,050
                                                 ==========
</TABLE>





                                       35

<PAGE>   36


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


5. SHAREHOLDERS' EQUITY (continued)

The following is a summary of stock options outstanding as of December 31, 1998:

<TABLE>
<CAPTION>

                                                   Weighted
                               Option              Average
           OPTIONS             Exercise            Remaining          Options
         OUTSTANDING            Price                Years          Exercisable
         ----------------------------------------------------------------------
         <S>                    <C>                <C>              <C>
            48,050              $2.38                 .2              48,050
            10,000              $4.38                1.7              10,000
           200,000              $5.75                2.7             166,000
             5,000              $6.00                3.0               5,000
            25,000              $6.32                2.5              20,000
             5,000              $6.50                3.4               3,000
             2,000              $6.75                2.2               2,000
             3,000              $7.38                3.2               3,000
             3,000             $10.63                5.2               3,000
         -------------                                              -----------
           301,050                                                   260,050
         =============                                              =========== 

</TABLE>


                                       36

<PAGE>   37


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


5. SHAREHOLDERS' EQUITY (continued)

The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company's stock option plans been
determined consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:


<TABLE>
<CAPTION>

                                                    1998               1997
                                                 -------------------------------
Net income:                                              (thousands)
<S>                                                <C>                <C>
   As reported                                     $8,073             $6,300
   Pro forma                                       $7,941             $6,178

Earnings per share as reported:                                  
   Basic                                           $  .97             $  .77
   Diluted                                         $  .96             $  .76
Pro forma earnings per share:                                    
   Basic                                           $  .96             $  .75
   Diluted                                         $  .94             $  .75
</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 65.15% to 76.64%;
risk-free interest rate of 5.73% to 7.02%; and expected lives of five years.

The majority shareholder exercised stock warrants to purchase an aggregate of
3,092,000 shares of the Company's common stock at $1.50 per warrant on December
30, 1996.

6. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("SFAS No. 128"), establishing new standards for
computing and presenting earnings per share. The provisions of SFAS No. 128 are
effective for financial statements issued for periods ending after December 15,
1997. The Company has adopted SFAS No. 128 effective December 31, 1997, and all
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements. Basic
earnings per common share were

                                       37

<PAGE>   38


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)



6. EARNINGS PER SHARE (continued)

computed by dividing the income by the weighted average number of shares
outstanding during the period. Diluted earnings per share were calculated as
follows:

<TABLE>
<CAPTION>
                                                      1998         1997         1996
                                                    ------------------------------------
                                                     (thousands, except per share data)

<S>                                                 <C>           <C>           <C>   
Actual net income (A)                               $ 8,073       $ 6,300       $ 3,312
                                                    ===================================

Assumed exercise of options and warrants                317           348         3,545
Application of assumed proceeds ($1,606,
   $1,972 and $5,035, respectively)                                                     
   toward repurchase of stock at an average                                             
   market price of $8.958, $7.888 and                                                  
   $5.025 per share, respectively                      (179)         (250)       (1,002)
                                                    -----------------------------------
Net additional shares issuable                          138            98         2,543
                                                    ===================================

Adjustment of shares outstanding:
  Weighted average common shares outstanding          8,306         8,192         5,035
  Net additional shares issuable                        138            98         2,543
                                                    -----------------------------------
  Adjusted shares outstanding (B)                     8,444         8,290         7,578
                                                    ===================================

Net income per common share (A) divided by (B)      $   .96       $   .76       $   .44
                                                    ===================================
</TABLE>


7. RELATED PARTY TRANSACTIONS

The Company provides motor carrier services to an affiliate of its majority
shareholder. Revenues from these transactions totaled approximately $.5 million,
$1.9 million and $.4 million for 1998, 1997, and 1996, respectively.

Payments made by the Company to an affiliate of the majority shareholder for the
reimbursement of operating and other expenses paid on behalf of the Company and
debt repayments made on notes payable to the affiliate totaled approximately
$1.1 million, $.9 million and $6.4 million in 1998, 1997, and 1996,
respectively.


                                       38

<PAGE>   39


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)

Trade accounts payable at December 31, 1998, includes a payable to an affiliate
of the majority shareholder of $477,170.

8. LEASES AND COMMITMENTS

The Company leases certain revenue equipment under capital leases.

The future minimum payments under these leases (see Note 3) at December 31,
1998, consisted of the following:

<TABLE>
<CAPTION>

                                                  (thousands)
<S>                                               <C>  
1999                                              $   1,342

                                                  ------------
Total minimum lease payments                          1,342
Amounts representing interest                            73
                                                  ------------
Present value of minimum lease payments              $1,269
                                                  ============
</TABLE>


Assets held under capitalized leases are included in property, plant and
equipment as of December 31, 1998, as follows:



<TABLE>
<CAPTION>
                                                  (thousands)
<S>                                               <C>  
Revenue equipment                                    $5,238
Accumulated amortization                             (2,977)
                                                  ------------
                                                     $2,261
                                                  ------------
</TABLE>

No capital lease obligations were entered into during 1998 or 1997. Lease
amortization is included in depreciation expense.

9. PROFIT SHARING PLAN

P.A.M. Transport, Inc., a subsidiary of the Company, sponsors a profit sharing
plan for the benefit of all eligible employees. The plan qualifies under Section
401(k) of the Internal Revenue Code thereby allowing eligible employees to make
tax deductible contributions to the plan. The plan provides for employer
matching contributions of 50% of each participant's voluntary contribution up to
3% of the participant's compensation.

Allen Freight Services, Inc. (AFS), a subsidiary of the Company, sponsored a
profit sharing plan for the benefit of all eligible employees. The AFS profit
sharing plan was merged into the P.A.M. Transport, Inc. profit sharing plan
effective December 31, 1997.

Total contributions to the above plans totaled approximately $133,000, $92,000
and $100,000 in 1998, 1997 and 1996, respectively.

                                       39






















<PAGE>   40


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)




10. LITIGATION

The Company is not a party to any pending legal proceedings which management
believes to be material to the financial position or results of operations of
the Company. The Company maintains liability insurance against risks arising out
of the normal course of its business.

11. SUBSEQUENT EVENT

On January 11, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of a truckload carrier located in New Jersey. The
Company acquired assets, which consisted primarily of revenue equipment and
trade accounts receivable, totaling approximately $21.0 million and assumed
liabilities, which consisted primarily of installment note obligations and trade
accounts payable, totaling approximately $14.1 million. In connection with this
acquisition, the Company issued to the seller an installment note in the amount
of $4.0 million at an interest rate of 6% and paid cash of approximately $9.8
million utilizing existing cash and its line of credit.

12. QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The tables below presents quarterly financial information for 1998 and 1997:

<TABLE>
<CAPTION>

                                                                          1998

                                                                   THREE MONTHS ENDED


                                              MARCH 31         June 30        September 30       December 31
                                           ------------------------------------------------------------------
                                                       (thousands, except per share data)
   <S>                                     <C>                 <C>              <C>               <C>   
   Operating revenues                         $ 35,440         $ 36,012         $ 34,131          $ 37,581
   Operating expenses                           31,371           31,088           30,122            33,523
                                           -----------------------------------------------------------------
   Operating income                              4,069            4,924            4,009             4,058
   Other expenses - net                            829            1,027              981               992
   Income taxes                                  1,296            1,481            1,175             1,206
   Net income                                 $  1,944         $  2,416         $  1,853           $ 1,860
                                           ---------------- ---------------- --------------- ---------------
 Net income per common share:
      Basic                                   $    .23         $    .29         $    .22           $   .22
                                           =================================================================
      Diluted                                 $    .23         $    .29         $    .22           $   .22
                                           =================================================================
 Average common shares outstanding:
      Basic                                      8,286            8,300            8,313             8,325
      Diluted                                    8,443            8,473            8,421             8,410
                                           =================================================================
</TABLE>




                                       40

<PAGE>   41


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)





12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) (continued)

<TABLE>
<CAPTION>

                                                                           1997

                                                                  THREE MONTHS ENDED

                                           MARCH 31           June 30        September 30          December 31
                                           --------------------------------------------------------------------
                                                             (thousands, except per share data)
<S>                                           <C>              <C>              <C>                <C>     
   Operating revenues                         $ 32,630         $ 31,353         $ 30,776           $   32,452
   Operating expenses                           29,620           27,089           27,581               29,306
                                           ==================================================================
   Operating income                              3,010            4,264            3,195                3,146
   Other expenses - net                            869              888              801                  864
   Income taxes                                    856            1,283              910                  844
                                           ------------------------------------------------------------------
   Net income                                 $  1,285         $  2,093         $  1,484           $    1,438
                                           ==================================================================
 Net income per common share:
      Basic                                   $    .16         $    .26         $    .18            $     .17
                                           ==================================================================
      Diluted                                 $    .16         $    .25         $    .18            $     .17
                                           ==================================================================
 Average common shares outstanding:
      Basic                                      8,126            8,147            8,223                8,269
                                           ==================================================================
      Diluted                                    8,250            8,281            8,363                8,439
                                           ==================================================================

</TABLE>

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:

Cash and cash equivalents - The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.

Long-term debt - The fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

Line of credit - The carrying amount for the line of credit approximates fair
value.


                                       41

<PAGE>   42


                      P.A.M. Transportation Services, Inc.
             Notes to Consolidated Financial Statements (continued)


13. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                          1998                      1997
--------------------------------------------------------------------------------
                                CARRYING        FAIR        CARRYING       FAIR
                                 AMOUNT         VALUE        AMOUNT       VALUE
--------------------------------------------------------------------------------
<S>                             <C>           <C>          <C>          <C>
Cash and cash equivalents       $  5,963      $  5,963     $  6,401     $  6,401
LONG-TERM DEBT                    58,178        58,567       38,548       38,759
LINE OF CREDIT                         -             -        5,222        5,222
--------------------------------------------------------------------------------
</TABLE>



                                       42

<PAGE>   43



                                    PART III

        Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Shareholders to be held on May 20, 1999. The Company will, within 120
days of the end of its fiscal year, file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        The information responsive to this item is incorporated by reference
from the section entitled "Election of Directors" contained in the proxy
statement.

ITEM 11.  EXECUTIVE COMPENSATION.

        The information responsive to this item is incorporated by reference
from the section entitled "Executive Compensation" contained in the proxy
statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information responsive to this item is incorporated by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the proxy statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information responsive to this item is incorporated by reference
from the section entitled "Certain Relationships and Related Transactions"
contained in the proxy statement.


                                       43

<PAGE>   44



                                     PART IV

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

  (a)   1.  Financial Statements and Auditors' Report.

      The following financial statements and auditors' report have been filed as
Item 8 in Part II of this report:

          Reports of Independent Public Accountants

          Consolidated Balance Sheets - December 31, 1998 and 1997

          Consolidated Statements of Income - Years ended December 31, 1998,
          1997 and 1996

          Consolidated Statements of Shareholders' Equity - Years ended December
          31, 1998, 1997 and 1996

          Consolidated Statements of Cash Flows - Years ended December 31, 1998,
          1997 and 1996

          Notes to Consolidated Financial Statements

(a)  2.  Financial Statement Schedules.

      The following supporting financial statement schedule is filed with this
report:

          II   -   Valuation and Qualifying Accounts - Years Ended December 31,
                   1998, 1997 and 1996


        All other schedules are omitted as the required information is
inapplicable, or the information is presented in the consolidated financial
statements or related notes.


                                       44

<PAGE>   45



(a)   3.  Exhibits.

      The following exhibits are filed with or incorporated by reference into
this report. The exhibits which are denominated by an asterisk (*) were
previously filed as a part of, and are hereby incorporated by reference from
either (i) the Form S-1 Registration Statement under the Securities Act of 1933,
as filed with the Securities and Exchange Commission on July 30, 1986,
Registration No. 33-7618, as amended on August 8, 1986, September 3, 1986 and
September 10, 1986 ("1986 S-1"); (ii) the Annual Report on Form 10-K for the
year ended December 31, 1987 ("1987 10-K"); (iii) the Annual Report on Form 10-K
for the year ended December 31, 1992 ("1992 10-K"); (iv) the Annual Report on
Form 10-K for the year ended December 31, 1993 ("1993 10-K"); (v) the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 ("6/30/94 10-Q"); (vi)
the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 ("6/30/95
10-Q"); (vii) the Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (9/30/96 10-Q); (viii) the Annual Report on Form 10-K for the year
ended December 31, 1996 ("1996 10-K"); (ix) the Annual Report on Form 10-K for
the year ended December 31, 1997 ("1997 10-K"); (x) the Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 ("6/30/98 10-Q"); or (xi) the Current
Report on Form 8-K dated January 11, 1999 ("1/11/99 8-K").


<TABLE>
<CAPTION>

Exhibit #                       Description of Exhibit                 
---------   --------------------------------------------------------------------
<S>         <C> 
*2.1   -    Asset Purchase Agreement, dated as of January 11, 1999, by and
            among P.A.M. NewCo., Inc. (a wholly-owned subsidiary of the
            Registrant), Decker Transport Co. Inc., Van Houten Ltd. and William
            Van Houten (Exh. 2.1, 1/11/99 8-K)
 
*3.1   -    Amended and Restated Certificate of Incorporation of the Registrant
            (Exh. 3.1, 1986 S-1)

*3.1.1 -    Amendment to Certificate of Incorporation dated June 24, 1987 (Exh.
            3.1.1, 1987 10-K)

*3.2   -    Amended and Restated By-Laws of the Registrant (Exh. 3.2, 1986 S-1)

*3.2.1 -    Amendment to Article I, Section 3 of Bylaws of Registrant 
            (Exh. 3.2.1, 1986 S-1)

*3.2.2 -    Amendments to Bylaws of Registrant adopted May 7, 1987 (Exh. 3.2.2,
            1987 10-K)

*3.2.3 -    Amendments to Bylaws of Registrant adopted January 4, 1993 
            (Exh. 3.2.3, 1992 10-K)

*4.1   -    Specimen Stock Certificate (Exh. 4.1, 1986 S-1)

*4.2   -    Loan Agreement dated July 26, 1994 among First Tennessee Bank 
            National Association, Registrant and P.A.M. Transport, Inc. together
            with Promissory Note (Exh. 4.1, 6/30/94 10-Q)

*4.2.1 -    Security Agreement dated July 26, 1994 between First Tennessee Bank
            National Association and P.A.M. Transport, Inc. (Exh. 4.2, 6/30/94
            10-Q)

*4.3   -    First Amendment to Loan Agreement date June 27, 1995 by and among 
            P.A.M. Transport, Inc., First Tennessee Bank National Association
            and P.A.M. Transportation Services, Inc.,
</TABLE>

                                       45

<PAGE>   46

<TABLE>
<S>         <C>   
            together with Promissory Note in the principal amount of $2,500,000
            (Exh. 4.1.1, 6/30/95 10-Q)

*4.3.1  -   First Amendment to Security Agreement dated June 28, 1995 by and
            between P.A.M. Transport, Inc. and First Tennessee Bank National
            Association (Exh. 4.2.2, 6/30/95 10-Q)

*4.3.2  -   Security Agreement dated June 27, 1995 by and between Choctaw 
            Express, Inc. and First Tennessee Bank National Association (Exh.
            4.1.3, 6/30/95 10-Q)

*4.3.3  -   Guaranty Agreement of P.A.M. Transportation Services, Inc. dated 
            June 27, 1995 in favor of First Tennessee Bank National Association
            respecting $10,000,000 line of credit (Exh. 4.1.4, 6/30/95 10-Q)

*4.4    -   Second Amendment to Loan Agreement dated July 3, 1996 by and among
            P.A.M. Transport, Inc., First Tennessee Bank National Association
            and P.A.M. Transportation Services, Inc., together with Promissory
            Note in the principal amount of $5,000,000 (Exh. 4.1.1, 9/30/96
            10-Q)

*4.4.1  -   Second Amendment to Security Agreement dated July 3, 1996 by and
            between P.A.M. Transport, Inc. and First Tennessee National Bank
            Association (Exh. 4.1.2, 9/30/96 10-Q)

*4.4.2  -   First Amendment to Security Agreement dated July 3, 1996 by and 
            between Choctaw Express, Inc. and First Tennessee Bank National
            Association (Exh. 4.1.3, 9/30/96 10-Q)

*4.4.3  -   Security Agreement dated July 3, 1996 by and between Allen Freight
            Services, Inc. and First Tennessee Bank National Association (Exh.
            4.1.4, 9/30/96 10-Q)

        -   No other long-term debt instrument of the Registrant or its
            subsidiaries authorizes indebtedness exceeding 10% of the total
            assets of the Registrant and its subsidiaries on a consolidated
            basis and the Registrant hereby undertakes to provide the Commission
            upon request with any long-term debt instrument not filed herewith.

*10.1   -   Incentive Stock Option Plan, dated July 25, 1986 
            (Exh. 10.2, 1986 S-1)

*10.1.1 -   Amendment to 1986 Incentive Stock Option Plan, dated June 2, 1987
            (Exh. 10.2.1, 1987 10-K)

*10.2   -   Non-Qualified Stock Option Plan, dated July 25, 1986 
            (Exh. 10.3, 1986 S-1)

*10.2.1 -   Amendment No. 1 to Non-Qualified Stock Option Plan 
            (Exh. 10.2.1, 1993 10-K)

*10.3   -   Employment Agreement between the Registrant and Robert W. Weaver 
            dated July 1, 1998 (Exh. 10.1, 6/30/98 10-Q)

*10.4   -   Non-Competition Agreement dated January 31, 1995 between Registrant
            and Joe M. Bussell (Exh. 10.1, 1/31/95 8-K)
</TABLE>


                                       46

<PAGE>   47

<TABLE>

<S>         <C>   
*10.5    -  Incentive Compensation Plan of Registrant adopted February 28, 1996 
            for fiscal years 1996 and 1997 (Exh. 10.5, 1996 10-K)

*10.5.1  -  Incentive Compensation Plan of Registrant adopted October 17, 1997 
            for fiscal years 1998 and 1999 (Exh. 10.5.1, 1997 10-K)

*10.6    -  1995 Stock Option Plan, effective June 29, 1995 
            (Exh. 10.6, 1996 10-K)

21.1     -  Subsidiaries of the Registrant

23.1     -  Consent of Arthur Andersen LLP

27       -  Financial Data Schedule (for SEC use only)

(b)    Reports on Form 8-K.
</TABLE>

       No reports on Form 8-K were filed during the fourth quarter ended
December 31, 1998.


                                       47

<PAGE>   48



SCHEDULE II



                      P.A.M. TRANSPORTATION SERVICES, INC.

                        VALUATION AND QUALIFYING ACCOUNTS


                  Years Ended December 31, 1998, 1997 and 1996




<TABLE>
<CAPTION>
                                                                     ADDITIONS
                                                                     ---------

                                                                            Charged to
                                              Balance at    Charged to         Other                        Balance
                                               Beginning     Costs and       Accounts      Deductions       at End
                Description                    of Period      Expenses       (Describe)    (Describe)      of Period 
                -----------                    ---------    ----------       ----------    ----------      --------- 
<S>                                            <C>          <C>              <C>           <C>             <C>    
1998 - Allowance for doubtful accounts         $579,333             --              --           --         $579,333

1997 - Allowance for doubtful accounts         $579,333             --              --           --         $579,333

1996 - Allowance for doubtful accounts          323,887        140,446       115,000(A)          --          579,333
</TABLE>




Note A - Allen Freight Services, Inc. Allowance for Bad Debts.



                                       48

<PAGE>   49



SIGNATURES

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

                                 P.A.M. TRANSPORTATION SERVICES, INC.



Dated:  March 30, 1999           By: /s/ Robert W. Weaver                
                                     -------------------------------------------
                                         ROBERT W. WEAVER
                                         President and Chief Executive Officer
                                         (principal executive officer)

Dated:  March 30, 1999           By: /s/ Larry J. Goddard                 
                                     -------------------------------------------
                                         LARRY J. GODDARD, Vice President - 
                                         Finance, Chief Financial Officer, 
                                         Secretary and Treasurer
                                         (principal financial and accounting 
                                         officer)


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



<TABLE>
                                                   P.A.M. TRANSPORTATION SERVICES, INC.

<S>                                                <C>  
Dated:  March 30, 1999                             By:     /s/ Robert W. Weaver                  
                                                         ----------------------------------------
                                                         ROBERT W. WEAVER, President and
                                                         Chief Executive Officer, Director

Dated:  March 30, 1999                             By:     /s/ Matthew T. Moroun                    
                                                         -----------------------------------------
                                                         MATTHEW T. MOROUN, Director

Dated:  March 30, 1999                             By:     /s/ Daniel C. Sullivan                     
                                                         -----------------------------------------
                                                         DANIEL C. SULLIVAN, Director

Dated:  March 30, 1999                             By:     /s/ Charles F. Wilkins                    
                                                         -----------------------------------------
                                                         CHARLES F. WILKINS, Director

Dated:  March 30, 1999                             By:     /s/ Frederick P. Calderone             
                                                         -----------------------------------------
                                                         FREDERICK P. CALDERONE,
                                                         Director

Dated:  March 30, 1999                             By:     /s/ Joseph J. Casaroll                    
                                                         -----------------------------------------
                                                         JOSEPH J. CASAROLL, Director
</TABLE>


                                       49

<PAGE>   50



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

          Exhibit No.                 Description                     
          -----------        -------------------------------                     
          <S>                <C> 
             21.1            Subsidiaries of the Registrant

             23.1            Consent of Arthur Andersen LLP

             27              Financial Data Schedule
</TABLE>


                                       50