UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K
      /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                   ACT OF 1934

                   For the fiscal year ended December 31, 2003

    / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                   ACT OF 1934

      For the transition period from ________________ to ________________.

                        Commission file number 000-50485
                           Central Freight Lines, Inc.
             (Exact name of registrant as specified in its charter)

            Nevada                                               74-2914331
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                    5601 West Waco Drive, Waco, TX        76710
               (Address of principal executive offices) (Zip Code)

              (Registrant's telephone number, including area code)
                                 (254) 772-2120

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

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

    Title of each class                Name of each exchange on which registered
Common stock $0.001 Par Value                          Nasdaq(R)

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 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. X Yes No

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

Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12-b of the Act). Yes _X_ No ___

On June 30, 2003, the last day of the registrant's most recently completed
second fiscal quarter, the registrant's common stock was not registered pursuant
to either the Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and was not
publicly traded. The aggregate market value of the registrant's common stock
held by non-affiliates as of such date thus cannot be determined.
<PAGE>

The number of shares of common stock outstanding at March 19, 2004 was
17,776,621. The aggregate market value of the voting stock of the registrant as
of March 16, 2004 was approximately $220.4 million (based upon the closing price
of $12.40 of the registrant's common stock on March 19, 2004).

                       DOCUMENTS INCORPORATED BY REFERENCE

      Materials from the  registrant's  definitive  proxy statement for the 2004
Annual Meeting of Stockholders to be held on May 19, 2004 have been incorporated
by reference into Part III of this Form 10-K.


                                   ----------

      This report contains  "forward-looking  statements."  These statements are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially from those  anticipated.  See "Factors That May Affect Future
Results"  under  Item  7 in  Part  II  of  this  Annual  Report  for  additional
information and factors to be considered concerning forward-looking statements.


                                       2
<PAGE>

TABLE OF CONTENTS

Item                                                                        Page
--------------------------------------------------------------------------------
Part I


   1.     Business                                                             4
   2.     Properties                                                          10
   3.     Legal Proceedings                                                   10
   4.     Submission of Matters to a Vote of Security Holders                 11

Part II

   5.     Market for Registrant's Common Equity, Related Stockholder
          Matters and Issuer Purchases of Equity Securities                   11
   6.     Selected Financial Data                                             13
   7.     Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                           15

   7a.    Quantitative and Qualitative Disclosures about Market Risk          40
   8.     Financial Statements and Supplementary Data                         40
   9.     Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                            40

   9a.    Controls and Procedures                                             41

Part III

   10.    Directors and Executive Officers of the Registrant                  41

   11.    Executive Compensation                                              41
   12.    Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                     42

   13.    Certain Relations and Related Transactions                          42
   14.    Principal Accountant Fees and Services                              42

Part IV

   15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K    43


                                       3
<PAGE>

Part I

Item 1. Business

      References in this Annual Report to "we," "us," "our," or the "Company" or
similar terms refer to Central Freight Lines, Inc. and its subsidiaries.

Overview

      We are a regional less-than-truckload ("LTL") trucking company that has
operations in the Southwest, Northwest, West Coast and Midwest regions of the
United States of America. We also offer inter-regional service between our
operating regions. Central maintains alliances with other similar companies to
complete transportation of shipments outside of its operating territory. None of
our employees are represented by a union.

     Over the past two years, we have assembled a new senior management team and
implemented a strategic plan designed to increase the efficiency of our
operations and expand our geographic territory. In December 2002, based on
improving results and customer demand for broader service, we expanded service
in a seven-state, Midwest region, establishing all-points coverage in six of
these states. In March of 2004, we initiated service in a three-state, Northwest
region - Washington, Oregon and Idaho. See "Recent Developments" under Item 7 in
Part II of this Annual Report for additional information concerning our
expansion into the Northwest region.

      We believe that our operating model will support future profitable growth
for the following reasons:

      o     Our eight-state, core region in the Southwest is anchored by Texas
            and California, two of the nation's three largest state economies,
            which produce significant freight volumes and are positioned on
            major traffic lanes to support our expansion into contiguous
            regions.

      o     We have a 75-year history and significant terminal density in our
            core region, which we believe contribute to strong customer
            relationships and efficient asset utilization.

      o     We believe that our size allows us to capitalize on industry trends
            that favor sizable, well-capitalized, non-union, regional LTL
            carriers.

      o     We have an experienced management team led by our Chief Executive
            Officer, Robert V. Fasso, who joined us after serving as president
            of USF Corporation's (Nasdaq: USFC) regional LTL carrier group from
            1997 to 2001.

Operating Improvements

      During the first half of 2002, our new senior management team undertook an
in-depth study of our business and identified several significant opportunities
to enhance our customer service, improve our efficiency, and lower our costs.
These opportunities included:

      o     Re-engineering our terminal network and re-routing freight more
            efficiently throughout our terminal network. In the process, we
            closed approximately 25% of our then-existing terminals and reduced
            company-wide staffing by approximately 13%. Our more efficient
            routing has allowed us to increase the percentage of our freight
            that is directly loaded from origin city to destination city, reduce
            intermediate freight handling, and improve transit times. Our
            on-time service has improved from 96.7% in 2002, to approximately
            97.1% in 2003, and we also improved the safety of many aspects of
            our operations.


                                       4
<PAGE>

      o     Implementing a disciplined yield management process that has
            improved LTL revenue per hundredweight by approximately 9.1% from
            $10.42 in 2002, to $11.37 in 2003. In this process, we regularly
            evaluate our freight mix and attempt to replace less profitable
            freight with more profitable lanes and loads.

Our Dynamic Resource Planning Process

      While implementing the changes discussed above, our management team also
began educating and training our employees in the principles of a continuous
improvement process that we call dynamic resource planning. In this process we
seek to extract key information at the earliest possible time in a freight move,
provide the relevant information promptly to managers, empower managers to make
real-time adjustments to optimize their operations, and continually analyze and
re-engineer each step in the freight movement process to achieve these
objectives. We believe that dynamic resource planning helps us improve customer
service and minimize costs by adapting our personnel and capital resources to
the volume, location, destination, and timing of the freight we are asked to
deliver. Our non-union workforce affords us a significant advantage in executing
this process because our employees can perform multiple tasks, work flexible
hours, and adapt more readily to changing conditions, all at a lower cost than
the workforce of most unionized LTL carriers. We believe this process can be
applied across our business functions.

      We identified four basic steps in our freight movement process for
improvement through dynamic resource planning:

      o     Outbound movement, which involves receiving freight from local
            pick-up operations, and sorting and staging freight for linehaul
            delivery to destination city terminal.

      o     Linehaul movement, which involves transporting freight between the
            origin city terminal and the destination city terminal.

      o     Inbound movement, which involves receiving incoming freight from
            linehaul movement, and sorting and staging freight for local
            delivery.

      o     Pick-up and delivery, which involves collection and delivery of
            freight at the customer locations.

      In the second quarter of 2002, we began by streamlining and standardizing
our outbound movement process. Dynamic resource planning allows us to improve
the accuracy of our daily staffing plan by evaluating expected workloads and
then developing an appropriate staffing plan at each terminal. We also
re-engineered our trailer loading procedures to minimize redundant handling.

      In 2003, we began to re-engineer our inbound movement process through the
roll-out of electronic, dynamic planning software that manages inbound loading
and sequencing. By automatically aligning inbound routes, we believe we can
reduce both total miles driven by our inbound drivers and miles between stops.

      Concurrently with the continued roll-out of our inbound improvements, we
are beginning to re-engineer our linehaul movement process. We plan to use our
dynamic resource planning process to more effectively determine the daily
outbound freight flow, fleet capacity, and driver availability for the entire
network. We have already begun a comprehensive assessment of load patterns, cut
times, linehaul runs, and driver domiciles in our network. We expect that our
analysis will identify a wide range of opportunities to leverage existing
network capacity and improve the efficiency of our line haul movements.

      We are in the process of integrating the terminals we added in our March
2004 Northwest expansion into the planning processes for inbound, outbound and
linehaul engineering. We expect to complete the analysis, training and roll-out
process during the second half of 2004.


                                       5
<PAGE>

      We currently are analyzing and developing process improvements for our
pick-up and delivery operations. Through this effort, we expect to create an
interactive city dispatch system to more effectively manage the pick-up and
delivery operation and enhance customer service. The inbound movement, linehaul
movement, and pick-up and delivery steps of our freight movement process, in the
aggregate, comprise a substantially larger percentage of our operating costs
than the outbound step. Accordingly, we expect additional efficiencies as we
implement dynamic resource planning throughout these remaining steps of our
freight movement process. We do not currently have a scheduled roll-out date for
the pick-up and delivery process.

Growth Strategy

      Our strategy is to use our size, customer relationships, operating model,
and industry dynamics to achieve profitable growth. The goal of our growth
strategy is to establish a series of regional LTL operations in multiple
regions, each of which focuses on next-day and second-day services in its
region, complemented by inter-regional freight between our regions. The key
elements of our growth strategy include:

      o     Increasing Business and Service Offerings in Our Core Region. We
            believe there are opportunities to increase the density of our
            operations in our core region. The efficiencies resulting from our
            ongoing management initiatives have resulted in a substantial amount
            of our revenue equipment and terminal assets being used at less than
            full capacity. In an effort to use this excess capacity and further
            increase freight volumes in our core region, we intend to offer our
            customers a broader portfolio of shipping options and specialized
            services such as expedited and time-definite deliveries, inventory
            warehousing, and logistics.

      o     Building Density in Our Midwest Region. Our December 2002 expansion
            in the Midwest increased our presence from 13 states to 17 states
            overall, and also contributed to the increase in the number of
            states in which we offer all-points coverage from 11 to 15. We
            selected the Midwest region after conducting an extensive evaluation
            of our customers' needs, analyzing competitive factors, and
            evaluating the freight patterns to and from Texas on the Interstate
            35 corridor. Initially, we have focused on providing next-day and
            second-day service for existing customers that have committed
            freight in major traffic lanes and expanding into selected areas
            with low-cost leased facilities and minimal staffing. We believe
            additional opportunities exist for long-term growth as we increase
            our density of operations in the Midwest region.

      o     Expanding to Additional Regions. We believe that our operating model
            can be replicated in additional regions. As we did in our recent
            Midwest expansion, we intend to use our market position in our
            existing regions to selectively expand into new regions. We intend
            to identify regions with substantial freight to or from our existing
            operations, obtain freight commitments from our existing customers,
            and prioritize regions with a favorable competitive landscape. For
            example, in March of 2004, we initiated service in a three-state
            (Washington, Oregon and Idaho) region in the northwestern United
            States, and we announced our plan to initiate service in Utah and
            Colorado during the second quarter of 2004 - See "Recent
            Developments" under Item 7 in Part II of this Annual Report for
            additional information concerning our expansion into the Northwest
            region. We intend to build on our presence in California to pursue
            traffic along the Interstate 5 corridor and then use our presence in
            the Southwest and Midwest to further support and expand our
            operations in our Northwest region. We are in the process of
            analyzing outbound freight lanes originating in California and
            identifying specific customer needs, and we have obtained freight
            commitments as we did prior to implementation of our Midwest
            expansion. As we establish and expand our series of LTL operations
            in multiple regions, we will be in a position to offer shippers
            inter-regional service with a single point of contact, consistent
            pricing, and shipment visibility across regions. We believe there is
            significant customer demand for this type of inter-regional service.
            Although expansion to additional regions is expected to remain part
            of our growth strategy, we currently do not anticipate any
            additional expansions during the remainder of 2004 or the first half
            of 2005.


                                       6
<PAGE>

      o     Pursuing Acquisitions. We believe that acquisitions can complement
            internal growth as an efficient means of increasing freight density
            in existing areas and expanding into new geographic territories. We
            acquired two regional LTL companies in 1999 and the terminal network
            and certain physical assets of a regional LTL carrier in March 2004.
            Although we may continue to evaluate acquisitions that may expand
            our customer or geographic base or provide other strategic benefits,
            we currently do not anticipate any significant acquisitions during
            the remainder of 2004 or the first half of 2005. Our primary focus
            for the near term will be on smaller acquisitions within our current
            operating regions.

History of Central Freight Lines

      The history of the name Central Freight Lines and its Texas franchise
dates back to 1925, when Central Freight Lines was founded in Waco, Texas. That
entity, which we refer to as Old Central, was a regional LTL carrier that served
the intrastate Texas LTL market for decades.

      Our company began its operations effective June 30, 1997, when our
Chairman of the Board, Jerry Moyes, organized our company and acquired the
Central Freight Lines name, terminal network, and physical assets from the
Southwestern Division of Viking Freight Lines. Viking Freight Lines had
previously purchased Old Central from Roadway Services, Inc. in 1993.

      Between 1997 and 2001, we concentrated our efforts on growing our regional
LTL operations in Texas and surrounding states. During this period, we acquired
LTL carriers Jaguar Fast Freight, Inc. and Vecta Transportation Systems, Inc.,
as well as a small truckload carrier that we used for linehaul, Aggie Express,
Inc., to solidify our operations and to expand our presence in the western
United States.

      In January 2002, Robert V. Fasso was hired as our Chief Executive Officer
to revitalize our operations and restore our company to profitability. Mr. Fasso
assembled a senior management team and implemented a strategic plan that
emphasizes operating efficiency and geographic expansion.

Our Operations

      We offer regional LTL services to customers in our eight-state Southwest
region, our seven-state Midwest region, our recently expanded Northwest region
(three states) and two additional contiguous states. We currently offer direct
service to all 20 states.

      As an LTL carrier, we typically transport multiple shipments for multiple
customers in each trailer. Our drivers pick up freight from customer locations
during the day and relay critical information to our planners. Upon arrival at
the origin terminal, freight is unloaded, and then re-loaded onto a linehaul
inter-city trailer that is bound for the destination city. Upon arrival at the
destination terminal, freight is unloaded, sorted, and delivered by local
delivery trucks. We move freight on strict schedules throughout our region to
provide the next-day and second-day service required by our many time-sensitive
customers. We also provide information to our customers to allow them to monitor
our service standards and to track their shipments.

      Our Southwest region is the eight-state territory of California, Texas,
Arizona, New Mexico, Oklahoma, Louisiana, Arkansas, and Nevada. Fifty-three of
our 87 terminals are strategically located in our eight-state Southwest region,
and our remaining terminals are located in geographic areas with strong freight
flows to and from our core region. We emphasize direct loading of freight
between terminals to avoid intermediate sorting and re-routing which increase
labor costs, damage claims, and delays. Within each region, we focus on
achieving short transit times and efficient pick-up and delivery schedules.

      Consistent with our growth strategy, in December 2002, we expanded our
operations into the Midwest region through the addition of terminals serving the
Interstate 35 corridor in Kansas, Missouri, Illinois, Iowa, Wisconsin,
Minnesota, and Nebraska. In March of 2004, we expanded to the Northwest region
by adding additional terminals to serve Washington, Oregon and Idaho.


                                       7
<PAGE>

Our Revenue Equipment

      At December 31, 2003, our fleet contained 1,845 tractors and 8,170
trailers. The table below reflects, as of December 31, 2003, the average age of
our tractors and trailers:

                                                          Number    Average Age
       Type of Equipment (categorized by primary use)    of Units    in Years
     -------------------------------------------------   --------   -----------
     Linehaul tractors................................       520        6.1
     Pick-up and delivery tractors....................     1,325        4.8
     Trailers.........................................     8,170       13.5

      In the 2003 fourth quarter, we sold excess revenue equipment including
approximately 150 pick-up and delivery tractors and 95 trailers.

Our Customers and Marketing

      Our customers represent a broad range of industries, with the largest
concentration coming from the retail sector. In 2003, our five largest customers
were Dell Computer, Wal-Mart, Home Depot, Hewlett-Packard, and Tyco
International. These customers together generated approximately 17.5% of our
revenue. Dell Computer, our largest customer in 2003, generated approximately
7.1% of our revenues. Since our inception in 1997, no single customer has
represented more than 10% of our operating revenues in any year. We believe the
diversity of our customers and their industries lessens the impact of business
cycles affecting any one company or industry. However, the loss of one or more
of our five largest customers could significantly and adversely affect our cash
flow, market share, and profits.

      We target shippers that have significant and growing distribution needs in
our operating regions and have freight that enhances our overall efficiency and
profitability. We accomplish this by involving sales, operations, and finance
personnel in evaluating and targeting potential new accounts. Our operations
personnel identify areas in our regions where additional freight could help fill
partially full trailers, fill trailers that return empty from scheduled trips,
or complement existing pick-up and delivery schedules. Our sales personnel
solicit business from these potential customers and our finance personnel apply
our costing model to determine whether the freight would contribute to our
overall profitability.

      We have established transportation alliances with regional LTL carriers in
the Northeast, Southeast and Northwest regions of the United States. In these
arrangements, we exchange shipments for delivery in each other's service
territory. This practice can help each carrier in several respects. First, the
freight inflows from the other regions add tonnage to the delivering company's
operation. This improves profitability by increasing freight density over the
terminal network and linehaul operation. Second, the alliances permit regional
carriers to provide out-of-territory service for their customers. This maintains
customer relationships and prevents regional carriers from losing revenue to
national carriers that could deliver the freight from pick-up to delivery.
Third, the alliances permit multiple regional carriers to bid for national
accounts and bring the advantages of non-union regional operations to national
accounts. Transportation alliances generated approximately 11.1% of our revenue
in 2003.

Competition

      The LTL industry is highly competitive on the basis of both service and
price. Our primary competitors are regional, inter-regional, and national LTL
carriers, and, to a lesser extent, truckload carriers, railroads, airfreight
companies, and overnight package companies. Our major competitors within the
regional LTL industry include certain regional operating subsidiaries of CNF
Inc., USF Corporation, and SCS Transportation, Inc. Many of our competitors are
larger, operate more equipment, and have greater financial resources than we do.
We believe that our extensive terminal network and traffic density offer
competitive advantages within our region.


                                       8
<PAGE>

Employees

      As of December 31, 2003, we had 3,273 full-time employees and 590
part-time employees in our operations. These individuals were employed in the
following categories:

                                                        Number of
                           Category                     Employees
          ----------------------------------------      ---------
          Linehaul drivers........................          498
          Pickup and delivery drivers.............        1,401
          Platform................................        1,000
          Mechanics...............................          115
          Sales...................................          112
          Salaried, clerical, and other...........          737
                                                          -----
            Total.................................        3,863
                                                          =====

      Our management believes that relations with our employees are good. There
are no employees represented under a collective bargaining agreement.

Fuel Availability and Cost

      We depend heavily upon the availability of diesel fuel. To address
fluctuations in fuel prices, we seek to impose fuel surcharges on our accounts.
Historically, we have not engaged in hedging transactions to insulate us from
fluctuations in fuel prices, and our surcharge arrangements may not fully
protect us from fuel price increases. Further, from time to time, we experience
shortages in the availability of fuel at certain locations and have been forced
to incur additional expense to ensure adequate supply on a timely basis. Our
management believes that our operations and financial results are susceptible to
the same fuel price increases or fuel shortages as those of our competitors.
Fuel costs, excluding fuel taxes, averaged approximately 4.0% of our revenue in
2003.

Insurance

      We carry insurance for our primary business risks with third party
insurance carriers. We currently carry $30.0 million of insurance coverage, with
a self-insured retention of $750 thousand in the aggregate per occurrence, for
claims resulting from cargo theft or loss, personal injury, property damage, and
physical damage to our equipment. We also self-insure for workers' compensation
up to $1.0 million per occurrence, and all health claims up to $300 thousand per
occurrence. We believe that our policy of self-insuring up to set limits,
together with our safety and loss prevention programs, are effective means of
managing insurance costs.

Regulation

      The trucking industry is subject to regulatory and legislative changes
that can have a material adverse effect on our operations. In particular, the
trucking industry is subject to increasingly stringent environmental and
occupational safety and health regulations and limits on vehicle weight and
size, air emissions, hours of work and other items.

      Historically, the Interstate Commerce Commission and various state
agencies regulated the operating rights, accounting systems, rates and charges,
safety, mergers and acquisitions, periodic financial reporting and other matters
of major carriers. In 1995, federal legislation was passed that preempted state
regulation of prices, rates, and services of motor carriers and eliminated the
Interstate Commerce Commission. Several Interstate Commerce Commission functions
were transferred to the Department of Transportation. The Department of
Transportation currently regulates our business in several areas, including
safety and drivers' hours of service.


                                       9
<PAGE>

      Our operations involve certain inherent environmental risks. As such, our
operations are subject to environmental laws and regulations, including laws and
regulations dealing with underground fuel storage tanks, the transportation of
hazardous materials and other environmental matters. We maintain bulk fuel
storage and fuel islands at several of our facilities. Our operations involve
the risks of fuel spillage or seepage, environmental damage and hazardous waste
disposal, among others. Operations conducted in industrial areas, where truck
terminals are normally located, and where groundwater or other forms of
environmental contamination may have occurred, potentially expose us to claims
that we contributed to the environmental contamination. We have instituted
programs to monitor and control environmental risks and promote compliance with
applicable environmental laws and regulations. If we fail to comply with the
applicable regulations, then we could be subject to substantial fines or
penalties and to civil and criminal liability.

Item 2. Properties

      Our corporate offices are located at 5601 West Waco Drive in Waco, Texas,
76702. We share a 185,000 square foot facility with our Waco, Texas terminal.
The property is located on approximately 40 acres; the terminal has 71 dock
doors. We rent this facility from Southwest Premier Properties, a related party.
The lease expires in February, 2013.

      At December 31, 2003, we conducted our LTL operations through four owned
terminal locations and 72 leased terminal locations. Our ten largest terminals
by number of loading doors are listed below:

                                                    Total
                                                  Number of
                    Location                    Loading Doors
      -----------------------------------       -------------
      Dallas, Texas......................             522
      Houston, Texas.....................             349
      Fort Worth, Texas..................             200
      San Antonio, Texas.................             147
      Austin, Texas......................             132
      Beaumont, Texas....................             113
      Chicago, Illinois..................              80
      Tyler, Texas.......................              76
      Phoenix, Arizona...................              74
      New Orleans, Louisiana.............              74
      68 others..........................           1,937
                                                    -----
        Total............................           3,704
                                                    =====

      In March 2004, we expanded to the Northwest region by adding 11 terminals
to serve Washington, Oregon, and Idaho. See "Recent Developments" under Item 7
in Part II of this Annual Report for additional information concerning our
expansion into Washington, Oregon, and Idaho.

      We lease 30 of our active terminals and eight dormant terminals from
related parties. See "Related Party Terminal Leases" under Item 7 in Part II of
this Annual Report for additional information concerning these leases.

Item 3. Legal Proceedings

      We are involved in litigation incidental to our operations. These lawsuits
primarily involve claims for workers' compensation, personal injury, or property
damage incurred in the transportation of freight. We are not presently a party
to any legal proceedings other than litigation arising in the ordinary course of
our business and are not aware of any claims that could materially affect our
consolidated financial position or results of operations.


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<PAGE>

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

During the fourth quarter of the year ended December 31, 2003, no matters were
submitted to a vote of security holders.

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock is traded on the Nasdaq National Market, under the symbol
"CENF." Our stock began trading on December 12, 2003, following completion of
our initial public offering. The following table sets forth for the range of
high and low bid prices for our common stock as reported by Nasdaq from December
12, 2003, to December 31, 2003.

Period                               High               Low
------                               ----               ---
2003
          Fourth quarter            $19.00            $16.00

As of March 22, 2004, our common stock was held by 38 stockholders of record and
a few thousand stockholders through nominee or street name accounts with
brokers.

Dividend Policy

Prior to our initial public offering, while we were an S corporation, it was our
policy to pay dividends to our stockholders in amounts equal to 40% of our S
corporation income. These amounts were intended to approximate the taxes payable
by such stockholders on the S corporation income attributable to them and
reflected the maximum distributions permitted under our revolving credit
facility. We paid $6.1 million in such dividends during 2003. We did not make
distributions to our stockholders in 2002, because our taxable income for 2001
was lower than we estimated it would be in making distributions following the
first three quarters of 2001. Because of excess distributions in 2001, no
distributions were required in 2002. Since the termination of our S corporation
status on November 1, 2003, such dividends are no longer paid. Further, our
revolving credit agreement will limit our ability to pay dividends to 40% of our
net income.

     We currently intend to retain all of our future earnings to finance the
growth, development, and expansion of our business, and we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Any
future dividends will be determined at the discretion of our board of directors.
The board may consider our financial condition and results of operations, cash
flows from operations, current and anticipated capital requirements and
expansion plans, the income tax laws then in effect, any legal or contractual
requirements, and other factors our board deems relevant.

Recent Sales of Unregistered Securities

     On July 9, 2003, we issued 4,796 shares of our common stock to former
executives of Jaguar Fast Freight, Inc. Jaguar Fast Freight, Inc. was acquired
by us on July 11, 1999. The acquisition agreement entitled the former executives
to receive shares of our common stock on each of the second through fifth
anniversaries of the closing of the acquisition in exchange for their agreement
to abide by certain non-competition obligations during that period.



                                       11
<PAGE>

     On November 14, 2003, a non-management employee exercised options to
purchase 700 shares of our common stock for $6.50 per share. On November 17,
2003, Robert V. Fasso, our Chief Executive Officer and President, exercised
options to purchase 400,000 shares of our common stock for $1.35 per share. On
December 5, 2003, Mr. Fasso exercised options to acquire 356,000 additional
shares of our common stock for $1.35 per share. On December 5, 2003, Patrick J.
Curry, our former Executive Vice President, exercised options to purchase 77,400
shares of our common stock for $1.35 per share, 137,913 shares of our common
stock for $2.70 per share, and 92,314 shares of our common stock for $3.38 per
share.

     All of the securities described above were issued in private offerings,
which did not involve the public offer or sale of securities, in reliance upon
the exemption from registration afforded by Section 4(2) of the Securities Act.
No underwriters, brokers, or finders were involved in the above transactions.

Repurchase of Shares

     The following table provides information on repurchases of shares of common
stock by us, prior to our initial public offering, in the three months included
in the fourth quarter of fiscal year 2003.

                      Issuer Purchases of Equity Securities

                                                       Total Number    Maximum
                                                         of Shares    Number of
                                                       Purchased as  Shares that
                                                         Part of      May Yet Be
                                                        Publicly      Purchased
                              Total Number   Average    Announced     Under the
                               of Shares   Price Paid   Plans or      Plans or
Period                         Purchased    per Share   Programs       Programs
------                         ---------    ---------   --------       --------
October 5 to November 1,
  2003 ......................  4,796(1)    $13.50(1)       0              0
November 2 to November 29,
  2003 ......................      0            0          0              0
November30 to December 31,
  2003 ......................      0            0          0              0

     (1) When we acquired Jaguar Fast Freight in 1999, the merger agreement
obligated us to, among other things, issue 4,796 additional shares of our common
stock to two of Jaguar's former stockholders in each of 2003 and 2004 as
consideration for their agreement not to compete with us. For a period of 30
days following the 90-day period after the issuance of these shares, these
stockholders may require our Chairman of the Board, Jerry Moyes, to purchase the
shares for $13.50 per share if our common stock has not traded over $13.50 per
share during the 90-day period. On October 16 and 17, 2003, we repurchased the
4,796 shares issued in July 2003.

Use of Proceeds from Registered Securities

     The effective date of the registration statement relating to our initial
public offering, filed on Form S-1 under the Securities Act (File No.
333-109068), was December 11, 2003. A total of 9,775,000 of our common shares
were sold. The managing underwriters for the offering were Bear, Stearns & Co.
Inc., BB&T Capital Markets, a division of Scott & Stringfellow, Inc., Legg Mason
Wood Walker, Incorporated, Morgan Keegan & Company, Inc., and Stephens Inc.

     The offering commenced on December 11, 2003, and has been completed. Of the
8,500,000 shares of common stock registered, 5,700,000 shares were offered and
sold by us and 2,800,000 shares were offered and sold by Jerry Moyes and certain
trusts for the benefit of Mr. Moyes and his family, as selling shareholders. The
aggregate offering price of shares sold by us was $85,500,000. The underwriting
discount on those shares was $5,985,000. We incurred approximately $1,881,000 of
other expenses in connection with the offerings. The net proceeds to us totaled
approximately $77,634,000. We did not receive any of the proceeds from the sale
of shares by the selling stockholders.


                                       12
<PAGE>

      Approximately $50 million of the proceeds we received have been used to
repay debt, including: (a) $30.5 million under our accounts receivable
securitization facility; (b) $17.1 million under secured equipment and terminal
notes; and (c) $2.0 million under secured capital leases. In addition, we will
have used approximately $ 10.0 million for the acquisition of certain assets of
Eastern Oregon Fast Freight, Inc. See "Recent Developments" under Item 7 in Part
II of this Annual Report for additional information concerning our expansion
into the Northwest region.

      As of March 22, 2004, approximately $18.0 million of the proceeds received
in our initial public offering remain unused. We intend to use the remainder of
the proceeds to prepay amounts under secured capital leases, and for general
corporate purposes, including working capital.

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                  ----------------------------------------------------------------------
                                                    2003(1)        2002(1)          2001          2000           1999
                                                  ----------     ----------     ----------     ----------     ----------
                                                        (in thousands, except per share amounts and operating data)
<S>                                               <C>            <C>            <C>            <C>            <C>
Statements of Operations Data:
  Operating revenues ..........................   $  389,696     $  371,445     $  395,702     $  362,649     $  316,504
  Operating expenses:
    Salaries, wages, and benefits .............      204,570        208,754        232,714        211,751        195,875
    Purchased transportation ..................       38,113         28,806         31,739         23,087         16,757
    Purchased transportation-- related
      Parties .................................       18,582         21,106         17,708         12,438          8,000
    Operating and general supplies and expenses       67,448         60,370         68,448         64,918         52,643
    Operating and general supplies and
      expenses-- related parties ..............           12            286             53            182            671
    Insurance and claims ......................       15,576         14,024         14,209         10,243         11,366
    Building and equipment rentals ............        3,181          3,241          3,493          2,757          1,576
    Building and equipment rentals--
      related parties .........................        1,903          1,779          1,600          1,342            490
    Depreciation and amortization .............       16,605         17,974         21,241         18,980         12,979
                                                  ----------     ----------     ----------     ----------     ----------
      Total operating expenses ................      365,990        356,340        391,205        345,698        300,357
                                                  ----------     ----------     ----------     ----------     ----------
  Operating income ............................       23,706         15,105          4,497         16,951         16,147
  Interest expense ............................        3,547          4,916          5,620          5,078          4,205
  Interest expense-- related
    Parties(2) ................................        6,130          6,359          5,888          6,990          6,381
                                                  ----------     ----------     ----------     ----------     ----------
  Income (loss) from continuing
    operations before income taxes ............       14,029          3,830         (7,011)         4,883          5,561
  Income tax (expense) benefit ................       (1,759)         1,412            119           (402)          (421)
    Income tax (expense)-conversion to
    C Corporation................................     (9,834)            --             --             --             --
                                                  ----------     ----------     ----------     ----------     ----------
Income (loss) from continuing .................        2,436          5,242         (6,892)         4,481          5,140
    Operations

Loss from discontinued operations .............       (8,341)          --             --             --             --
                                                  ----------     ----------     ----------     ----------     ----------
  Net income (loss) ...........................   $   (5,905)    $    5,242     $   (6,892)    $    4,481     $    5,140
                                                  ==========     ==========     ==========     ==========     ==========

Pro Forma C Corporation Data:(3)
  Historical income (loss) from continuing
    operations before income taxes ............   $   14,029     $    3,830     $   (7,011)    $    4,883     $    5,561
  Pro forma (provision) benefit for
    income taxes attributable to
    continuing operations .....................       (5,666)        (2,781)         1,108         (3,243)        (3,475)
                                                  ----------     ----------     ----------     ----------     ----------
  Pro forma income (loss) from
    continuing operations .....................   $    8,363     $    1,049     $   (5,903)    $    1,640     $    2,086
</TABLE>


                                       13
<PAGE>


<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                  ----------------------------------------------------------------------
                                                    2003(1)        2002(1)          2001          2000           1999
                                                  ----------     ----------     ----------     ----------     ----------
                                                        (in thousands, except per share amounts and operating data)
<S>                                               <C>            <C>            <C>            <C>            <C>
Loss from discontinued operations .............       (8,341)          --             --             --             --
                                                  ----------     ----------     ----------     ----------     ----------
Pro forma net income (loss) ...................   $       22     $    1,049     $   (5,903)    $    1,640     $    2,086
                                                  ==========     ==========     ==========     ==========     ==========
Pro forma income (loss) from continuing
  operations per share:
    Basic .....................................   $     0.75     $     0.10     $    (0.54)    $     0.15     $     0.19
    Diluted ...................................         0.69           0.09          (0.54)          0.14           0.17
  Weighted average shares outstanding:
    Basic .....................................       11,163         10,868         10,916         11,051         11,095
    Diluted ...................................       12,103         11,548         10,916         11,469         12,256

Other Financial Data:
  EBITDA(4) ...................................   $   40,311     $   33,079     $   25,738     $   35,931     $   29,126
  Capital expenditures(5) .....................        7,024          6,008         10,186         13,982         50,905

Operating Data:
  LTL revenue per
    hundredweight(6) ..........................   $    11.37     $    10.42     $    10.06     $     9.39     $     8.66
  Total tons hauled ...........................    1,962,890      2,120,080      2,388,816      2,392,992      2,216,525
  Operating ratio(7) ..........................         93.9%          95.9%          98.9%          95.3%          94.9%
  Number of working days ......................          253            253            253            253            253

Balance Sheet Data (at period end):
  Cash and cash equivalents ...................   $   41,493     $    7,350     $      187     $      215     $      409
  Net property and equipment ..................      114,693        126,751        139,954        143,445        124,244
  Total assets ................................      227,373        196,401        195,877        198,065        177,013
  Long-term debt, capital leases,
    and related party financing,
    including current portion .................       49,517        103,054        111,270        112,727         92,276
  Stockholders' equity ........................      108,438         30,374         23,302         35,577         30,406
</TABLE>

      (1) Our financial results for the fiscal year ended December 31, 2002,
included a $2.9 million reduction in depreciation expense resulting from a
January 2002 change in useful lives and salvage values of trailers and pick-up
and delivery tractors based on our historical experience, which might materially
affect the comparability of the information presented, and a $725,000
restructuring charge representing the cost to close 21 terminals. Our financial
results for the fiscal year ended December 31, 2003, included the following
items that might materially affect the comparability of the information
presented: (a) a $0.6 million reduction in depreciation expense (in addition to
the 2002 reduction) resulting from a January 2003 additional change in useful
lives and salvage values of trailers and line tractors based on our historical
experience; (b) a $7.8 million gain attributable to the amendment of a benefit
plan; and (c) a $3.8 million expense related to an increase in our claims
accruals relating to accident, workers' compensation, and other claims in which
the underlying events occurred prior to 2003. See Item 7 of this Annual Report
for additional information.

      (2) Effective February 20, 2003, the payments for certain of the
facilities we lease from a related party were increased to reflect fair market
value. The lease is reflected as a financing arrangement in our consolidated
financial statements. Accordingly, our interest expense-related parties includes
approximately $3.3 million in annual non-cash interest expense and contributed
capital in all periods prior to February 20, 2003. See Item 7 of this Annual
Report for additional information.


                                       14
<PAGE>

      (3) In 1998, we elected to be treated as an S corporation for federal
income tax purposes. An S corporation passes through essentially all taxable
earnings and losses to its stockholders and does not pay federal income taxes at
the corporate level. Historical income taxes consist mainly of state income
taxes. On November 1, 2003, we converted into a C corporation. For comparative
purposes, we have included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a C corporation in all periods when our S
corporation election was in effect. In June 2002, we reversed approximately $1.8
million of tax reserves which were originally recorded in 1998 when we elected
to be treated as an S corporation. The $1.8 million tax benefit has been
excluded for purposes of presenting pro forma C corporation income taxes.

      (4) EBITDA represents earnings from continuing operations before interest,
taxes, depreciation, and amortization. EBITDA is presented because we believe it
is useful in evaluating our operating performance compared to that of other
companies in our industry, as the calculation of EBITDA eliminates the effects
of financing, income taxes and the accounting effects of capital spending, which
items may vary for different companies for reasons unrelated to overall
operating performance. In addition, management tracks EBITDA because our
revolving credit facility contains a minimum annual EBITDA requirement of $38.0
million. When analyzing our operating performance, however, investors should use
EBITDA in addition to, not as an alternative for, operating earnings, net
earnings, and cash flows from operating activities, as those items are defined
under GAAP. Investors should also note that our presentation of EBITDA may not
be comparable to similarly titled measures used by othercompanies. EBITDA is
calculated in the following manner for each of the periods presented:

<TABLE>
<CAPTION>

                                                                 Year ended December 31,
                                                  ------------------------------------------------------
                                                    2003        2002        2001       2000      1999
                                                  --------   --------    --------    --------   --------
                                                                       (in thousands)
<S>                                               <C>        <C>         <C>         <C>        <C>
Earnings (loss) from continuing operations .....  $  2,436   $  5,242    $ (6,892)   $  4,481   $  5,140
     Add interest expense ......................     9,677     11,275      11,508      12,068     10,586
     Add (subtract) income taxes
       (benefit) ...............................    11,593     (1,412)       (119)        402        421
     Add depreciation and
       Amortization ............................    16,605     17,974      21,241      18,980     12,979
                                                  --------   --------    --------    --------   --------
        EBITDA .................................  $ 40,311   $ 33,079    $ 25,738    $ 35,931   $ 29,126
                                                  ========   ========    ========    ========   ========
</TABLE>

      (5) Includes $0.8 million of capital expenditures in 2002 attributable to
the operations of Central Refrigerated, which we divested on December 31, 2002.
See Item 7 of this Annual Report for additional information.

      (6) Average revenue we receive for transporting 100 pounds of freight.

      (7) Operating expenses as a percentage of operating revenues.

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

      Except for the historical information contained herein, the discussion in
this annual report contains "forward-looking statements," which include
information relating to future events, future financial performance, strategies,
expectations, competitive environment, regulation, and availability of
resources. These forward-looking statements include, without limitation,
statements regarding: expectations as to operational improvements; expectations
as to cost savings, revenue growth, and earnings; the time by which certain
objectives will be achieved; proposed new products and services; expectations
that claims, lawsuits, commitments, contingent liabilities, labor negotiations,
or agreements, or other matters will not have a materially adverse effect on our
consolidated financial position, results of operations, or liquidity; statements
concerning projections, predictions, expectations, estimates, or forecasts as to
our business, financial, and operational results and future economic
performance; and statements of management's goals and objectives, and other
similar expressions concerning matters that are not historical facts. Words such
as "may," "will," "should," "could," "would," "predicts," "potential,"
"continue," "expects," "anticipates," "future," "intends," "plans," "believes,"
"estimates," and similar expressions, as well as statements in future tense,
identify forward-looking statements. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such


                                       15
<PAGE>

performance or results will be achieved. Forward-looking information is based on
information available at the time and/or management's good faith belief with
respect to future events, and is subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in
the statements. Readers should review and consider the factors discussed in
"Factors that May Affect Future Results" along with the various disclosures by
the Company in its press releases, stockholder reports, and filings with the
Securities and Exchange Commission.

Executive Overview

      We are one of the ten largest regional LTL carriers in the United States
based on revenues, generating approximately $390.0 million in revenue during
2003. In our operations, we pick up and deliver multiple shipments for multiple
customers on each trailer. In 2003, a significant portion of our business was
concentrated in our Southwest region, which is anchored by Texas and California,
two of the nation's three largest state economies.

      The history of the name Central Freight Lines and its franchise dates back
to 1925, when Central Freight Lines was founded in Waco, Texas and served the
intrastate Texas LTL market for decades. Our company began its operations
effective June 30, 1997, when our Chairman of the Board, Jerry Moyes, organized
our company and acquired the Central Freight Lines name, terminal network, and
physical assets from the Southwestern Division of Viking Freight Lines, whose
corporate group acquired our predecessor in 1993. We primarily compete with
regional LTL carriers and to a lesser extent with long haul and truckload
carriers, railroads, and overnight delivery companies. Our major competitors
within the regional LTL industry include certain regional operating subsidiaries
of CNF Inc., USF Corporation, and SCS Transportation, Inc.

      We grew substantially between our first full year of operation in 1998 and
2001, but our operating results were less than we desired and we experienced an
operating loss during 2001. In 2002 and 2003, we assembled a new senior
management team and began executing a strategic plan designed to increase the
efficiency of our operations and expand our geographic territory. We focused on
streamlining our terminal network, routing freight efficiently through that
network, improving our freight mix through a comprehensive yield management
program, and applying our dynamic resource planning process to our operations.
This improved efficiency has resulted in a substantial amount of our revenue
equipment and terminal assets being used at less than full capacity. As a
result, these assets are now available for additional freight without further
capital expenditure. Because our dynamic resource planning process has only been
partially applied in our freight movement process, we believe that our strategic
plan affords us the opportunity for continued margin improvement and revenue
growth in the future. However, our ability to apply the process in other areas
and realize the efficiencies we believe to be obtainable will be deferred
pending integration of our Northwest region. In addition, we will experience
costs and revenue impacts that we expect to negatively affect our results in
2004. See "Recent Developments".

      Our profitability, as measured by operating ratio, has recovered from a
negative trend that resulted in an operating ratio of 100.4% for the fourth
quarter of 2001. Since then, our profitability has improved substantially, and
we achieved an operating ratio of 93.9% for the year ended December 31, 2003.
Our results for 2003 included several items that we consider to be unusual.
During 2003, we recorded an aggregate of $2.8 million in increases to our
insurance reserves for accident, workers' compensation, and other liabilities
arising prior to 2003 ($1.8 million of which related to two accidents that
occurred in 2002). This compared to an accrual of $0.5 million relating to
claims that arose in prior periods in that we accrued in the year ended December
31, 2002. We recorded the increased accruals despite improvements in our rate of
both accident claims and workers' compensation claims during 2003. We also
amended a benefit plan to reduce our future obligations. As a result of this
amendment, we recorded a curtailment gain of approximately $7.8 million in 2003.
In addition, in January of 2002 and 2003, we increased the useful lives and
decreased the salvage values of our tractors and trailers to reflect that we are
operating the tractors and trailers for longer periods than previously estimated
by our past management. These changes decreased our depreciation expense by
approximately $3.3 million compared with the expense we would have recorded
under the prior method. In the aggregate, these items had a positive effect of
approximately $7.3 million on our operating income for the year ended December
31, 2003. We do not anticipate benefits similar to these in future periods.


                                       16
<PAGE>

      In December 2002, we expanded service in a seven-state, Midwest region,
establishing all-points coverage in six of these states. Our expenses for the
year ended December 31, 2003, reflect the costs of this Midwest expansion,
primarily consisting of purchased transportation, employee training, and
relocation expenses. We increased our use of purchased transportation in the
Midwest region as a more efficient method of transporting freight in lanes where
we do not yet have sufficient freight volume to profitably transport the freight
in our own trucks. As we continue to develop our operations in the Midwest, we
expect our purchased transportation costs to return to historical levels.

      In March 2004, we initiated service in a three-state, Northwest region.
See "Recent Developments" below for additional information that provides a
discussion of the material impact we expect the Northwest expansion to have on
our financial condition and results of operations, and we expect to initiate
service in Colorado and Utah in the second quarter of 2004.

Revenues

      Our operating revenues vary with the revenue per hundredweight we charge
to customers and the volume of freight we transport. From our first full year of
operation in 1998 to 2001, our revenue grew from approximately $276.3 million to
approximately $395.7 million, a compounded annual growth rate of approximately
13%. Our growth resulted from a combination of internal growth, geographic
expansion, and our acquisitions of two LTL carriers that expanded our presence
in California, Arizona, and Nevada.

      Following the arrival of our new management team in early 2002, we closed
approximately 25% of our then existing terminals and implemented a yield
management process intended to eliminate freight that did not generate
sufficient returns. As a result of these efforts, our revenues decreased $24.3
million, or 6.1%, from $395.7 million for 2001 to approximately $371.4 million
in 2002, but revenue derived from the resulting improved freight portfolio began
to increase in the latter part of 2002 and in 2003 as our revenue increased to
$389.7 million. For the year ended December 31, 2003, our revenue per day
increased to $1.54 million, or 4.8%, from $1.47 million for the year ended
December 31, 2002. We continue to evaluate our freight mix and eliminate less
profitable freight.

      Revenue per hundredweight measures the rates we receive from customers and
varies with the type of goods being shipped and the distance these goods are
transported. Our LTL revenue per hundredweight increased approximately 9.1% from
$10.42 in 2002, to $11.37 in 2003, as we implemented our yield management
program. Volume depends on the number of customers we have, the amount of
freight those customers ship, geographic coverage, and the general economy. Our
total tonnage decreased by 7.4% from 2002 to 2003, due in large part to
reductions resulting from our continuing yield management program.

      Historically, most of our revenue has been generated from transporting LTL
shipments from customers within our operating region. In 2003, approximately
11.1% of our revenue was derived from shipments that originated or terminated in
regions outside our network, where a portion of the freight movement was handled
by another carrier. We refer to this as "interline freight". Most of this
revenue was obtained from carriers with which we maintain transportation
alliances. Revenue from interline freight is expected to decrease due to our
geographical expansion. We do not recognize the portion of revenue (or the
associated expenses) that relate to the portion of shipments hauled by our
alliance partners. In addition to transportation revenue, we also recognize
revenue from fuel surcharges we receive from our customers when the national
average diesel fuel price published by the U.S. Department of Energy exceeds
prices listed in our contracts and tariffs. See "Recent Developments" for
additional information concerning our revenue expectations.


                                       17
<PAGE>

Operating Expenses

      Our major expense categories can be summarized as follows:

      Salaries, wages, and benefits. This category includes compensation for our
employees, health insurance, workers' compensation, 401(k) plan contributions,
and other fringe benefits. These expenses will vary depending upon several
factors, including our efficiency, our experience with health and workers'
compensation claims, and increases in health care costs. Salaries, wages, and
benefits also include the non-cash expense associated with stock options granted
to several of our executives that had exercise prices that were determined to be
below fair market value. This non-cash compensation expense is expected to
amount to approximately $237,000 annually through June of 2007.

      Purchased transportation. This category primarily consists of the payments
we make to third parties to handle a portion of a freight movement for us. The
largest category is outsourced linehaul movements, where we contract with
truckload carriers to move our freight between origin and destination terminals.
Swift Transportation, a related party, has been our largest provider of
outsourced linehaul service. Purchased transportation also includes outsourced
pick-up and delivery service when we use alternative providers to service areas
where we lack the terminal density to provide economical service.

      Operating and general supplies and expenses. This category includes fuel,
repairs and maintenance, tires, parts, general and administrative costs, office
supplies, operating taxes and licenses, communications and utilities, and other
general expenses. Repairs and maintenance, fuel, tires, and parts expenses vary
with the age of equipment and the amount of usage. We have a fuel surcharge
program that enables us to recover a significant portion of fuel price
increases.

      Insurance and claims. This category includes the cost of insurance
premiums and the accruals we make for claims within our self-insured retention
amounts, primarily for personal injury, property damage, physical damage to our
equipment, and cargo claims. These expenses will vary primarily based upon the
frequency and severity of our accident experience and the market for insurance.

      Building and equipment rentals. This category consists mainly of payments
to unrelated third parties under terminal leases and payments to related parties
for eight terminals leased under operating leases.

      Depreciation and amortization. This category relates to owned assets,
assets under capitalized leases, and the 26 properties we lease from Southwest
Premier Properties that are considered to be a financing arrangement.

Recent Developments

      On March 16, 2004, we announced the acceleration of our expansion into the
northwestern United States through the purchase of selected terminal network and
rolling stock assets of Eastern Oregon Fast Freight, Inc. ("EOFF"), a non-union
LTL carrier that operated in the states of Oregon, Washington, and Idaho. At the
same time, we discussed our intention to complete a seamless service offering in
substantially all of the commercial zones in the western two-thirds of the
United States by initiating service in Colorado and Utah during the second
quarter of 2004. We refer to the five-state region as our Northwest expansion.

      We had targeted expansion in the Northwest as a growth priority because of
strong freight flows in the Interstate 5 corridor and our desire to offer
customers a superior service offering throughout the western two-thirds of the
nation. We had previously intended to expand incrementally, initially leasing
several small terminals and building freight flows gradually. We discovered,
however, that available terminal capacity in the region was limited and that
competitors were also seeking to establish a greater presence in the region.
Contemporaneously with our expansion planning, we were approached regarding a
purchase of the EOFF assets. We saw this as a strategic opportunity to fill out
a sizeable footprint in key freight centers throughout the region, advance our
business model, and position our business most effectively for the long term.
Although we were aware that certain costs and direct and indirect effects on our
business model could cause significant short term impact, we believed, and
continue to believe, that the long term strategic benefits of an immediate and
substantial footprint in the Northwest were compelling enough to justify
expanding the magnitude and compressing the timeframe of our expansion.


                                       18
<PAGE>

      During a March 17, 2004, conference call to discuss the expansion and its
related effects on our business, we revised our earnings guidance for the first
quarter of 2004 to an expected range of a loss of $0.04 to $0.07 per diluted
share. The change in guidance was related, in substantial part, to the direct
and indirect effects of the Northwest expansion. We also provided previously
unannounced guidance for the full year of 2004 of $0.36 to $0.46 earnings per
diluted share, which also took into consideration our expectations concerning
the effects of the expansion. We presently do not believe that our guidance
requires further adjustment. However, this discussion supplements and updates
the information contained in our March 16 press release and the March 17
conference call, based on trends and developments that have occurred, and
information that has become available, since such dates. To the extent any
information in either the press release or conference call is different than the
information herein, the information herein supersedes the prior information,
which was based on our information and expectations at that time.

      We currently expect our revenue per day for the first quarter to be
approximately the same as 2003, with one fewer business day in the quarter, and
we expect revenue for the year to increase approximately 5% over 2003. Our
previous expectations were based in large part on our experience in the fourth
calendar quarter of 2003, when LTL revenue per day was up by 3.1% over the prior
year. Based on this experience and the nature and timing of the sales
initiatives we had planned, we had projected that our revenue per day would grow
year-over-year by 5.3% in the first quarter of 2004 and by 11.5% for the full
year of 2004.

      The major reasons for the change in our revenue expectations relate
directly and indirectly to the Northwest expansion. These reasons include: (1)
an intentional discontinuation of service for certain customers, primarily in
California, in order to free up capacity to handle what we believe will be more
profitable freight associated with the Northwest expansion; (2) slower revenue
growth generally due in large part to delays in properly and fully executing our
12-point sales initiative plan because of management's focus on the Northwest
expansion and the integration of that region into our system; and (3) a
reduction in interline revenue outside the Northwest, although we expect this
reduction to be smaller than we initially anticipated. These factors related to
the Northwest expansion impacted our ability to grow in excess of reductions in
business from certain customers for a variety of reasons, including rate and
equipment allocation issues, our continuing yield management efforts, declines
in a small number of specific customers' business activity generally, and
customer selection of other alternatives.

      In addition to the revenue impact, we will incur significant expenses
attributable to the expansion. Such expenses include the costs of moving excess
equipment from our existing operations to the Northwest, greater than normal
payments to third-party linehaul contractors while in-bound and outbound freight
in the region remains unbalanced, costs of training additional employees
inherited from EOFF and to be hired in Colorado and Utah, costs of establishing
a footprint in Colorado and Utah, operating costs associated with physical and
personnel infrastructure designed to support greater revenue than is expected
initially, and other items. We estimate that direct expansion and operating
costs in the Northwest, excluding Colorado and Utah, and not included in our
previous expectations will be approximately $3.0 million. This includes
approximately $0.5 million expected for the first quarter of 2004 and
approximately $2.5 million expected over the next three quarters. We deferred
some of the costs originally planned for the first quarter based on the needs of
the region. The estimated costs of the Colorado and Utah expansion were included
in both our original and revised guidance, and we expect those costs to be
substantially less than the costs attributable to the former EOFF territory.


                                       19
<PAGE>

      Finally, the productivity and efficiency improvements we previously
anticipated from our dynamic resource planning processes are expected to be
delayed because of the need to include the Northwest region in the planning and
roll-out of those measures, and because of the allocation of significant
management time and resources to the Northwest expansion. We previously had
anticipated that the inbound and linehaul processes would have been implemented
during the second quarter, with significant benefits in the entire second half
of 2004 and increasing in 2005. These processes were on schedule prior to the
expansion and the data analysis and personnel training portions of the processes
(but not the ultimate roll-out) in regions other than the Northwest remains
ongoing. Because our freight movement process is integrated, systemic, and
dynamic throughout our entire freight network, we determined that the roll-out
of the inbound and linehaul processes could most efficiently be implemented once
the entire Northwest region could be included, rather than repeating the
process. We now expect the inbound and linehaul processes to be implemented
between June and September of 2004, with significant benefits coming late in
2004 and more substantially in 2005. We believe the roll-out is proceeding on
schedule considering the additional time and effort needed to include the
Northwest region. The actual timing of the roll-out and expected benefits will
depend on a variety of factors, including the ability of our management team to
timely re-engineer the processes throughout our historical network as well as
the Northwest and the timing of initiation of service in Colorado and Utah.
Also, the first quarter is expected to be impacted by lower than anticipated
productivity levels generally, at least partially attributable to management's
focus on the Northwest expansion. These productivity levels are improving in
March, and we expect them to return to expected levels during the second
quarter.

      On the whole, we view the Northwest expansion as a valuable strategic
opportunity that required incurring short term costs and delays in our business
plan to obtain a footprint that would position us better for the long term. We
believe the improvements in operating results that our management team achieved
during 2002 and 2003 indicate the strength of our ability to plan and execute
process improvements, and we believe we are positioned to achieve substantial
improvements in our operating results in the second half of 2004, with even
greater improvement in 2005.


                                       20
<PAGE>

      The discussion above contains forward-looking statements and is based on
our interpretations of the information currently known to us. However, you
should be aware that the discussion above is based upon approximately three
weeks of information and that the circumstances are constantly evolving. We
caution you, therefore, that actual results quite likely will differ from our
current expectations, perhaps materially. Factors that could cause actual
results to differ from our expectations include the risk of revenue loss in the
acquired EOFF operation and the difficulty bringing on new revenue in the
Northwest; the risk that we may experience difficulties in operating in the
Northwest, where we have not previously operated direct service; the risk of
loss of interline revenue in all of our regions, as competitors may be less
likely to give us business as we compete in more regions; the risk that we may
be unable to integrate acquired EOFF assets and employees successfully and
realize anticipated economic, operational, and other benefits in a timely
manner; the risk that acquisition and integration expenses may exceed our
expectations; the risk that we may lose drivers formerly employed by EOFF that
we expect to service the Northwest or fail to attract new drivers for that
region; the risk that we do not obtain consents to assignment of all of EOFF's
key leased facilities; the risk that we may not be able to terminate leases with
respect to unnecessary leased facilities acquired from EOFF; the risk that we
may not be able to dispose of rolling stock acquired from EOFF and designated
for sale or that the disposal prices might be less than we expect; the risk that
the EOFF acquisition could disrupt our ongoing business, distract our
management, and divert our resources; the risk that we may not be able to expand
profitably into Colorado and Utah; the risk that our expansion into Colorado and
Utah may not occur as scheduled; the risk that our implementation of dynamic
resource planning throughout our operations may not occur as anticipated or may
involve more expense than currently foreseen as a result of the Northwest
expansion or other factors; and the risk that our on-going yield management
efforts may have unanticipated adverse consequences. In addition, you should
review the "Factors That May Affect Future Results" contained herein for
additional events and circumstances that could cause our actual results to
differ from our expectations. Finally, please refer to the disclosure concerning
forward-looking statements at the beginning of this Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Discontinued Operations of Central Refrigerated

      In 2002, Central Refrigerated, a refrigerated truckload carrier, was
formed to acquire certain assets from the bankruptcy estate of Simon
Transportation Services, Inc., a refrigerated truckload carrier controlled by
Jerry Moyes, our Chairman, prior to the bankruptcy. The goal was to obtain
certain efficiencies for the refrigerated business, such as decreased insurance
costs, in the period immediately following the acquisition. The acquisition
closed, and the operations of Central Refrigerated began, on April 22, 2002. We
determined that it was advisable to divest Central Refrigerated in order to
focus on our LTL growth strategy and devote our capital resources to our LTL
operations. Effective December 31, 2002, ownership of Central Refrigerated was
transferred to Jerry Moyes and one of his affiliates, and Central Refrigerated
ceased to be our subsidiary.

      Since December 31, 2002, Central Refrigerated has continued to provide us
with transportation services. In the year ended December 31, 2003, Central
Refrigerated provided us with approximately $2.7 million of such services,
representing approximately 9% of the total amount paid by us for third-party
linehaul services in the period. Although Central Refrigerated is owned by Jerry
Moyes, we believe that amounts paid by us to Central Refrigerated are equivalent
to rates that could have been obtained in an arm's length transaction with an
unrelated third party. We expect our arrangements with Central Refrigerated for
transportation services to continue, so long as its rates and service remain
competitive with those offered by other carriers. For additional information on
our relationship with Central Refrigerated, see "Management - Compensation
Committee Interlocks and Participation" in the definitive Proxy Statement to be
delivered to our stockholders in connection with the 2004 Annual Meeting of
Stockholders to be held on May 19, 2004.


                                       21
<PAGE>

Separation Payment to Central Refrigerated and Repayment of Moyes Loans

      As part of the disposition of Central Refrigerated, we agreed to pay
approximately $8.3 million to Central Refrigerated to compensate Central
Refrigerated and Jerry Moyes for facilitating the transaction. This payment was
made on October 28, 2003, and was reflected in our financial statements as an
expense in our fourth fiscal quarter in 2003. Following our payment of $8.3
million to Central Refrigerated, Mr. Moyes repaid approximately $8.6 million in
principal and interest due to us under loans we made to him prior to July 2002,
which were separate from and unrelated to our transactions with Central
Refrigerated. The loans to Mr. Moyes had been recorded in our consolidated
financial statements as a reduction of stockholders' equity because of their
related party nature and this reduction of equity was reversed with the
repayment of the loan. Accordingly, taken together, our payment to Central
Refrigerated and the loan repayment by Mr. Moyes had no effect on our cash
position and stockholders' equity.

Related Party Terminal Leases

      We lease 30 active terminals and eight dormant terminals from related
parties. The lease for most of these properties is accounted for as a financing
arrangement in our consolidated financial statements, with the rental payments
being reflected as interest. The aggregate paid rent for these properties was
approximately $7.0 million in 2003, $4.7 million in 2002 and $4.5 million in
2001. We believe the rent on certain of these properties had been below fair
market value and agreed to increase the aggregate rent to an annual rate of
approximately $7.4 million effective February 20, 2003. As a result of the rent
increase, we have recognized approximately $3.3 million annually in non-cash
interest expense in all periods prior to February 20, 2003, to reflect the
rental of the affected properties at fair market value. Aggregate rent and
non-cash interest expense combined was approximately $7.5 million in 2003, $8.0
million in 2002 and $7.8 million in 2001 for all properties leased from related
parties. We are actively seeking to sublease or arrange for the sale of the
dormant terminals. For additional information on our related party terminal
leases, see "Management - Compensation Committee Interlocks and Insider
Participation" in the definitive Proxy Statement to be delivered to our
stockholders in connection with the 2004 Annual Meeting of Stockholders to be
held on May 19, 2004.

S Corporation Status

      Prior to November 1, 2003, we have operated as an S corporation for
federal income tax purposes. An S corporation passes through essentially all
taxable income and losses to its stockholders and does not pay federal income
taxes at the corporate level. For comparative purposes, we have included a pro
forma provision for income taxes showing what those taxes would have been had we
been taxed as a C corporation in all periods our S corporation election was in
effect. The 2003 provision for income taxes reflects the approximately $9.8
million non-cash charge for recognition of deferred federal income taxes to
reflect our conversion from an S corporation to a C corporation on November 1,
2003.

Change in Fiscal Quarters

      Our fiscal year ends on December 31. From inception through December 31,
2002, our first three fiscal quarters consisted of 12 weeks each, and our fourth
fiscal quarter consisted of 16 weeks. Commencing January 1, 2003, our year
consists of four quarters, each with 13 weeks. This change in accounting periods
will not affect the comparability of year-end financial results. The change
will, however, affect comparisons of periods less than a full year. Each of our
first three quarters in 2003 and beyond includes one additional week, and our
fourth quarter in 2003 and beyond will include three fewer weeks, as compared to
previous years.


                                       22
<PAGE>

Results of Operations

      The table below sets forth the percentage relationship of the specified
items to operating revenues for the periods indicated.

                                                      Year Ended December 31,
                                                   ----------------------------
                                                    2003       2002       2001
                                                   -----      -----      -----
Operating revenues ............................    100.0%     100.0%     100.0%
Operating expenses:
  Salaries, wages, and benefits ...............     52.5       56.2       58.8
  Purchased transportation ....................     14.5       13.4       12.5
  Operating and general supplies and
     Expenses .................................     17.3       16.3       17.3
  Insurance and claims ........................      4.0        3.8        3.6
  Building and equipment rentals ..............      1.3        1.4        1.3
  Depreciation and amortization ...............      4.3        4.8        5.4
                                                   -----      -----      -----
     Total operating expenses(1) ..............     93.9       95.9       98.9
                                                   -----      -----      -----
Operating income ..............................      6.1        4.1        1.1
Interest expense ..............................      2.5        3.1        2.9
                                                   -----      -----      -----
Income (loss) from continuing operations
  before income taxes .........................      3.6        1.0       (1.8)
                                                   -----      -----      -----
Income tax (expense) benefit ..................     (3.0)       0.4        0.1
                                                   -----      -----      -----
Income (loss) from continuing operations ......      0.6        1.4       (1.7)
                                                   -----      -----      -----
Loss from discontinued operations, ............     (2.1)        --         --
                                                   -----      -----      -----
Net income (loss) .............................     (1.5)%      1.4%      (1.7)%
                                                   =====      =====      =====
Pro Forma C Corporation Data:
Historical income (loss) from continuing
  Operations ..................................      3.6%       1.0%      (1.8)%
Pro forma (provision) benefit for income
  taxes attributable to continuing
  operations(2) ...............................     (1.5)      (0.7)       0.3
                                                   -----      -----      -----
Pro forma income (loss) from continuing
  operations(2) ...............................      2.1%       0.3%      (1.5)%
                                                   =====      =====      =====
----------
(1)  Total operating expenses as a percentage of operating revenues, as
     presented in this table, is also referred to as operating ratio.

(2)  Benefit (provision) for federal income taxes and net earnings (loss) as if
     we were a C corporation for tax purposes for all periods.

Comparison of 2003 to 2002

      Operating revenues. Operating revenues increased $18.3 million, or 4.9%,
from $371.4 million for 2002 to $389.7 million for 2003. The increase in
operating revenues was attributable to a 4.8% increase in revenue per working
day from $1.47 million in 2002 to $1.54 million in 2003. The increase in revenue
per working day was attributable primarily to a 9.1% increase in LTL revenue per
hundredweight from $10.42 in 2002 to $11.37 in 2003 and to an increase in fuel
surcharge revenue per working day. The overall increase in revenue per working
day was partially offset by a 7.4% decrease in total tonnage per working day. As
a result of our yield improvement efforts, we eliminated less profitable freight
and, where possible, replaced it with more profitable loads. Total tonnage
decreased 157,190 tons, or 7.4%, from 2,120,080 tons in 2002 to 1,962,890 tons
in 2003. Our Midwest expansion contributed to our overall increase in revenues.


                                       23
<PAGE>

      Salaries, wages, and benefits. Salaries, wages, and benefits decreased
$4.2 million, or 2.0%, from $208.8 million for 2002 to $204.6 million for 2003
due mainly to a $7.8 million curtailment gain relating to a reduction of our
obligations under a benefit plan. Without this reduction, salaries, wages and
benefits would have amounted to $212.4 million. The increase in salaries, wages,
and benefits before, consideration of the curtailment gain, resulted primarily
from an increase in compensation for most of our employees, rising medical
costs, the costs of additional sales personnel, and the costs of additional
employees and relocation expenses incurred in connection with our Midwest
expansion. In addition to these factors, salaries, wages, and benefits expense
for 2003 also included a $0.9 million increase to our workers' compensation
reserves for claims that arose prior to 2003, compared with a $0.5 million
increase to such reserves for prior period claims recorded in 2002. These
factors partially offset a decrease in the total number of employees resulting
from our management initiatives. As a percentage of operating revenues,
salaries, wages, and benefits decreased from 56.2% for 2002, to 52.5% for 2003.

      Purchased transportation. Purchased transportation increased $6.8 million,
or 13.6%, from $49.9 million for 2002 to $56.7 million for 2003. The increase in
purchased transportation resulted primarily from our Midwest expansion. Because
of the geographic breadth and lane characteristics of that particular expansion
effort, we used third party contractors for a significant portion of our
shipments. Our use of contractors in the Midwest decreased beginning in the
third quarter of 2003. As a percentage of operating revenues, purchased
transportation increased from 13.4% for 2002 to 14.5% for 2003.

      Operating and general supplies and expenses. Operating and general
supplies and expenses increased $6.8 million, or 11.2%, from $60.7 million for
2002 to $67.5 million for 2003. The increase in operating and general supplies
and expenses resulted primarily from an increase in the cost of fuel and vehicle
repairs. As a percentage of operating revenues, operating and general supplies
and expenses increased from 16.3% for 2002 to 17.3% for 2003, primarily because
the average price per gallon of diesel fuel was 13.3% higher during 2003 as
compared to 2002.

      Insurance and claims. Insurance and claims increased $1.6 million, or
11.4%, from $14.0 million for 2002 to $15.6 million for 2003. The increase in
insurance and claims expense resulted primarily from an increase in the accrual
of $1.9 million in estimated liabilities for claims that arose prior to 2003
($1.8 million of which related to two accidents in 2002), compared with no
increase in such reserves for prior period claims recorded in the 2002 period.
As a percentage of operating revenues, insurance and claims increased from 3.8%
for 2002 to 4.0% for 2003.

      Building and equipment rentals. Building and equipment rentals increased
approximately $0.1 million, or 2.0%, from $5.0 million for 2002 to $5.1 million
for 2003. The increase in building and equipment rentals resulted primarily from
the addition of leased terminals in connection with our Midwest expansion. As a
percentage of operating revenues, building and equipment rentals decreased
slightly from 1.4% for 2002 to 1.3% for 2003.

      Depreciation and amortization. Depreciation and amortization expense
decreased approximately $1.4 million, or 7.8%, from $18.0 million for 2002 to
$16.6 million for 2003, mainly as a result of a change in the estimated useful
lives and a $0.4 million gain on sale of our revenue equipment, which is an
offset to depreciation. In January 2003, we increased useful lives of trailers
from twelve to fifteen years and reduced salvage values from 5% to 0%. We also
increased useful lives of line tractors from seven to ten years and reduced
salvage values on pick-up and delivery and line tractors from 5% to 0%. These
changes were made to reflect the fact that we are currently operating these
tractors for longer periods of time than previously estimated by our past
management. The changes reduced depreciation expense by approximately $0.6
million in 2003. As a percentage of operating revenues, depreciation and
amortization decreased from 4.8% for 2002 to 4.3% for 2003.

      Operating ratio. As a result of the foregoing, our operating ratio
improved from 95.9% for 2002 to 93.9% for 2003.


                                       24
<PAGE>

      Interest expense. Interest expense decreased $1.6 million, or 14.2%, from
$11.3 million for 2002 to $9.7 million for 2003. As a percentage of operating
revenues, interest expense decreased from 3.1% for 2002 to 2.5% for 2003. Our
average debt balances decreased from $116.4 million in 2002 to $95.4 million in
2003 due in large part to our payment of approximately $48.5 million in December
2003 to reduce outstanding debt utilizing part of the net proceeds from our
initial public offering, and our average non-related party interest rates
decreased from 6.4% in the 2002 to 5.8% in 2003. 2002 includes $3.3 million and
2003 includes $0.5 million of non-cash interest expense attributable to a $3.3
million annual increase in payments under related party terminal leases
effective February 20, 2003. These payments were increased to fair value, and we
have recorded non-cash interest expense in all prior periods to reflect the
difference between the fair value rental and the former rental amount. After
February 20, 2003, the interest amounts reflect cash payments. The amounts are
recorded as interest because the leases are reflected as a financing arrangement
in our consolidated financial statements.

      As a result of the factors described above, income from continuing
operations before income taxes was $3.8 million for 2002 and $14.0 million for
2003.

      As a result of the factors described above, pro forma income from
continuing operations, assuming an effective tax rate of approximately 39% in
each period, improved from $1.0 million for 2002 to $8.4 million for 2003.

      Our income taxes changed from a net tax benefit of $1.4 million for 2002
to a net tax expense of $(1.8) million for 2003 (excluding the $9.8 million
expense for the establishment of federal deferred income taxes) primarily due to
the reversal of a $1.8 million reserve for the contingent expense that could
have resulted from any tax assessments related to our election of S corporation
tax status in 1998. During the fiscal quarter ended June 15, 2002, we determined
that this reserve was no longer necessary because the allowable period for a tax
assessment had ended. Additionally, 2003 included federal income tax expense for
the last two periods of the year.

Comparison of 2002 to 2001

      Operating revenues. Operating revenues decreased $24.3 million, or 6.1%,
from $395.7 million for 2001 to $371.4 million for 2002. The operating revenues
decrease was primarily attributable to an overall decrease in tonnage, partially
offset by an improvement in LTL revenue per hundredweight. These results were
generated by our yield management efforts in 2002, which were designed to
eliminate less profitable freight and, where possible, replace it with more
profitable loads. Total tonnage decreased 268,736 tons, or 11.2%, from 2,388,816
tons in 2001 to 2,120,080 tons in 2002. LTL revenue per hundredweight increased
3.6%, from $10.06 in 2001 to $10.42 in 2002.

      Salaries, wages, and benefits. Salaries, wages, and benefits decreased
$23.9 million, or 10.3%, from $232.7 million for 2001 to $208.8 million for
2002, primarily because in 2002 we closed approximately 25% of our then-existing
terminals and reduced headcount by approximately 21% in the administrative,
management, dock, and driver workforce. The headcount reduction reduced both the
salaries/wages component and the benefits component of this expense item. As a
percentage of operating revenues, salaries, wages, and benefits decreased from
58.8% for 2001 to 56.2% for 2002.

      Purchased transportation. Purchased transportation increased $0.5 million,
or 1.0%, from $49.4 million for 2001 to $49.9 million for 2002, primarily as the
result of increased outsourcing of line-haul movements to third party carriers
in an attempt to decrease the number of empty miles being driven. As a
percentage of operating revenues, purchased transportation increased from 12.5%
for 2001 to 13.4% for 2002.

      Operating and general supplies and expenses. Operating and general
supplies and expenses decreased $7.8 million, or 11.4%, from $68.5 million for
2001 to $60.7 million for 2002. As a percentage of operating revenues, operating
and general supplies and expenses decreased from 17.3% for 2001 period to 16.3%
for 2002. The decrease in operating and general supplies and expenses resulted
in part from a reduction in general and administrative expenses due to a smaller
workforce in 2002. Bad debt expense also decreased from approximately $3.0
million in 2001 to $82,000 in 2002, due primarily to improved credit policies
and collection experience in 2002 that led us to reduce our allowance for
doubtful accounts by approximately $1.3 million at the end of that year. This
reduction resulted in our recognition of $82,000 in bad debt expense for the
year.


                                       25
<PAGE>

      Insurance and claims. Insurance and claims decreased $0.2 million, or
1.4%, from $14.2 million for 2001 to $14.0 million for 2002, due primarily to
decreased miles traveled by our drivers and more favorable accident experience,
partially offset by increased auto, general liability and cargo liability
insurance premiums. As a percentage of operating revenues, insurance and claims
increased slightly from 3.6% for 2001 to 3.8% for 2002, as a result of a
decreased revenue base over which these costs were spread.

      Building and equipment rentals. Building and equipment rentals decreased
$0.1 million, or 2.0%, from $5.1 million for 2001 to $5.0 million for 2002. As a
percentage of operating revenues, building and office equipment rentals remained
relatively constant at 1.3% and 1.4% for 2001 and 2002, respectively.

      Depreciation and amortization. Depreciation and amortization decreased
$3.2 million, or 15.1%, from $21.2 million for 2001 to $18.0 million for 2002,
primarily as a result of a change in the estimated useful lives of revenue
equipment. In January 2002, we increased useful lives on trailers from seven
years to twelve years and reduced salvage values from 10% to 5%. We also
increased useful lives on pick-up and delivery tractors from seven to ten years
and reduced salvage values on pick-up and delivery and line tractors from 10% to
5%. These changes were made to reflect the fact that we are currently operating
these tractors and trailers for longer periods of time than previously estimated
by our past management. The changes reduced depreciation expense by
approximately $2.9 million in 2002. The effect of these actions on depreciation
and amortization were partially offset, however, by a reduction of the useful
lives of sleeper tractors from seven years to four years later in 2002. As a
percentage of operating revenues, depreciation and amortization decreased from
5.4% for 2001 to 4.8% for 2002.

      Operating ratio. As a result of the foregoing, our operating ratio
improved from 98.9% in 2001 to 95.9% in 2002.

      Interest expense. Interest expense decreased $0.2 million, or 1.7%, from
$11.5 million for 2001 to $11.3 million for 2002. As a percentage of operating
revenues, interest expense increased slightly from 2.9% for 2001 to 3.1% for
2002, as a result of a decreased revenue base over which these costs were
spread. Although our average debt balances increased from $107.6 million for
2001 to $116.4 million for 2002, our average interest rates decreased from 7.2%
in 2001, to 6.4% in 2002. Both periods included $3.3 million in non-cash
interest expense attributable to the February 20, 2003, increase in payments
under related party terminal leases accounted for as a financing arrangement.

      As a result of the factors described above, (loss) earnings from
continuing operations before income taxes improved from $(7.0) million for 2001
to $3.8 million for 2002. Pro forma (loss) earnings, assuming an effective tax
rate (excluding non-deductible interest expense of $3.3 million in each year) of
approximately 30% and 39% in 2001 and 2002, respectively, improved from $(5.9)
million for 2001 to $1.0 million for 2002.

Liquidity and Capital Resources

      Our business requires substantial, ongoing capital investments,
particularly to replace revenue equipment such as tractors and trailers. In
addition, our implementation of dynamic resource planning throughout our
operations and our Northwest expansion are expected to involve additional
expenses, such as the costs of added employees, relocation costs for existing
employees and equipment, increased building and equipment rentals, and increased
purchased transportation expense. Our primary sources of liquidity have been
cash from operations, secured borrowings, and proceeds of our initial public
offering. We believe these and other sources of liquidity will be sufficient to
fund our operations at least through the end of 2004. Further, although we have
not secured long-term financing, we believe, based on past experience with our
lenders, that such financing will be available if needed to provide liquidity
beyond 2004.


                                       26
<PAGE>

      Net cash provided by operating activities was approximately $19.3 million,
$35.2 million and $29.1 million for the years ended December 31, 2003, 2002, and
2001, respectively. The decrease in net cash provided by operating activities
from 2002 to 2003 resulted mainly from an $8.8 million reduction in trade
accounts payable and a $4.7 million increase in our accounts receivable. The
increase in net cash, provided by operating activities, in 2002 from 2001
resulted primarily from an increase in net income ($12.1 million) and trade
accounts payable ($4.2 million) offset by increases in accounts receivable ($1.1
million), decreases in claims and insurance accruals ($3.8 million) and
decreases in accrued expenses and other liabilities ($3.7 million). Our accounts
receivable increased $4.4 million during 2002, and $3.3 million during 2001. The
average age of our accounts receivable was 52.2 days for the year ended December
31, 2003, 46.9 days for the year ended December 31, 2002, and 44.9 days for the
year ended December 31, 2001.

      Net cash used in investing activities was approximately $5.3 million, $8.8
million, and $16.5 million for the years ended December 31, 2003, 2002, and
2001, respectively. These expenditures were financed with long-term debt and
cash flows from operations. Our capital expenditures were approximately $7.0
million in 2003, and $6.0 million in 2002 and $10.2 million in 2001. Our budget
for capital expenditures, without giving effect to any offset from sales or
trades of equipment, is approximately $38.0 million in 2004. We expect to
increase our capital expenditures from 2003 to 2004 as part of a plan to replace
a greater amount of revenue equipment and decrease the average age of our fleet.
We expect our capital expenditures to consist primarily of the acquisition of
new tractors and trailers. We expect to pay for the projected capital
expenditures with a portion of the proceeds from our initial public offering,
borrowings under our credit facilities, and cash flows from operations. Our
capital expenditure budget excludes the effect of any acquisitions, including
the acquisition of selected assets of EOFF for $10.0 million in March of 2004.

      Net cash provided by (used in) financing activities was approximately
$20.1 million, $(19.2) million and $(12.6) million for the years ended December
31, 2003, 2002, and 2001, respectively. Funds provided by financing activities
in 2003 arose mainly from the $77.6 million net proceeds from our initial public
offering in December, 2003.

      At December 31, 2003, we had outstanding long-term obligations of
approximately $49.5 million. The following chart reflects the outstanding
amounts by category:

        Equipment notes payable ...................        $ 0.2 million
        Capital lease obligations .................         26.2 million
                                                           -------------
          Total long-term debt ....................         26.4 million
        Related party financing ...................         23.1 million
                                                           -------------
             Total ................................        $49.5 million
                                                           =============

      On April 30, 2002, we entered into a $40.0 million revolving accounts
receivable securitization facility, that expires April 27, 2005, with Three
Pillars Funding Corporation and a revolving credit facility with Suntrust Bank.
Under the securitization facility, we can borrow up to $40.0 million, subject to
eligible receivables. We pay commercial paper interest rates plus an applicable
margin on amounts borrowed. Interest is generally payable monthly. The
securitization facility includes certain restrictions and financial covenants.
As of December 31, 2003, we had no borrowings outstanding under the
securitization facility. Under the securitization facility, we pay a commitment
fee equal to 0.2% per year of 102% of the facility limit minus the aggregate
outstanding principal balance, as well as an administrative fee equal to 0.15%
per annum of the uncommitted balance. At December 31, 2003, we had $33.3 million
available under the securitization facility.


                                       27
<PAGE>

      Under our revolving facility, we can borrow up to $19.0 million, secured
by approximately 240 of our tractors. The revolving facility accrues interest at
either a variable base rate equal to the bank's prime lending rate or at a
variable rate equal to LIBOR plus 175 basis points. Interest is payable in
periods from one to three months at our option. We are subject to certain
financial and nonfinancial covenants under this facility. We pay a commitment
fee equal to 0.25% per annum on the daily unused revolving facility as well as a
letter of credit fee equal to 1.75% per annum on the average daily amount of the
letters of credit. The maturity date of the revolving facility is October 31,
2004.

      Substantially all of the amounts outstanding under our $19.0 million
revolving credit facility are used to fund outstanding letters of credit. As of
December 31, 2003, we had no borrowings and $14.4 million in letters of credit
outstanding under that facility. The face amount of letters of credit we are
required to post is expected to increase in the future because of our larger
self-insured retentions. As of December 31, 2003, we had $4.6 million available
for borrowing or additional letters of credit under the revolving facility. We
believe this amount will be sufficient to address our letter of credit
requirements at least through the end of 2004. However, to the extent that
insurance requirements cause our letters of credit outstanding to rise above
this level, our borrowing capacity under the revolving credit facility will be
reduced and we may be required to draw upon other resources, such as our
securitization facility, to address our liquidity needs.

      Our revolving credit facility contains certain financial covenants
including covenants regarding minimum tangible net worth, EBITDA, and leverage
ratio. We are required to maintain a lease-adjusted leverage ratio of no greater
than 2.75 to 1.0. As of December 31, 2003, our leverage ratio was 1.75 to 1.0.
We were in compliance with all financial covenants at December 31, 2003.

      We have entered into a number of note agreements with a third party to
acquire equipment for use in our operations. The outstanding principal balance
of these notes was $0.2 million at December 31, 2003. These notes have fixed
interest rates ranging from 7.75% to 8.75% and mature at various dates through
July 2006. In addition to the equipment notes, we borrowed $2.5 million on
August 8, 2003, to purchase a freight terminal in San Fernando, California. This
note had a variable rate equal to LIBOR plus 200 basis points and matured on
August 8, 2006. The note was repaid in December 2003.

      In 1998, we entered into an agreement with Southwest Premier Properties
L.L.C., for the sale and leaseback of the land, structures, and improvements of
36 terminal properties and one additional property in Waco, Texas. The sale
price for the properties was approximately $27.8 million in 1998. For financial
accounting purposes, the lease for these properties is accounted for in our
consolidated financial statements as a financing arrangement. Consequently, the
related land, structures, and improvements remain on our consolidated balance
sheet. The annual lease payments are reflected as a cost of the financing and
recorded as interest expense. In February 2003, the lease covering these
properties was extended to February 2013, with further options through 2023. In
addition, the annual rental amount on active terminal properties was adjusted to
reflect agreed market values. The annual rental amount was increased from $2.9
million to $6.3 million. We have recognized approximately $3.3 million annually
in non-cash interest expense in all periods prior to February 2003 in the
accompanying financial statements to reflect the rental of the affected
properties at the increased values. The rent will be adjusted upward after five
years to reflect any increase in interest rates between February 2003 and
February 2008. The following table summarizes our significant contractual
obligations and commercial commitments as of December 31, 2003.

<TABLE>
<CAPTION>

                                               Payments Due by Period (in thousands)
                                      ---------------------------------------------------
                                              Less than                           After 5
                                       Total    1 Year    1-3 Years   4-5 Years    Years
                                      -------   -------   ---------   -------     -------
<S>                                   <C>       <C>        <C>        <C>         <C>
Contractual obligations
Long-term debt ....................   $   169   $    99    $    70         --          --
Capital lease obligations .........    26,194     6,275     13,583     $6,194     $   142
Related party real estate
  financing .......................    23,154        --         --                 23,154
Operating lease obligations .......    20,463     4,473      6,665      4,883       4,442
                                      -------   -------    -------    -------     -------
  Total ...........................   $69,980   $10,847    $20,318    $11,097     $27,738
                                      =======   =======    =======    =======     =======
</TABLE>


<TABLE>
<CAPTION>

                                           Amount of Commitment Expiration per Period
                                                        (in thousands)
                                      ---------------------------------------------------
                                              Less than                           After 5
                                       Total    1 Year    1-3 Years   4-5 Years    Years
                                      -------   -------   ---------   -------     -------
<S>                                   <C>       <C>        <C>        <C>         <C>
Other commercial commitments
Standby letters of credit..........   $14,406   $14,406     --        --           --
</TABLE>


                                       28
<PAGE>

      From time to time we experience a working capital deficit. This is common
to many trucking companies that expand by financing revenue equipment purchases.
When we finance revenue equipment through borrowing, a portion of the
indebtedness is categorized as a current liability, although the revenue
equipment is classified as a long-term asset. Consequently, each purchase of
financed revenue equipment decreases working capital. We had a working capital
surplus (deficit) of $53.5 million at December 31, 2003, $4.2 million at
December 31, 2002, $(4.9) million at December 31, 2001. We believe our working
capital deficits have had little impact on our liquidity.

Off-Balance Sheet Arrangements

      Certain of our terminals and revenue equipment are financed off-balance
sheet through operating leases. As of December 31, 2003, 44 of our terminals,
including eight owned by related parties, were subject to operating leases. Our
contractual obligations under our operating leases are summarized in the table
above. Because our growth strategy involves expanding into additional regions
initially through the operation of leased terminals, we expect that the size of
these off-balance sheet obligations will increase as we continue our Midwest
expansion and implement our Northwest expansion in the first quarter of 2004. We
expect to continue our Northwest expansion by initiating service to Colorado and
Utah in the 2004 second quarter.

Quarterly Results of Operations

      The following table presents our unaudited operating results for the eight
quarters ended December 31, 2003. In our opinion, all necessary adjustments
(consisting only of normal recurring adjustments) have been included in the
amounts stated below to present fairly the quarterly results when read in
conjunction with our consolidated financial statements and notes, which are
included elsewhere in this Annual Report. Results of operations for any
particular quarter are not necessarily indicative of results of operations for a
full year or for future periods. For 2002, our fiscal year is divided into 13
four-week periods. The first three quarters consist of three periods each, and
the fourth quarter consists of four periods. Commencing January 1, 2003, our
fiscal year consists of four quarters, each with 13 weeks.

<TABLE>
<CAPTION>

                                                                         Quarter Ended
                                  -----------------------------------------------------------------------------------------
                                  Mar. 23,  June 15,   Sept. 7,   Dec. 31,    Apr. 5,     July 5,     Oct. 4      Dec. 31,
                                   2002(2)  2002(3)      2002       2002    2003(4)(7)  2003(5)(7)  2003(6)(7)  2003 (7)(8)
                                   -------  -------      ----       ----    ----------  ----------  ----------  -----------
                                                                   (unaudited)
                                                      (in thousands, except per share data)
<S>                              <C>        <C>        <C>        <C>         <C>        <C>         <C>         <C>
Operating revenues ...........   $83,099    $86,927    $86,361    $115,058    $98,802    $100,150    $101,209    $ 89,535
Operating income (loss) ......      (501)     3,949      4,477       7,180      5,989       1,245      10,852       5,620
(Loss) income from
  continuing
  operations .................    (2,907)     2,659      1,997       3,493      3,314      (1,305)      8,037      (7,610)
Income (loss) from
  discontinued
  operations (8) .............        --        982       (201)       (781)        --          --          --      (8,341)
Net (loss)
  Income(1) ..................    (2,907)     3,641      1,796       2,712      3,314      (1,305)      8,037     (15,951)
Pro forma data:(1)
  Pro forma income tax benefit
    (expense) ................       886     (1,082)    (1,056)     (1,529)    (1,560)        531      (3,259)     (1,378)
  Pro forma net
    (loss) income ............    (2,152)       927        883       1,391      1,940        (831)      5,098      (6,185)
  Pro forma net (loss) income
    per share:
    Basic ....................   $ (0.20)   $  0.09    $  0.08    $   0.13    $  0.18    $  (0.08)   $   0.47    $  (0.51)
                                 -------    -------    -------    --------    -------    --------    --------    --------
    Diluted ..................   $ (0.20)   $  0.08    $  0.08    $   0.11    $  0.16    $  (0.08)   $   0.43    $  (0.47)
                                 =======    =======    =======    ========    =======    ========    ========    ========
</TABLE>


                                       29
<PAGE>

(1)   Prior to November 1, 2003, we maintained S corporation status under which
      federal income tax attributes flowed directly to stockholders.
      Accordingly, income tax expenses recorded by us reflect state income
      taxes. Pro forma net (loss) income has been adjusted to reflect the
      application of federal income taxes. On November 1, 2003 we elected C
      corporation status for federal income taxes and recorded $9.8 million of
      federal deferred taxes upon conversion.

(2)   In the first quarter of 2002, we recorded restructuring expenses of
      approximately $725,000, which represents the costs to close 21 terminals.

(3)   In the second quarter of 2002, we reversed approximately $1.8 million of
      tax reserves related to the sale of certain property in 1998. This amount
      was reversed because the allowable period for a tax assessment had ended,
      and the reserve for the related expense was no longer required.

(4)   In the first quarter of 2003, we recorded a $2.5 million gain as a result
      of amendments made to a benefit plan.

(5)   In the second quarter of 2003, we recorded a $3.8 million increase in our
      claims accrual related to accident, workers' compensation, and other
      claims (including $1.8 million related to two accidents that occurred in
      2002) in which the underlying events occurred prior to 2003.

(6)   In the third quarter of 2003, we recorded a $5.3 million gain as a result
      of further amendments made to the benefit plan referenced above.

(7)   In 2003, we recorded reduced depreciation expense as a result of
      additional changes in useful lives and salvage values of trailers and line
      tractors of $145,000 in each of the quarters. These changes in useful
      lives and salvage values were made based on our historical experience.

(8)   On November 1, 2003 we elected C corporation status for federal income
      taxes. In the fourth quarter, we recognized a loss from discontinued
      operations of $8.3 million which along with the $9.8 million income tax
      expense from converting to C corporation status was primarily responsible
      for the $7.6 million loss from continuing operations for the quarter.

Critical Accounting Policies

      We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financials statements.

      Revenue Recognition. Operating revenue is recognized upon delivery of the
related freight, as is fuel surcharge revenue. In 2003, approximately 11.1% of
our revenue was derived from interline shipments. Most of this revenue was with
carriers with which we maintain transportation alliances. We do not recognize
revenue (or the associated expenses) that relates to the portion of the shipment
transported by our alliance partners.


                                       30
<PAGE>

      Insurance and Claims Accruals. We record insurance and claims accruals
based upon our estimate of the ultimate total cost of claims, not covered by
insurance, for bodily injury and property damage, cargo loss and damage,
physical damage to our equipment, workers' compensation, long-term disability,
and group health, and post-retirement health benefits. Our estimates are based
on our evaluation of the nature and severity of the claims and our past claims
experience. We include an estimate for incurred but not reported claims. The
estimated costs for bodily injury and property damage, cargo loss and damage,
and physical damage to our equipment are charged to insurance and claims. The
other estimated costs are charged to employee benefits expense.

      While we believe that our insurance and claims accruals are adequate, such
estimates may be more or less than the amount ultimately paid when our claims
are settled. The estimates are continually reviewed and any changes are
reflected in current operations.

      From June 28, 2000 to June 28, 2001, our self-insured retention for bodily
injury and property damage, cargo loss and damage, and physical damage to our
equipment was an aggregate $500 thousand per occurrence. Effective June 28,
2001, we increased our self-insured retention to $1.0 million per occurrence and
on October 28, 2003 reduced our self-insured retention to $750 thousand per
occurrence.

      Our self-insured retention for workers' compensation has been $1.0 million
per occurrence since October 28, 2002. We also self-insure for all health claims
up to $300,000 per occurrence. We expect our claims reserves to increase in
future periods as a result of our higher self-insured retention.

      In the year ended December 31, 2003, we recorded an approximately $2.8
million increase in our claims accruals related to underlying events that
occurred prior to 2003.

      In October 2002, we were forced to seek replacement excess insurance
coverage after our insurance agent failed to produce proof of insurance on
policies for which we had obtained binders as of July 15, 2002. We are not aware
of any claims during the period between July and October 2002 that are expected
to exceed the self-insured retention level we had at the time. For any claims
arising during such period, that would exceed that level, we intend to pursue
our legal rights against the insurance agent and its errors and omissions policy
but we cannot assure you that such coverage will be available, in which case our
financial results could be materially and adversely affected.

      Allowance for Doubtful Accounts and Revenue Adjustments. We maintain
allowances for doubtful accounts and revenue adjustments. Such allowances
represent our estimate of accounts that will not ultimately be collected and
correspondingly adjust our operating revenues to reflect the estimates of
noncollectible accounts. Estimates used in determining this allowance are based
on our historical collection experience, current trends, credit policy, and a
percentage of our accounts receivable by aging category. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

Inflation

      Most of our expenses are affected by inflation, which generally results in
increased operating costs. In response to fluctuations in the cost of petroleum
products, particularly diesel fuel, we have implemented a fuel surcharge in our
tariffs and contractual agreements. The fuel surcharge is designed to offset the
cost of fuel above a base price and increases as fuel prices escalate over the
base. We do not expect the net effect of inflation on our results of operations
to be different from the effect on LTL carriers generally.

Seasonality

      We experience some seasonal fluctuations in freight volume. Historically,
our shipments decrease during winter months and our operating expenses have been
higher in the winter months due to decreased fuel efficiency and increased
maintenance costs for our tractors and trailers in colder weather. Our southern
operating region has lessened the seasonal impact of colder weather to some
extent. Our expansion into the Midwest and planned expansion into the Northwest
may increase our exposure to seasonal fluctuations in operating expenses.


                                       31
<PAGE>

Recent Accounting Pronouncements

      In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ,
which requires that certain financial instruments be presented as liabilities
that were previously presented as equity or as temporary equity. Such
instruments include mandatory redeemable preferred and common stock, and certain
options and warrants. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and is generally effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have any impact on the Company's consolidated
financial statements.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and rescission of FASB Interpretation No. 34. This interpretation
addresses the disclosures to be made by a guarantor and requires a guarantor to
recognize a liability for the fair value of a guarantee. In January 2003, the
FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51. The Company does not believe that these
pronouncements will have a significant impact on its consolidated financial
statements.

Factors That May Affect Future Results

      Our future results may be affected by a number of factors over which we
have little or no control. Fuel prices, insurance and claims costs, liability
claims, regulatory requirements that may increase costs or decrease efficiency,
including revised hours-of-service requirements for drivers, the availability of
qualified drivers, interest rates, fluctuations in the resale value of revenue
equipment, economic and customer business cycles, and shipping demands are
factors over which we have little or no control. Significant increases or rapid
fluctuations in fuel prices, interest rates, or insurance costs or liability
claims, and increases in costs of compliance with, or decreases in efficiency
resulting from, regulatory requirements, to the extent not offset by fuel
surcharges and increases in freight rates, as well as downward changes in the
resale value of revenue equipment, could reduce our profitability. Weakness in
the general economy, including a weakness in consumer demand for goods and
services, could adversely affect our customers and our growth and revenues, if
customers reduce their demand for transportation services. Weakness in customer
demand for our services or in the general rate environment may also restrain our
ability to increase rates or obtain fuel surcharges. It is also not possible to
predict the effects of terrorist attacks and subsequent events on the economy or
on customer confidence in the United States, or the impact, if any, on our
future results of operations.

      We operate in a highly competitive and fragmented industry and our
business will suffer if we are unable to adequately address potential downward
pricing pressures and other factors that may adversely affect our operations and
profitability.

      Numerous competitive factors could impair our ability to maintain and
improve our profitability. These factors include the following:

            o     We compete with many other transportation service providers of
                  varying sizes, some of which have more equipment, a broader
                  coverage network, a wider range of services, and greater
                  capital resources than we do or have other competitive
                  advantages.

            o     Some of our competitors periodically reduce their prices to
                  gain business, especially during times of reduced growth rates
                  in the economy, which may limit our ability to maintain or
                  increase prices or maintain significant growth in our
                  business.

            o     Some of our competitors have begun offering customers a money
                  back guarantee if certain shipments are delivered late, and we
                  have not yet evaluated the effect of such product offerings on
                  the marketplace or the possible effects on our financial
                  condition.


                                       32
<PAGE>

            o     Many customers reduce the number of carriers they use by
                  selecting so-called "core carriers" as approved transportation
                  service providers, and in some instances we may not be
                  selected.

            o     Many customers periodically accept bids from multiple carriers
                  for their shipping needs, and this process may depress prices
                  or result in the loss of some business to competitors.

            o     The trend towards consolidation in the ground transportation
                  industry may create other large carriers with greater
                  financial resources than us and other competitive advantages
                  relating to their size.

            o     Advances in technology require increased investments to remain
                  competitive, and our customers may not be willing to accept
                  higher prices to cover the cost of these investments.

            o     Competition from non-asset-based logistics and freight
                  brokerage companies may adversely affect our customer
                  relationships and prices.

            o     Competitors that, in the past, have used us to deliver
                  interline shipments for them in our regions may not continue
                  to do so, which would reduce our revenue.

      We have a limited operating history as an independent company and
experienced a net loss during 2001.

      We began our operations on June 30, 1997, after acquiring the name
"Central Freight Lines" and substantially all of the operating assets of the
Southwestern Division of Viking Freight System. In 2001, we experienced a loss
from continuing operations of $6.9 million. In 2002 and 2003, we assembled a new
senior management team and in 2003 recorded $2.4 million of income from
continuing operations. Thus, our operating history is brief and provides a
limited basis for evaluating our performance. If we are unable to sustain or
improve our level of profitability, the value of stockholders' investments may
suffer.

      Our business is subject to general economic and business factors over
which we have little or no control.

      Our business is affected by a number of factors that may have a materially
adverse effect on the results of our operations, many of which are beyond our
control. These factors include:

            o     Significant increases or rapid fluctuations in fuel prices.

            o     Excess capacity in the trucking industry.

            o     Decline in the resale value of used equipment.

            o     Fluctuations in interest rates.

            o     Rising healthcare costs.

            o     Higher fuel taxes and license and registration fees.

            o     Increases in insurance costs or liability claims.

            o     Difficulty in attracting and retaining qualified drivers.


                                       33
<PAGE>

      We also are affected by recessionary economic cycles and downturns in
customers' business cycles, particularly in market segments and industries, such
as retail, where we have a significant concentration of customers. Economic
conditions may adversely affect our customers and their ability to pay for our
services. Customers encountering adverse economic conditions represent a greater
potential for loss and we may be required to increase our allowance for doubtful
accounts. A significant amount of our freight is concentrated in Texas and
California. Accordingly, we also are directly impacted by economic conditions in
and affecting Texas and California over which we have no control.

      If we are unable to successfully execute our internal growth strategy, our
business and future results of operations may suffer.

      Our strategy is to grow our business by increasing service offerings in
our current markets and by expanding into additional geographic markets. In
December 2002, we expanded our LTL service in a seven-state region in the
Midwest. In March 2004, we expanded our business further to serve a three-state
region in the Northwest, and we announced our intention to expand our Northwest
region into Colorado and Utah in the second quarter of 2004. We cannot assure
you that our Midwest expansion or Northwest expansion will be successful.
Further, in connection with our growth strategy generally, we may need to
purchase additional equipment, add new terminals, hire additional personnel, and
increase our marketing efforts. Our growth strategy exposes us to a number of
risks, including the following:

            o     Geographic expansion will require start-up costs, may require
                  lower rates to generate initial business, and may disrupt
                  existing transportation alliances with carriers in those
                  regions.

            o     Rapid growth may strain our management, capital resources, and
                  computer and other systems.

            o     Hiring many new employees will increase training costs and may
                  result in temporary inefficiencies as the new employees learn
                  their jobs.

            o     If demand for our services weakens, we may be forced to reduce
                  our rates.

            o     We cannot assure you that we will overcome the risks
                  associated with the growth of our company. In addition, if our
                  operating results and borrowings under our credit facilities
                  are not sufficient to provide us with the resources needed to
                  implement our internal growth strategy, we may be forced to
                  reduce or delay expansions and/or capital expenditures which
                  could cause our results of operations to suffer.

      We may not be able to successfully execute our acquisition strategy, which
could cause our business and future growth prospects to suffer.

      One component of our growth strategy is to pursue acquisitions of regional
LTL carriers and other transportation companies that meet our acquisition
criteria. However, suitable acquisition candidates may not be available on terms
and conditions we find acceptable. In pursuing acquisitions, we compete with
other companies, many of which have greater financial and other resources than
we do. If we are unable to secure sufficient funding for potential acquisitions,
we may not be able to complete strategic acquisitions that we otherwise find
desirable. Further, if we succeed in consummating acquisitions (including our
recent acquisition of selected assets of EOFF as described in "Recent
Developments"), our business, financial condition, and results of operations may
be negatively affected because:

            o     Some of the acquired businesses may not achieve anticipated
                  revenues, earnings, or cash flows.

            o     We may assume liabilities that were not disclosed to us or
                  exceed our estimates.

            o     We may be unable to integrate acquired businesses successfully
                  and realize anticipated economic, operational, and other
                  benefits in a timely manner, which could result in substantial
                  costs and delays or other operational, technical, or financial
                  problems.


                                       34
<PAGE>

            o     Acquisitions could disrupt our ongoing business, distract our
                  management, and divert our resources.

            o     We may experience difficulties in operating in markets in
                  which we have had no or only limited direct experience.

            o     There is the potential for loss of customers, key employees,
                  and drivers of the acquired company.

            o     We may finance future acquisitions by issuing common stock for
                  some or all of the purchase price, which could dilute the
                  ownership interests of our stockholders.

            o     We may incur additional debt related to future acquisitions.

      Implementation of our dynamic resource planning process and our expansion
efforts involve costs, and we cannot assure you that these costs will yield
improved operating results in the future.

      Our implementation of dynamic resource planning throughout our operations,
our Midwest expansion, and our recent Northwest expansion all involve
significant additional expenses, such as the costs of added employees,
relocation costs for existing employees, increased building and equipment
rentals, and increased purchased transportation expense. We cannot assure you
that our restructuring and expansion efforts will be successful. Thus, we cannot
assure you that these costs will result in improvements to our profitability.

      We have significant ongoing capital requirements that could adversely
affect our profitability if we are unable to generate sufficient cash from
operations.

      The LTL industry is capital intensive. Historically, we have depended on
cash from operations, proceeds from our accounts receivable securitization,
borrowing from banks and finance companies, and leases to expand the size of our
terminal network and maintain and expand our fleet of revenue equipment. We are
projecting increased expenditures compared to recent historical levels for
tractors and trailers in 2004, primarily due to the need to upgrade older
equipment in the fleet and increased costs of new tractors following the October
2002 implementation of new emissions control regulations. Our budget for capital
expenditures, without giving effect to any offsets from sales or trades of
equipment, is approximately $38.0 million for 2004. If we are unable to generate
sufficient cash from operations and obtain financing on favorable terms in the
future, we may have to limit our growth, enter into less favorable financing
arrangements, or operate our revenue equipment for longer periods, any of which
could have a materially adverse effect on our profitability.

      If we are unable to retain our key employees, our business, financial
condition, and results of operations could be harmed.

      We are highly dependent upon the services of the following key employees:
Robert V. Fasso, our Chief Executive Officer and President; Jeffrey A. Hale, our
Senior Vice President and Chief Financial Officer; and Doak Slay, our Senior
Vice President-Sales and Marketing. The loss of any of their services could have
a materially adverse effect on our operations and future profitability. We must
continue to develop and retain a core group of managers if we are to realize our
goal of expanding our operations and continuing our growth. We cannot assure you
that we will be able to do so.


                                       35
<PAGE>

      Our ability to compete would be substantially impaired if our employees
were to unionize.

      None of our employees are represented under a collective bargaining
agreement by a labor union. In 2001, the International Brotherhood of Teamsters
filed a petition with the National Labor Relations Board seeking an election
among the employees at our Dallas, Texas facility. Our employees voted not to
form a union when that election was conducted in April 2002. In October 2002,
after we requested an election, the Teamsters withdrew from representing our
employees in Las Vegas, our only remaining facility where employees had at one
time requested union representation. While we believe our current relationship
with our employees is good, we cannot assure you that further unionization
efforts will not occur in the future. Our non-union status is a critical factor
in our ability to compete. If our employees vote to join a union and we sign a
collective bargaining agreement, the results probably would be adverse for
several reasons:

            o     Some shippers have indicated that they intend to limit their
                  use of unionized trucking companies because of the threat of
                  strikes and other work stoppages. A loss of customers would
                  impair our revenue base.

            o     Restrictive work rules could hamper our efforts to improve and
                  sustain operating efficiency, for example by inhibiting our
                  ability to implement dynamic resource planning within our
                  workplace.

            o     A strike or work stoppage would hurt our profitability and
                  could damage customer and other relationships.

            o     An election and bargaining process would distract management's
                  time and attention and impose significant expenses.

These results, and unionization of our workforce generally, could have a
materially adverse effect on our business, financial position, and results of
operations.

      Ongoing insurance and claims expenses could significantly reduce our
earnings.

      Our future insurance and claims expenses might exceed historical levels,
which could reduce our earnings. We currently carry $30.0 million of insurance
coverage, with a self-insured retention of $1.0 million per occurrence for
claims resulting from cargo theft or loss, personal injury, property damage, and
physical damage to our equipment. We also self-insure for workers' compensation
up to $1.0 million per occurrence, and for all health claims up to $300
thousand. Insurance carriers have raised premiums for most trucking companies,
and the premiums for the policy we purchased in October 2002 contained a
significant increase over the cost of our prior policy. Additional increases
could further increase our insurance and claims expense as current coverages
expire or cause us to raise our self-insured retention. If the number or
severity of claims for which we are self-insured increases, we suffer adverse
development in claims compared with our reserves, or any claim exceeds the
limits of our insurance coverage, our financial results could be materially and
adversely affected.

      Our large self-insured retentions require us to make estimates of ultimate
loss amounts and accrue such estimates as expenses. Changes in estimates may
materially and adversely affect our financial results. In 2003, we recorded an
aggregate of $2.8 million in increases to our reserves for accident, workers'
compensation, and other liabilities arising in prior periods. Such accrual
included $1.8 million for two accidents that occurred in 2002. This compared to
an accrual of $0.5 million in additional expense in 2002, relating to claims
that arose in prior periods. The large accrual in 2003 caused our financial
results to suffer. We may be required to accrue such additional expenses in the
future.

      In October 2002, we were forced to seek replacement excess insurance
coverage after our insurance agent failed to produce proof of insurance on
policies for which we had obtained binders as of July 15, 2002. We are not aware
of any claims during the period between July and October 2002 that are expected
to exceed the self-insured retention level we had at the time. For any claims
arising during such period that exceed that level, we intend to pursue our legal
rights against the insurance agent and its errors and omissions policy but we
cannot assure you that such coverage will be available, in which case our
financial results could be materially and adversely affected.


                                       36
<PAGE>

      Ongoing insurance requirements could constrain our borrowing capacity.

      Our ability to incur additional indebtedness could be adversely affected
by an increase in requirements that we post letters of credit in support of our
insurance policies. We have a $19.0 million credit agreement which expires on
October 31, 2004, substantially all of which is used to fund outstanding letters
of credit with insurance companies. As of December 31, 2003, no borrowings and
$14.4 million in letters of credit were outstanding, and available borrowings
were $4.6 million. The face amount of letters of credit we are required to post
is expected to increase in the future because of our larger self-insured
retention. Increases in letters of credit outstanding will reduce our borrowing
capacity under the credit agreement, thereby adversely affecting our liquidity.

      Difficulty in attracting qualified drivers could adversely affect our
profitability and ability to grow.

      Periodically, the trucking industry experiences substantial difficulty in
attracting and retaining qualified drivers, including independent contractors.
If we are unable to attract drivers and contract with independent contractors,
we could be required to adjust our compensation package, let trucks sit idle, or
operate with fewer independent contractors and face difficulty meeting shipper
demands, all of which could adversely affect our growth and profitability.

      Fluctuations in the price or availability of fuel and our ability to
collect fuel surcharges may affect our costs of operation.

      We require large amounts of diesel fuel to operate our tractors. Diesel
fuel prices fluctuate greatly due to economic, political, and other factors
beyond our control. For example, diesel fuel prices recently reached
historically high levels ($1.54 average price per gallon in the first two months
of 2004), with our cost averaging $1.45 per gallon for 2003, compared with $1.28
per gallon for 2002. To address fluctuations in fuel prices, we seek to impose
fuel surcharges on our accounts. These arrangements will not fully protect us
from fuel price increases. In addition, any shortage or interruption in the
supply of fuel would negatively affect us. Accordingly, fluctuations in fuel
prices, or a shortage of diesel fuel, could materially and adversely affect our
results of operations. We base our fuel surcharge rates on the weekly national
average price of diesel fuel. Because our operations are concentrated in the
southwestern United States, there is some risk that the national average will
not fully reflect regional fuel prices, particularly in California.
Historically, we have not engaged in hedging transactions to protect us from
fluctuations in fuel prices.

      We rely on transportation alliances with other LTL operators, and a
breakdown of these alliances could adversely affect our revenues.

      In our regional LTL operations, we primarily pick up and deliver freight
within our own operating regions. Freight originating outside our territory for
delivery inside our territory is brought to us by several other trucking
companies with which we have formed transportation alliances. In return, we
deliver to them freight that originates in our territory for delivery in their
territories. In 2003, transportation alliances generated approximately 11.1% of
our revenue. These alliances subject us to certain risks, including:

            o     Expanding our own operations into an alliance company's
                  territory may cause that company to stop using our alliance.

            o     We may not control the customer relationship on freight moving
                  into our territory.

            o     Our alliance companies can end their relationships with us at
                  any time and could choose to form an alliance with one of our
                  competitors in our territory.

            o     The reduction or termination of our alliances could negatively
                  impact our business and results of operations.


                                       37
<PAGE>

      Our Chairman, Jerry Moyes, his family, and trusts for the benefit of his
family own approximately 32.4% of our stock and have substantial control over
us.

      Jerry Moyes and trusts for the benefit of his family beneficially own
approximately 32.4% of our outstanding common stock.. In addition, Mr. Moyes'
brother and sister-in-law, Ronald and Krista Moyes, beneficially own
approximately 4.2% of our outstanding common stock. Mr. Jerry Moyes, his family,
and certain trusts for the benefit of his family are able to influence decisions
requiring stockholder approval, including election of our board of directors,
our management and policies, the adoption or extension of anti-takeover
provisions, mergers, and other business combinations. This concentration of
ownership may allow Mr. Jerry Moyes to prevent or delay a change of control of
our company or an amendment to our certificate of incorporation or our bylaws.
In matters requiring stockholder approval, Mr. Jerry Moyes' interests may differ
from the interests of other holders of our common stock and he may take actions
affecting us with which you may disagree.

      We engage in transactions with other businesses controlled by our officers
and directors, and the interests of our officers and directors could conflict
with the interests of our other stockholders.

      We engage in multiple transactions with related parties. These
transactions include the lease of 27 active terminals, nine dormant terminals,
and a salvage facility from Southwest Premier Properties, L.L.C., which is owned
by some of our existing stockholders, including Jerry Moyes, our Chairman of the
Board, Robert V. Fasso, our Chief Executive Officer and Patrick J. Curry, our
former Executive Vice President. These related party transactions also include
the lease of two active terminals and one dormant terminal from Jerry Moyes, the
lease of two terminals from Swift Transportation, the lease of independent
contractor drivers and their tractors from Interstate Equipment Leasing, Inc.,
and freight transportation transactions with Swift Transportation and Central
Refrigerated, companies for which Jerry Moyes serves as Chairman. As a result,
our directors and executive officers may have interests that conflict with
yours. Although we have adopted a policy requiring that all future transactions
with affiliated parties be approved by our audit committee or another committee
of disinterested directors, we cannot assure you that the policy will be
successful in eliminating conflicts of interests.

      The loss of one or more of our five largest customers could significantly
and adversely affect our cash flow, market share, and profits.

      In 2003, our largest customer, Dell Computer, accounted for approximately
7.1% of our total revenues, and our five largest customers accounted for
approximately 17.5% of our total revenues. Our largest customers are under no
firm obligation to ship with us and the contracts are generally terminable upon
30 or 60 days' notice. In addition, we have significant exposure to the retail
sector and to the economies in Texas and California. If we lose one or more of
our large customers, or if there is a decline in the amount of services those
customers purchase from us, our cash flow, market share, and profits could be
adversely affected.

      Our results of operations may be affected by seasonal factors and harsh
weather conditions.

      Our operations are subject to seasonal trends common in the trucking
industry, particularly as customers tend to reduce shipments after the winter
holiday. Harsh weather can also adversely affect our performance by reducing
demand, impeding our ability to transport freight, and increasing operating
expenses.


                                       38
<PAGE>

      Our industry is subject to numerous laws and regulations, exposing us to
potential claims and compliance costs that could adversely affect our business.

      The U.S. Department of Transportation ("DOT") and various state agencies
exercise broad powers over our business, generally governing such activities as
authorization to engage in motor carrier operations, operations, safety, and
financial reporting. We also may become subject to new or more restrictive
regulations relating to fuel emissions, ergonomics, or limits on vehicle weight
and size. For example, new emissions control regulations became effective in
October 2002. The new regulations decrease the amount of emissions that can be
released by truck engines and apply to tractors produced after the effective
date of the regulations. Compliance with such regulations will increase the cost
of our tractors and could substantially impair equipment productivity, lower
fuel mileage, and increase our operating expenses. Additional changes in the
laws and regulations governing our industry could affect the economics of the
industry by requiring changes in operating practices or by influencing the
demand for, and the costs of providing, services to shippers.

      From time to time, various legislative proposals are introduced, including
proposals to increase federal, state, or local taxes, including taxes on motor
fuels. We cannot predict whether, or in what form, any increase in such taxes
applicable to us will be enacted. Increased taxes could adversely affect our
profitability.

      In the aftermath of the September 11, 2001, terrorist attacks on the
United States, federal, state, and municipal authorities have implemented and
are continuing to implement various security measures, including checkpoints and
travel restrictions on large trucks. If new security measures disrupt or impede
the timing of our deliveries, we may fail to meet the needs of our customers or
may incur increased expenses to do so. These security measures could have a
materially adverse effect on our operating results.

      The DOT adopted revised hours-of-service regulations that could reduce the
amount of allowable driving time. The increased costs of compliance with, or
liability for violation of, these regulations could have a materially adverse
effect on our business.

      On April 28, 2003, the DOT adopted revised hours-of-service regulations.
Although the regulations have been adopted, carriers are not required to comply
with them until January 4, 2004. This change could reduce the amount of time
that drivers are allowed to spend driving if those drivers are called upon to
assist shippers in non-driving activities, such as loading, unloading, and
waiting. We believe the new rules will have greater impact on truckload carriers
and long-haul national LTL carriers than on regional LTL carriers such as us.
However, we have not fully analyzed all possible consequences of the new rules,
and some consequences may not be apparent until we operate under the new rules
for some time. We do not expect the new rules to materially affect our pick-up
and delivery operations, but some effect is possible. Our linehaul operations
between terminals could be affected if either our own drivers or the drivers of
third parties with whom we contract are unable to maintain the schedules we
desire. In such event, we could be forced to alter our processes or our pick-up
and delivery schedules for customers, either of which could impose additional
costs or change our service standards and cause customers to seek alternative
service. If these changes increase our costs and we cannot pass the additional
costs through to shippers, or if we lose business because of changes in service
levels, our operating results could be materially and adversely affected. Our
company drivers and independent contractors also must comply with the safety and
fitness regulations promulgated by the DOT, including those relating to drug and
alcohol testing. Additional changes in the laws and regulations governing our
industry could affect the economics of the industry by requiring changes in
operating practices or by influencing the demand for, and the costs of
providing, services to shippers.


                                       39
<PAGE>

      Our operations are subject to various environmental laws and regulations,
the violation of which could result in substantial fines or penalties.

We are subject to various environmental laws and regulations dealing with the
hauling and handling of hazardous materials, fuel storage tanks, air emissions
from our vehicles and facilities, and discharge and retention of stormwater. We
operate in industrial areas, where truck terminals and other industrial
activities are located, and where groundwater or other forms of environmental
contamination have occurred. Our operations involve the risks of fuel spillage
or seepage, environmental damage, and hazardous waste disposal, among others. We
also maintain bulk fuel storage tanks and fueling islands at nineteen of our
facilities. A small percentage of our freight consists of low-grade hazardous
substances, such as paint, which subjects us to a wide array of regulations. If
we are involved in a spill or other accident involving hazardous substances, if
there are releases of hazardous substances we transport, or if we are found to
be in violation of applicable laws or regulations, we could be subject to
liabilities that could have a materially adverse effect on our business and
operating results. If we should fail to comply with applicable environmental
regulations, we could be subject to substantial fines or penalties and to civil
and criminal liability.

Item 7a.     Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to a variety of market risks, most importantly the effects
of the price and availability of diesel fuel and changes in interest rates. To
address the risk of high fuel prices, we maintain a fuel surcharge program. Fuel
surcharge programs are well established in the industry and are broadly accepted
by our customers. We believe our fuel surcharge program is effective at
mitigating the risk of high fuel prices. Accordingly, we have not engaged in any
fuel price hedging activities. Because fuel surcharges are based on the weekly
national average price of diesel fuel and our operations are concentrated in the
Southwest, there is some risk that the national average will not fully reflect
regional fuel prices, particularly in California. We are highly dependent on
adequate supplies of diesel fuel. If our supply were interrupted, for example as
a result of war or hostile action against the United States or in fuel producing
regions, we would be exposed to significant risks.

     Our market risk is also affected by changes in interest rates.
Historically, we have used a combination of fixed rate and variable rate
obligations to manage our interest rate exposure. Fixed rate obligations expose
us to the risk that interest rates might fall. Variable rate obligations expose
us to the risk that interest rates might rise. We did not have any interest rate
swaps at December 31, 2003, although we may enter into such swaps in the future
if we deem appropriate.

     Our variable rate obligations consist of our revolving line of credit and
our accounts receivable securitization facility. Our revolving line of credit,
provided there has been no default, carries a variable interest rate based on
either the prime rate or LIBOR. Our securitization facility carries a variable
interest rate based on the commercial paper rate. Assuming borrowings equal to
the $33.3 million available on the securitization facility at December 31, 2003,
a one percentage point increase in commercial paper rates would increase our
annual interest expense by $333,000.

Item 8. Financial Statements and Supplementary Data

      Our audited consolidated balance sheets, statements of operations, cash
flows, stockholders' equity and notes related thereto, are contained at Pages
F-1 to F-24 of this report.

Item 9. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure

      None.


                                       40
<PAGE>

Item 9a. Controls and Procedures

      As required by Rule 13a-15 under the Exchange Act, the Company has carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including our Chief Executive
Officer and our Chief Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report. During the Company's fourth fiscal quarter, there were no changes
in the Company's internal control over financial reporting that have materially
affected, or that are reasonably likely to materially affect, the Company's
internal control over financial reporting.

      Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer as appropriate, to allow timely decisions regarding
disclosures.

      The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors or intentional
fraud. An internal control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of such
internal controls are met. Further, the design of an internal control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all internal control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.

Part III.

Item 10. Directors and Executive Officers of the Registrant

     We incorporate by reference the information contained under the headings
"Proposal One - Election of Directors," "Corporate Governance - Board of
Directors," "Corporate Governance - Committees of the Board of Directors - Audit
Committee," "Corporate Governance - Executive Officers of the Company,"
"Corporate Governance - Code of Conduct and Ethics," and "Corporate Governance
-Section 16(a) Beneficial Ownership Reporting Compliance" from our definitive
Proxy Statement to be delivered to our stockholders in connection with the 2004
Annual Meeting of Stockholders to be held May 19, 2004; provided, however, that
the Report of the Audit Committee in such Proxy Statement is not incorporated by
reference.

Item 11. Executive Compensation

      We incorporate by reference the information contained under the headings
"Executive Compensation" and "Corporate Governance - Director Compensation" from
our definitive Proxy Statement to be delivered to our stockholders in connection
with the 2004 Annual Meeting of Stockholders to be held May 19, 2004; provided,
however, that the Compensation Committee Report on Executive Compensation that
appears under the heading "Executive Compensation" in such Proxy Statement is
not incorporated by reference.


                                       41
<PAGE>

Item 12.    Security Ownership of Certain Beneficial Owners and Management and
            Related Stockholder Matters

      The following table provides certain information, as of December 31, 2003,
with respect our compensation plans and other arrangements under which shares of
our Common Stock are authorized for issuance.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>

                                                                                   Number of securities
                                                                                  remaining eligible for
                                  Number of securities                            future issuance under
                                   to be issued upon        Weighted average      equity compensation
                                      exercise of          exercise price of        plans (excluding
                                  outstanding options,    outstanding options     securities reflected
                                  warrants and rights     warrants and rights        in column (a))
       Plan category                      (a)                      (b)                     (c)
-------------------------         -------------------     -------------------     ----------------------
<S>                                    <C>                        <C>                      <C>
Equity compensation plans
  approved by security holders         2,050,163                  $2.26                    936,644

Equity compensation plans not                 --                     --                         --
  approved by security holders
                                       ---------                  -----                    -------
Total                                  2,050,163                  $2.26                    936,644
                                       =========                  =====                    =======
</TABLE>

      We incorporate by reference the information contained under the heading
"Security Ownership of Certain Beneficial Owners and Management" from our
definitive Proxy Statement to be delivered to our stockholders in connection
with the 2004 Annual Meeting of Stockholders to be held May 19, 2004.

Item 13. Certain Relationships and Related Transactions

      We incorporate by reference the information contained under the headings
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions" from our
definitive Proxy Statement to be delivered to our stockholders in connection
with the 2004 Annual Meeting of Stockholders to be held May 19, 2004.

Item 14. Principal Accountant Fees and Services

      We incorporate by reference the information contained under the heading "
Principal Accountant Fees and Services" from our definitive Proxy Statement to
be delivered to our stockholders in connection with the 2004 Annual Meeting of
Stockholders to be held May 19, 2004.


                                       42
<PAGE>

Part IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as part of this report on Form 10-K at
pages F-1 through F-22, below.

      1.    Consolidated Financial Statements:

            Central Freight Lines, Inc. and Subsidiaries
            Independent Auditors' Report
            Consolidated Balance Sheets as of December 31, 2003 and 2002
            Consolidated Statements of Operations for the years
            ended December 31, 2003, 2002, and 2001 Consolidated
            Statements of Stockholders' Equity for the years ended
            December 31, 2003, 2002, and 2001 Consolidated
            Statements of Cash Flows for the years ended December
            31, 2003, 2002, and 2001 Notes to Consolidated Financial
            Statements

      2.    Consolidated Financial Statement Schedules required to be filed by
            Item 8 and Paragraph (d) of Item 15:

      All schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or the notes thereto.

      3. Exhibits:

      The Exhibits required by Item 601 of Regulation S-K are listed at
paragraph (c), below, and at the Exhibit Index appearing at the end of this
report.

(b) During the fourth quarter ended December 31, 2003, the Company filed with,
or furnished to, the Securities and Exchange Commission the following Current
Report on Form 8-K: None.

(c) Exhibits:

      The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit listed below:

Exhibit
Number   Descriptions
------   ------------

2.1      Amended and Restated Asset Purchase Agreement dated April 18, 2002, by
         and among Central Refrigerated Service, Inc., a Nebraska corporation,
         and Simon Transportation Services Inc., a Nevada corporation, and its
         subsidiaries, Dick Simon Trucking, Inc., a Utah corporation, and Simon
         Terminal, LLC, an Arizona limited liability company. (Incorporated by
         reference to Exhibit 2.1 to the Company's Registration Statement on
         Form S-1 No. 333-109068.)


                                       43
<PAGE>

2.2(a)   Separation Agreement dated November 30, 2002, by and among Central
         Freight Lines, Inc., a Texas corporation, Central Refrigerated Service,
         Inc., a Nebraska corporation, the Jerry and Vickie Moyes Family Trust,
         Interstate Equipment Leasing, Inc., an Arizona corporation, and Jerry
         Moyes individually. (Incorporated by reference to Exhibit 2.2(a) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

2.2(b)   Amendment Number One to Separation Agreement dated December 23, 2002,
         by and among Central Freight Lines, Inc., a Texas corporation, Central
         Refrigerated Service, Inc., a Nebraska corporation, the Jerry and
         Vickie Moyes Family Trust, Interstate Equipment Leasing, Inc., an
         Arizona corporation, and Jerry Moyes individually. (Incorporated by
         reference to Exhibit 2.2(b) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

2.2(c)   Amendment Number Two to Separation Agreement effective as of October
         28, 2003, by and among Central Freight Lines, Inc., a Texas
         corporation, Central Refrigerated Service, Inc., a Nebraska
         corporation, the Jerry and Vickie Moyes Family Trust, Interstate
         Equipment Leasing, Inc. an Arizona corporation, and Jerry Moyes
         individually. (Incorporated by reference to Exhibit 2.2(c) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

2.3      Agreement and Plan of Merger, dated as of June 9, 1999, by and among
         Jaguar Fast Freight, Inc., an Arizona corporation, and Central Freight
         Lines, Inc., a Texas corporation and the stockholders of Jaguar.
         (Incorporated by reference to Exhibit 2.3 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

3.1      Amended and Restated Articles of Incorporation of Central Freight
         Lines, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 3.1(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

3.2      Bylaws of Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 3.2 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

4.1      Amended and Restated Articles of Incorporation of Central Freight
         Lines, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 3.1 to this Report on Form 10-K.)

4.2      Bylaws of Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 3.2 to this Report on Form 10-K.)

4.3      Stockholders' Agreement, dated as of June 11, 1999, by and among Jerry
         Moyes, Richard Slater, Mark Fabritz, Kent Chapman, and Larry Rockwell.
         (Incorporated by reference to Exhibit 4.4 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

10.1(a)  Central Freight Lines, Inc. 401(k) Savings Plan. (Incorporated by
         reference to Exhibit 10.1(a) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.1(b)  First Amendment to Central Freight Lines, Inc. 401(k) Savings Plan.
         (Incorporated by reference to Exhibit 10.1(b) to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.2(a)  Central Freight Lines, Inc. Incentive Stock Plan. (Incorporated by
         reference to Exhibit 10.2(a) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.2(b)  Form of Stock Option Agreement. (Incorporated by reference to Exhibit
         10.2(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.3     Form of Outside Director Stock Option Agreement. (Incorporated by
         reference to Exhibit 10.3 to the Company's Registration Statement on
         Form S-1 No. 333-109068.)


                                       44
<PAGE>

10.4(a)  Revolving Credit Loan Agreement dated April 30, 2002, by and between
         Central Freight Lines, Inc., a Texas corporation, and Suntrust Bank, a
         Georgia state banking corporation. (Incorporated by reference to
         Exhibit 10.4(a) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.4(b)  First Amendment to Revolving Credit Loan Agreement and First Amendment
         to Revolving Credit Note dated June 26, 2002, by and between Central
         Freight Lines, Inc., a Texas corporation, and Suntrust Bank, a Georgia
         state banking corporation. (Incorporated by reference to Exhibit
         10.4(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.4(c)  Second Amendment to Revolving Credit Loan Agreement and Second
         Amendment to Revolving Credit Note dated February 5, 2003, by and
         between Central Freight Lines, Inc., a Texas corporation, and Suntrust
         Bank, a Georgia state banking corporation. (Incorporated by reference
         to Exhibit 10.4(c) to the Company's Registration Statement on Form S-1
         No. 333-109068.)

10.4(d)  Third Amendment to Revolving Credit Loan Agreement dated March 21,
         2003, by and between Central Freight Lines, Inc., a Texas corporation,
         and Suntrust Bank, a Georgia state banking corporation. (Incorporated
         by reference to Exhibit 10.4(d) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.4(e)  Fourth Amendment to Revolving Credit Loan Agreement dated May 19, 2003,
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(e) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.4(f)  Fifth Amendment to Revolving Credit Loan Agreement dated July 5, 2003,
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(f) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.4(g)  Sixth Amendment to Revolving Credit Loan Agreement dated September 22,
         2003 by and between Central Freight Lines, Inc., a Texas corporation,
         and Suntrust Bank, a Georgia state banking corporation. (Incorporated
         by reference to Exhibit 10.4(g) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.4(h)  Seventh Amendment to Revolving Credit Loan Agreement dated September
         22, 2003 by and between Central Freight Lines, Inc., a Texas
         corporation, and Suntrust Bank, a Georgia state banking corporation.
         (Incorporated by reference to Exhibit 10.4(h) to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.4(i)  Third Amendment to Revolving Credit Note dated May 19, 2003 by and
         between Central Freight Lines, Inc., a Texas corporation, and Suntrust
         Bank, a Georgia state banking corporation. (Incorporated by reference
         to Exhibit 10.4(i) to the Company's Registration Statement on Form S-1
         No. 333-109068.)

10.4(j)  Third Amendment (sic) to Revolving Credit Note dated September 22, 2003
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(j) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.5     Guaranty dated April 30, 2002, by Central Freight Lines, Inc., a Nevada
         corporation, in favor of Suntrust Bank, a Georgia state banking
         corporation. (Incorporated by reference to Exhibit 10.5 to the
         Company's Registration Statement on Form S-1 No. 333-109068.)


                                       45
<PAGE>

10.6     Security Agreement dated April 30, 2002, by and among Central Freight
         Lines, Inc., a Texas corporation, Jerry C. Moyes, and Suntrust Bank, a
         Georgia state banking corporation. (Incorporated by reference to
         Exhibit 10.6 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.7     Note dated April 30, 2002, by Jerry C. Moyes in favor of Central
         Freight Lines, Inc., a Texas corporation. (Incorporated by reference to
         Exhibit 10.7 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.8(a)  Loan Agreement dated April 30, 2002, by and among Central Receivables,
         Inc., a Nevada corporation, Three Pillars Funding Corporation, a
         Delaware corporation, and Suntrust Capital Markets, Inc., a Tennessee
         corporation, as agent. (Incorporated by reference to Exhibit 10.8(a) to
         the Company's Registration Statement on Form S-1 No. 333-109068.)

10.8(b)  First Amendment to Loan Agreement dated April 29, 2003, by and among
         Central Receivables, Inc., a Nevada corporation, Three Pillars Funding
         Corporation, a Delaware corporation, and Suntrust Capital Markets,
         Inc., a Tennessee corporation, as agent. (Incorporated by reference to
         Exhibit 10.8(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.9     Receivables Purchase Agreement dated April 30, 2002, by and between
         Central Freight Lines, Inc., a Texas corporation, and Central
         Receivables, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 10.9 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.10    Second Amended and Restated Master Lease Agreement-- Parcel Group A
         dated February 20, 2003 by and between Southwest Premier Properties,
         L.L.C., a Texas limited liability company, and Central Freight Lines,
         Inc., a Texas corporation. (Incorporated by reference to Exhibit 10.10
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.11    Second Amended and Restated Master Lease Agreement-- Parcel Group B
         dated February 20, 2003 by and between Southwest Premier Properties,
         L.L.C., a Texas limited liability company, and Central Freight Lines,
         Inc., a Texas corporation. (Incorporated by reference to Exhibit 10.11
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.12    Amended and Restated Lease dated February 20, 2003 by and between JVM
         Associates and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.12 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.13    Amended and Restated Lease dated February 20, 2003 by and between Jerry
         and Vickie Moyes and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.13 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.14    Amended and Restated Lease dated February 20, 2003 by and between Jerry
         and Vickie Moyes and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.14 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.15    Employment Agreement dated January 7, 2002, by and between Central
         Freight Lines, Inc., a Texas corporation, and Robert V. Fasso.
         (Incorporated by reference to Exhibit 10.15 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.16    Employment Offer Letter to Doak D. Slay, dated December 23, 2002, by
         Central Freight Lines, Inc., as countersigned by Doak D. Slay.
         (Incorporated by reference to Exhibit 10.16 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)


                                       46
<PAGE>

10.17    Equity Advancement Letter to Doak D. Slay, dated July 9, 2003, by
         Central Freight Lines, Inc., as countersigned by Doak D. Slay and
         Denise D. Slay. (Incorporated by reference to Exhibit 10.17 to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

10.18    Employment Offer Letter to J. Mark Conard, dated August 16, 2003, by
         Central Freight Lines, Inc. (Incorporated by reference to Exhibit 10.18
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.19    Employment Offer Letter to Jeffrey A. Hale, dated June 7, 2002, by
         Central Freight Lines, Inc. (Incorporated by reference to Exhibit 10.19
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.20    Employment Separation Agreement and Release, dated as of February 21,
         2002, to be effective as of March 9, 2002, by and between Central
         Freight Lines, Inc. and Joseph Gentry. (Incorporated by reference to
         Exhibit 10.20 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.21    Consulting Agreement, dated February 20, 2002, by and between Joseph B.
         Gentry and Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 10.21 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.22    Contract for the Sale of Land dated September 19, 2003, between Doak D.
         Slay and Denise D. Slay and Central Freight Lines, Inc. (Incorporated
         by reference to Exhibit 10.22 to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.23(a) Indemnification Agreement, effective as of December 31, 2002, by and
         between Central Freight Lines, Inc., a Texas corporation, and Central
         Refrigerated Service, Inc., a Nebraska corporation. (Incorporated by
         reference to Exhibit 10.23(a) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.23(b) Amendment Number One to Indemnification Agreement effective as of
         December 31, 2002, by and between Central Freight Lines, Inc., a Texas
         corporation, and Central Refrigerated Service, Inc., a Nebraska
         corporation. (Incorporated by reference to Exhibit 10.23(b) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

21.1*    Subsidiaries of Central Freight Lines, Inc., a Nevada corporation.

23.1*    Consent of KPMG LLP.

31.1*    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Robert V.
         Fasso, the Company's Chief Executive Officer.

31.2*    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Jeffrey
         A. Hale, the Company's Chief Financial Officer.

32.1*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002, by Robert V. Fasso,
         the Company's Chief Executive Officer.

32.2*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002, by Jeffrey A. Hale,
         the Company's Chief Financial Officer.

--------------
 *  Filed herewith.


                                       47
<PAGE>

                                   SIGNATURES

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

Date:  March 29, 2004                       By: /s/ Robert V. Fasso
                                                ---------------------------
                                            Name:   Robert V. Fasso
                                            Title:  Chief Executive Officer
                                                    and President

              Signature and Title                                      Date
              -------------------                                      ----

/s/ Robert V. Fasso                                              March 29, 2004
-------------------------------------------------
Robert V. Fasso
President, Chief Executive Officer; and Director
(principal executive officer)


/s/ Jeffrey A. Hale                                              March 29, 2004
-------------------------------------------------
Jeffrey A. Hale
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)


/s/ Jerry Moyes                                                  March 29, 2004
-------------------------------------------------
Jerry Moyes
Chairman of the Board of Directors


/s/ Duane W. Acklie                                              March 29, 2004
-------------------------------------------------
Duane W. Acklie
Director


/s/ John Breslow                                                 March 29, 2004
-------------------------------------------------
John Breslow
Director


/s/ Porter J. Hall                                               March 29, 2004
-------------------------------------------------
Porter J. Hall
Director


/s/ Gordan W. Winburne                                           March 29, 2004
-------------------------------------------------
Gordan W. Winburne
Director


                                       48
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Central Freight Lines, Inc.:

      We have audited the accompanying consolidated balance sheets of Central
Freight Lines, Inc. and subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
Freight Lines, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.

      As discussed in note 2 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets in accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, in 2002.

KPMG LLP

Dallas, Texas
February 4, 2004, except as to Note 19, which is as of March 5, 2004


                                      F-1
<PAGE>

                  CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002
                    (Dollars in thousands except share data)

                                    Assets                    2003       2002
                                                           ---------   ---------
Cash and cash equivalents                                  $ 41,493    $  7,350
Accounts receivable less allowance for doubtful
  accounts and revenue                                       51,864      48,083
   Adjustments of $5,353 in 2003 and $5,144 in 2002
Accounts receivable-related parties                              --         651
Other current assets                                          8,298       6,712
Deferred income taxes                                         4,588         719
                                                           --------    --------
          Total current assets                              106,243      63,515
Property and equipment, net                                 114,693     126,751
Goodwill                                                      4,324       4,324
Other assets                                                  2,113       1,811
                                                           --------    --------
          Total assets                                     $227,373    $196,401
                                                           ========    ========

         Liabilities and stockholders' equity

Current maturities of long term-debt                       $  6,375    $ 12,822
Trade accounts payable                                       18,136      18,617
Payables for related party transportation services            1,020       1,710
Accrued expenses                                             27,207      26,180
                                                           --------    --------
                     Total current liabilities               52,738      59,329
Long-term debt, excluding current maturities                 19,988      66,689
Related party financing                                      23,154      23,543
Other liabilities                                            23,055      16,466
                                                           --------    --------
          Total liabilities                                 118,935     166,027
                                                           --------    --------
Commitments and contingencies (Notes 12 and 14)
Stockholders' equity:
  Preferred stock; $0.001 par value per share;
  10,000,000 shares authorized; none issued or outstanding       --          --
  Common Stock; $0.001 par value per share; 100,000,000
    shares authorized, 17,632,545 and 10,868,218 shares
    issued and outstanding as of
    December 31, 2003 and 2002                                   17          11
Additional paid-in capital                                  108,143      31,297
Unearned compensation                                          (822)     (1,059)
Notes receivable stockholder                                     --      (7,988)
Retained earnings                                             1,100       8,113
                                                           --------    --------
          Total stockholders' equity                        108,438      30,374
                                                           --------    --------
          Total liabilities and stockholders' equity       $227,373    $196,401
                                                           ========    ========

      See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>

                  CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended December 31, 2003, 2002 and 2001
                  (Dollars in thousands except per share data)

<TABLE>
<CAPTION>

                                                                        2003         2002        2001
                                                                     ---------    ---------   ---------
<S>                                                                  <C>          <C>         <C>
Operating revenues                                                   $ 389,696    $ 371,445   $ 395,702
                                                                     ---------    ---------   ---------
Operating expenses:
  Salaries, wages and benefits                                         204,570      208,754     232,714
  Purchased transportation                                              38,113       28,806      31,739
  Purchased transportation - related parties                            18,582       21,106      17,708
  Operating and general supplies and expenses                           67,448       60,370      68,448
  Operating and general supplies and expenses - related parties             12          286          53
  Insurance and claims                                                  15,576       14,024      14,209
  Building and equipment rentals                                         3,181        3,241       3,493
  Building and equipment rentals - related parties                       1,903        1,779       1,600
  Depreciation and amortization                                         16,605       17,974      21,241
                                                                     ---------    ---------   ---------
      Total operating expenses                                         365,990      356,340     391,205
                                                                     ---------    ---------   ---------
  Income from operations                                                23,706       15,105       4,497

Other expense:
  Interest expense                                                      (3,547)      (4,916)     (5,620)
  Interest expense - related parties                                    (6,130)      (6,359)     (5,888)
                                                                     ---------    ---------   ---------
      Income (loss) from continuing operations before income taxes      14,029        3,830      (7,011)

Income taxes:
  Income tax (expense) benefit                                          (1,759)       1,412         119
  Income tax expense - conversion to C corporation                      (9,834)          --          --
                                                                     ---------    ---------   ---------
      Income (loss) from continuing operations                           2,436        5,242      (6,892)
Loss from discontinued operations                                       (8,341)          --          --
                                                                     ---------    ---------   ---------
      Net (loss) income                                               $ (5,905)   $   5,242   $  (6,892)
                                                                     =========    =========   =========
Pro forma C Corporation data (unaudited):
  Historical income (loss) from continuing operations before
   income taxes                                                      $  14,029    $   3,830   $  (7,011)
  Pro forma income tax (expense) benefit                                (5,666)      (2,781)      1,108
                                                                     ---------    ---------   ---------
  Pro forma income (loss) from continuing operations                     8,363        1,049      (5,903)

  Loss from discontinued operations                                     (8,341)          --          --
                                                                     ---------    ---------   ---------
  Pro forma net income (loss)                                        $      22    $   1,049   $  (5,903)
                                                                     =========    =========   =========

  Pro forma income (loss) per share:

  Basic:
    Income (loss) from continuing operations                             $0.75        $0.10      $(0.54)
    Loss from discontinued operations                                    (0.75)        0.00        0.00
    Net income (loss)                                                     0.00         0.10       (0.54)
  Diluted:
    Income (loss) from continuing operations                             $0.69        $0.09      $(0.54)
    Loss from discontinued operations                                    (0.69)        0.00        0.00
    Net income (loss)                                                     0.00         0.09       (0.54)
  Weighted average outstanding shares (in thousands):
    Basic                                                               11,163       10,868      10,916
    Diluted                                                             12,103       11,548      10,916
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                  CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity
                 Years ended December 31, 2003, 2002, and 2001
                 (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                      Common stock
                                             -----------------------------                                        Notes receivable
                                             Shares, net of                        Additional                     from stockholder
                                               treasury                            paid-in          Unearned           and
                                                shares            Amount           capital        Compensation       affiliate
                                              ----------       -----------       -----------      ------------    ----------------
<S>                                           <C>              <C>               <C>               <C>              <C>
Balances at December 31, 2000                 10,945,794       $        12       $    25,594       $         --     $        --
Purchase of treasury stock                       (77,576)               --                --                --               --
Advances to stockholders and affiliate                --                --                --                --           (6,688)
Non-cash contribution from stockholder                --                --             3,300                --               --
Net loss                                              --                --                --                --               --
Distributions paid                                    --                --                --                --               --
                                              ----------       -----------       -----------       -----------      -----------
Balances at December 31, 2001                 10,868,218       $        12            28,894                --           (6,688)
Issuance of common shares                         11,148                --                --                --               --
Purchase of treasury stock                       (11,148)               --                --                --               --
Retirement of treasury stock                          --                (1)           (2,086)               --               --
Advances to stockholder                               --                --                --                --           (1,300)
Non-cash contribution from stockholder                --                --             3,300                --               --
Net earnings                                          --                --                --                --               --
Stock option compensation                             --                --             1,189            (1,059)              --
                                              ----------       -----------       -----------       -----------      -----------
Balances at December 31, 2002                 10,868,218       $        11            31,297            (1,059)          (7,988)
Exercise of stock options, including
  non-cash tax benefit of $1,340               1,064,327                 1             3,088                --               --
Non-cash contribution from stockholder                --                --               500                --               --
Proceeds from initial public offering          5,700,000                 5            77,629                --               --
Distributions paid                                    --                --                --                --               --
Payment from stockholder                              --                --               660                --            7,988
Net loss                                              --                --                --                --               --
Transfer of undistributed S corporation
  loss                                                --                --            (5,031)               --               --
Stock option compensation                             --                --                --               237               --
                                              ----------       -----------       -----------       -----------      -----------
Balances at December 31, 2003                 17,632,545       $        17       $   108,143       $      (822)     $        --
                                              ==========       ===========       ===========       ===========      ===========
</TABLE>


<TABLE>
<CAPTION>


                                                                                    Total
                                              Retained          Treasury         stockholders'
                                              earnings           stock             equity
                                             -----------       -----------       -----------
<S>                                          <C>                    <C>               <C>
Balances at December 31, 2000                $    11,254            (1,283)           35,577
Purchase of treasury stock                            --              (504)             (504)
Advances to stockholders and affiliate                --                --            (6,688)
Non-cash contribution from stockholder                --                --             3,300
Net loss                                          (6,892)               --            (6,892)
Distributions paid                                (1,491)               --            (1,491)
                                             -----------       -----------       -----------
Balances at December 31, 2001                      2,871            (1,787)           23,302
Issuance of common shares                             --                --                --
Purchase of treasury stock                            --              (300)             (300)
Retirement of treasury stock                          --             2,087                --
Advances to stockholder                               --                --            (1,300)
Non-cash contribution from stockholder                --                --             3,300
Net earnings                                       5,242                --             5,242
Stock option compensation                             --                --               130
                                             -----------       -----------       -----------
Balances at December 31, 2002                      8,113                --            30,374
Exercise of stock options, including
  non-cash tax benefit of $1,340                      --                --             3,089
Non-cash contribution from stockholder                --                --               500
Proceeds from initial public offering                 --                --            77,634
Distributions paid                                (6,139)               --            (6,139)
Payment from stockholder                              --                --             8,648
Net loss                                          (5,905)               --            (5,905)
Transfer of undistributed S corporation
  loss                                             5,031                --                --
Stock option compensation                             --                --               237
                                             -----------       -----------       -----------
Balances at December 31, 2003                $     1,100       $        --       $   108,438
                                             ===========       ===========       ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                  CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2003, 2002, and 2001
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                  2003           2002            2001
                                                                              ---------       ---------       ---------
<S>                                                                           <C>                 <C>            <C>
Cash flows from operating activities:
  Net (loss) income                                                           $  (5,905)          5,242          (6,892)
  Adjustments to reconcile net (loss) income to
     net cash provided by operating activities:
        Bad debt expense                                                            876              82           3,025
        Non-cash interest expense - related parties                                 500           3,300           3,300
        Equity in loss (income) of affiliate                                         (4)             (4)            140
        Loss on sale of subsidiary                                                8,341           1,256              --
        Depreciation and amortization                                            16,605          22,819          21,241
        Deferred income taxes                                                     1,707             712            (188)
        Establishment of deferred taxes upon conversion to C corporation
                                                                                  9,834              --              --
        Decrease in unearned compensation                                           237             130              --
        Gain on curtailment of health plan                                       (7,799)             --              --
        Change in operating assets and liabilities, net
           of purchase accounting effects:
              Accounts receivable                                                (4,657)         (4,434)         (3,324)
              Accounts receivable - related parties                                 651             449            (314)
              Other assets                                                       (1,261)         (1,078)            496
              Trade accounts payable                                               (481)          8,332           4,130
              Trade accounts payable - related parties                             (690)           (670)            968
              Claims and insurance accruals                                       2,010           1,601           5,434
             Accrued expenses and other liabilities                                (665)         (2,579)          1,086
                                                                              ---------       ---------       ---------
                    Net cash provided by operating activities                    19,299          35,158          29,102
                                                                              ---------       ---------       ---------
Cash flows from investing activities:
  Additions to property and equipment                                            (7,024)         (6,008)        (10,186)
  Proceeds from sale of property and equipment                                    1,466           1,980             847
  Cash paid for disposition of subsidiary                                        (8,341)             --              --
   Cash paid for acquisition of businesses                                           --          (2,606)           (422)
  Cash of subsidiary sold                                                            --          (1,197)             --
  Advances to stockholders and affiliates                                            --          (1,300)        (21,348)
  Repayment of advances to affiliate                                              8,648             367          14,567
                                                                              ---------       ---------       ---------
                    Net cash used in investing activities                        (5,251)         (8,764)        (16,542)
                                                                              ---------       ---------       ---------
Cash flows from financing activities:
  Proceeds from long-term debt                                                   47,198         149,508         458,607
  Repayments of long-term debt                                                 (100,347)       (168,072)       (469,200)
  Exercise of stock options                                                       1,749              --              --
  Proceeds from issuance of common stock                                         77,634            (367)             --
  Purchase of treasury stock                                                         --            (300)           (504)
  Distributions paid                                                             (6,139)             --          (1,491)
                                                                              ---------       ---------       ---------
                    Net cash provided by (used in) financing activities          20,095         (19,231)        (12,588)
                                                                              ---------       ---------       ---------
                    Net increase (decrease) in cash                              34,143           7,163             (28)
Cash at beginning of year                                                         7,350             187             215
                                                                              ---------       ---------       ---------
Cash at end of year                                                           $  41,493           7,350             187
                                                                              =========       =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
(Thousands of dollars, except share and per share amounts)

(1) Business of the Company

(a) Basis Presentation

      Central Freight Lines, Inc. is a Nevada holding company that owns Central
Freight Lines, Inc., a Texas corporation, (collectively, the Company or
Central). Central is an inter-regional less-than-truckload ("LTL") trucking
company that has operations in the Southwest, Northwest, West Coast and Midwest
regions of the United States of America. Central maintains alliances with other
similar companies to complete transportation of shipments outside of its
operating territory.

(b) Initial Public Offering of Common Stock

      On December 12, 2003, the Company completed an initial public offering ("
the Offering") of 8,500,000 shares of common stock at $15 per share, of which
5,700,000 were sold by the Company and 2,800,000 were sold by certain of the
Company's stockholders. The net proceeds to the Company from the sale of
5,700,000 shares of common stock, after deduction of associated expenses, were
$77,634.

      On November 1, 2003 the Company converted from an S corporation to a C
corporation for federal income tax purposes. Undistributed S Corporation loss
(retained earnings) of $5,031 was transferred to additional paid-in capital.

(2) Summary of Significant Accounting Policies and Practices

(a) Basis of Presentation and Principles of Consolidation

     The consolidated financial statements include the accounts of Central and
its subsidiaries. All significant intercompany balances and transactions of the
consolidated subsidiaries have been eliminated. As discussed in note 3, the
Company acquired and disposed of Central Refrigerated Service, Inc. ("Central
Refrigerated") during 2002. Central Refrigerated has been accounted for as a
discontinued operation.

(b) Use of Estimates

     Management of the Company makes estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reporting of
revenues and expenses during the reporting periods to prepare the consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America. Actual results could differ from those
estimates.

(c) Tires in Service

     The Company capitalizes tires placed in service on new revenue equipment as
a part of the equipment cost. Replacement tires and costs for recapping tires
are expensed at the time the tires are placed in service.


                                      F-6
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(d) Property and Equipment

      Property and equipment are recorded at cost. In the first quarters of 2003
and 2002, the Company revised the estimated useful lives and salvage values of
certain classes of property and equipment to more appropriately reflect how the
assets are expected to be used over time. In the first quarter of 2003, the
Company increased revenue equipment lives to five to 15 years from five to 12
years. If the Company had not changed the estimated useful lives of such
property and equipment, additional depreciation expense of approximately $580
would have been recorded during the year ended December 31, 2003. Accordingly,
the change in estimate resulted in an increase in income from continuing
operations of approximately $557 for the year ended December 31, 2003.

      In the first quarter of 2002, the Company increased revenue equipment
lives from three to seven years to five to 12 years. Prior to 2002, depreciation
of property and equipment was calculated on the straight-line method over the
estimated useful lives of three to seven years for revenue and service
equipment, three to 20 years for buildings and improvements and three to seven
years for furniture and office equipment. If the Company had not changed the
estimated useful lives of such property and equipment, additional depreciation
expense of approximately $2,939 would have been recorded during the year ended
December 31, 2002. Accordingly the change in estimate resulted in an increase in
income from continuing operations of approximately $2,807 for the year ended
December 31, 2002.

      Net gains (losses) on the disposition of property and equipment were $446,
($1) and $33 for the years ended December 31, 2003, 2002 and 2001, respectively.

(e) Impairment of Long-Lived Assets

      The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. There were no impairments during 2003, 2002 or 2001.

      The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. As of that
date, goodwill is no longer amortized (prior to the adoption of SFAS No. 142,
goodwill had been amortized on a straight-line basis over 15 years), but is
tested annually for impairment using a fair value approach. Pursuant to SFAS No.
142, the Company has determined that, as of January 1, 2002, and December 31,
2003, there was no impairment to the carrying value of goodwill.

      The following table presents the impact of SFAS No. 142 on adjusted pro
forma net loss and adjusted pro forma loss per share had the standard been in
effect for the year ended December 31, 2001 and had the Company been a C
corporation in such year (in thousands, except per share amounts):

                                                               2001
                                                             -------
            Net loss as reported ......................      $(6,892)
            Pro forma income tax adjustment ...........          989
                                                             -------
            Pro forma net loss ........................       (5,903)
            Add back: goodwill amortization ...........          346
                                                             -------
            Adjusted pro forma net loss ...............      $(5,557)
                                                             =======
            Pro forma basic and diluted loss per share:
              Pro forma net loss ......................      $ (0.54)
              Goodwill amortization ...................         0.03
                                                             -------
              Adjusted pro forma net loss .............      $ (0.51)
                                                             =======


                                      F-7
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(f) Revenue Recognition

      The Company recognizes revenue upon the delivery of the related freight. A
portion of the Company's revenue is derived from shipments that originated or
terminated in other regions, where a portion of freight movement is handled by
another carrier. Most of this revenue is with carriers with which the Company
maintains transportation alliances. The Company does not recognize revenue or
the associated expenses that relate to the portion of the shipment transported
by its alliance partners.

      At December 31, 2003 and 2002, there was approximately $7,400 and $5,200
of unbilled revenue.

(g) Income Taxes

      Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.

      On November 1, 2003, the Company converted from an S corporation to a C
corporation for federal income tax purposes. Prior to November 1, 2003, the
Company had elected S corporation status under which federal income tax
attributes flow directly to the stockholders. Accordingly, the accompanying
consolidated financial statements prior to November 1, 2003, did not include
federal income taxes.

(h) Credit Risk

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and the diverse range of industries
which they represent. As of December 31, 2003 and 2002, the Company had no
significant concentrations of credit risk.


                                      F-8
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(i) Stock-Based Compensation

      The Company has a stock-based employee compensation plan, which is
described more fully in note 8. The Company accounts for that plan under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, the Company records compensation expense only if the
fair value of the underlying stock exceeds the exercise price on the date of
grant. The following table illustrates the effect on adjusted pro forma net
earnings (loss) and adjusted pro forma earnings (loss) per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, and as allowed by SFAS No. 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure, an
Amendment of FASB No. 123, to stock-based employee compensation and had the
Company been a C corporation in such years.

<TABLE>
<CAPTION>

                                                                     2003          2002          2001
                                                                   -------       -------       -------
<S>                                                                <C>           <C>           <C>
Net (loss) income, as reported: .............................      $(5,905)      $ 5,242       $(6,892)
Add:
     Stock-based employee compensation expense included in
       reported net (loss) income, net of related tax effects          237           130            --
Deduct:
     Total stock-based employee compensation expense
       determined under fair value based method for all
       awards, net of related tax effects ...................         (280)       (1,761)         (120)
                                                                   -------       -------       -------
Pro forma net (loss) income .................................       (5,948)        3,611        (7,012)
Pro forma federal income tax adjustment (unaudited) .........        5,944        (4,223)        1,028
                                                                   -------       -------       -------
     Adjusted pro forma net loss (unaudited) ................      $    (4)      $  (612)      $(5,984)
                                                                   =======       =======       =======
Adjusted pro forma net loss per share
  (unaudited):
  Basic .....................................................      $ (0.00)      $ (0.06)      $ (0.55)
  Diluted ...................................................        (0.00)        (0.06)        (0.55)
</TABLE>

      In 2002, the Company granted options at an exercise price that was less
than fair value, resulting in approximately $1,189 of compensation to employees
which is being expensed over the vesting period of these options. Compensation
expense of $237 and $130 was recognized in 2003 and 2002.

(j) Claims and Insurance Accruals

      Claims accruals represent the estimated costs to repair and replace
damaged goods resulting from cargo claims. Insurance accruals reflect the
estimated cost of claims for bodily injury and property damage, workers'
compensation and employee health care not covered by insurance. These
liabilities for self-insurance are accrued based on claims incurred and on
estimates of both unasserted and unsettled claims which are assessed based on
management's evaluation of the nature of the claims and the Company's past
claims experience. The portion of the accrual classified as a current liability
represents management's estimate of that portion of the claims that will be
settled in the next twelve months. Total claims and insurance accruals were
$20,765 and $18,756 at December 31, 2003 and 2002, respectively.

      While management believes that amounts included in the accompanying
consolidated financial statements are adequate, such estimates may be more or
less than the amounts ultimately paid when the claims are settled. The estimates
are continually reviewed and any changes are reflected in current operations.


                                      F-9
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(k) Allowance for Doubtful Accounts and Revenue Adjustments

      The Company establishes an allowance for doubtful accounts and an
allowance for revenue adjustments to reduce its accounts receivable balance to
an amount that it estimates is collectible from its customers. The allowance for
doubtful accounts is estimated by management based on factors such as aging of
the receivables and historical collection experience. At December 31, 2003 and
2002, the allowance for doubtful accounts is $2,452 and $2,294, respectively.

      The allowance for revenue adjustments is also established by management
based on factors such as historical trends in actual adjustments to revenue.
Revenue will be adjusted for various reasons, such as customer disputes, billing
and rating errors, and weight and inspection corrections. At December 31, 2003
and 2002, the allowance for revenue adjustments is $2,901 and $2,850,
respectively.

(l) Pro Forma Income (Loss) Per Share

      Pro forma income (loss) per share has been calculated as if the Company
were a C corporation for federal income tax purposes for all years presented.
Pro forma basic income (loss) per share is calculated using the weighted average
number of shares outstanding. The weighted average shares outstanding used in
the calculation of pro forma diluted income (loss) per share includes the
dilutive effect of options to purchase common stock, calculated using the
treasury stock method.

(m) Recently Issued Accounting Standards

      In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
which requires that certain financial instruments be presented as liabilities
that were previously presented as equity or as temporary equity. Such
instruments include mandatory redeemable preferred and common stock, and certain
options and warrants. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and is generally effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have any impact on the Company's consolidated
financial statements.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34. This interpretation
addresses the disclosures to be made by a guarantor and requires a guarantor to
recognize a liability for the fair value of a guarantee. In January 2003, the
FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. The Company does not believe that these
pronouncements will have a significant impact on its consolidated financial
statements.

(n) Reclassifications

      Certain prior year amounts have been reclassified to conform with the
current year's presentation.


                                      F-10
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(3) Acquisition and Discontinued Operations

      On April 22, 2002, the Company, through its subsidiary Central
Refrigerated, acquired substantially all of the operations and assets of Simon
Transportation Services Inc. DIP, and its subsidiaries, Dick Simon Trucking,
Inc. DIP and Simon Terminal LLC DIP in exchange for cash and the assumption of
certain liabilities. The purpose of the acquisition was to expand into the
refrigerated transportation business. The assets acquired and liabilities
assumed were recorded at estimated fair values as determined by the Company's
management based on information currently available and on assumptions as to
future operations. The total consideration paid was approximately $600 less than
the estimated fair value of the acquired assets and was recorded as a reduction
to property and equipment. In connection with this acquisition, the Company
borrowed approximately $3,300 and assumed certain notes payable to the Company's
principal stockholder and affiliates totaling $11,400. The following table
summarizes the estimated fair value of the assets acquired and liabilities
assumed in the acquisition:

      Assets acquired:
        Current assets ..................................        $ 26,511
        Property and equipment ..........................          57,271
        Other assets ....................................              55
                                                                 --------
           Total assets acquired ........................          83,837
      Less:
        Notes payable to shareholder and affiliate ......         (11,400)
        Liabilities assumed .............................         (69,104)
        Direct costs of the acquisition .................            (727)
                                                                 --------
           Cash consideration paid ......................        $  2,606
                                                                 ========

      The following unaudited pro forma consolidated results of operations for
the year 2002 and 2001 assume the Central Refrigerated acquisition was completed
on January 1, 2001:

                                               2002           2001
                                               ----           ----
      Net loss .......................    $  (30,023)      $(49,444)
      Loss per share:
      Basic ..........................         (2.76)         (4.53)
      Diluted ........................         (2.76)         (4.53)

      Effective December 31, 2002, the Company transferred all of its
outstanding shares of Central Refrigerated to the principal stockholder of the
Company and one of his affiliates in exchange for the cancellation of
approximately $14,700 of debt owed by the Company to them. The purchase price
was based on the beginning equity of Central Refrigerated. As such, the net book
value of Central Refrigerated assets exceeded the purchase price by the amount
of current year earnings of Central Refrigerated. Thus, the loss on disposal of
Central Refrigerated is offset by the earnings from its operations as follows:

      Earnings from discontinued operations ..............   $ 1,256
      Loss on disposal ...................................    (1,256)
                                                             -------
        Net earnings from discontinued operations ........   $    --
                                                             =======

      Included in the earnings from discontinued operations is Central
Refrigerated depreciation expense of $4,845 for the year ended 2002.

      On October 28, 2003, the Company amended its agreement with Central
Refrigerated and agreed to accelerate payment of $8,341 originally due to
Central Refrigerated upon closing of the Company's initial public offering. The
$8,341 payment was made on October 28, 2003, and was recorded as an additional
loss on disposal of Central Refrigerated.


                                      F-11
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(4) Property and Equipment

      Property and equipment consist of the following at December 31, 2003 and
2002:

                                                        2003           2002
                                                      --------       --------
Revenue and service equipment ....................    $153,345       $156,106
Land .............................................      12,343         11,822
Structures and improvements ......................      29,629         27,463
Furniture and office equipment ...................       8,415          8,132
                                                      --------       --------
                                                       203,732        203,523
Less accumulated depreciation and amortization ...      89,039         76,772
                                                      --------       --------
                                                      $114,693       $126,751
                                                      ========       ========

      Revenue and service equipment includes assets under capitalized leases of
$44,820 and $44,816 at December 31, 2003 and 2002, respectively, and related
accumulated amortization of $16,486 and $11,338 at December 31, 2003 and 2002,
respectively.

      In 2003 and 2002, the Company closed certain terminals that were being
financed by a related party (see note 6(b)). These assets, which consist of land
and structures, are no longer in service and were classified as assets held for
sale in the amounts of $857 and $1,139 as of December 31, 2003 and December 31,
2002. During 2003, $390 of these properties were sold and accounted for as a
reduction of the related party financing.

      Also included in assets held for sale is a terminal, which is not financed
by a related party, and two homes of officers who were hired in 2003. The homes
were purchased for $770 to relocate them and allow them to purchase homes near
Waco, Texas. Assets held for sale are included in other assets on the
accompanying consolidated balance sheets.

(5) Accrued Expenses

      Current accrued expenses consist of the following at December 31, 2003,
and 2002:

                                                        2003          2002
                                                      -------        -------

Employee related compensation and benefits .......    $11,751        $10,843
Claims and insurance accruals ....................     13,345         12,148
Other accrued expenses ...........................      2,111          3,189
                                                      -------        -------
                                                      $27,207        $26,180
                                                      =======        =======

(6) Long-Term Debt and Related Party Financing

(a) Long-Term Debt

      Long-term debt consists of the following at December 31, 2003, and 2002:

                                                       2003          2002
                                                     -------       -------
Securitization Facility ........................     $    --       $25,500
Equipment notes payable ........................         169        22,145
Capital lease obligations (see note 12) ........      26,194        31,866
                                                     -------       -------
                                                      26,363        79,511
Less current portion ...........................       6,375        12,822
                                                     -------       -------
                                                     $19,988       $66,689
                                                     =======       =======


                                      F-12
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

      On April 30, 2002, the Company entered into a $40,000 revolving accounts
receivable securitization facility (the Securitization Facility) and a $19,000
revolving credit facility (the Revolving Facility). Under the Securitization
Facility, the Company, on a revolving basis, sells its interests in its accounts
receivable to Central Receivables, a wholly-owned, special purpose subsidiary.
The assets and liabilities of Central Receivables are included in the
consolidated financial statements of the Company. The Company can receive up to
$40,000 of proceeds, subject to eligible receivables and will pay a service fee
recorded as interest expense, as defined in the agreement. The Company pays
commercial paper interest rates plus an applicable margin on the proceeds
received. Interest is generally payable monthly. The proceeds received were
reflected as a long-term liability in the December 31, 2002 consolidated
financial statements as the committed termination date is April 27, 2005. The
Securitization Facility includes certain restrictions and financial covenants.
The Company must pay a commitment fee equal to 0.2% per annum of 102% of the
facility limit minus the aggregate principal balance, as well as an
administrative fee equal to 0.15% per annum of the uncommitted balance.

      As of December 31, 2003, there were no borrowings outstanding under the
Securitization Facility. At December 31, 2003, the Company had a $33,333
available borrowing capacity under the Securitization Facility.

      Under the Revolving Facility, the Company can receive up to $19,000 of
proceeds, secured by certain revenue equipment. As of December 31, 2003 and
2002, the Company had no outstanding borrowings under this facility. The
Revolving Facility accrues interest at either a variable base rate equal to the
bank's prime lending rate or at a variable rate equal to LIBOR plus 175 basis
points. Interest is payable in periods from one to three months at the option of
the Company. The Company must maintain certain financial and non-financial
covenants. The Company also had letters of credit of $14,406 and $11,125,
respectively outstanding under the Revolving Facility at December 31, 2003 and
2002. The Company must pay a commitment fee equal to 0.25% per annum on the
daily unused Revolving Facility as well as a letter of credit fee equal to 1.75%
per annum on the average daily amount of the letters of credit. The maturity
date of the Revolving Facility is October 31, 2004. At December 31, 2003, the
Company had $4,594 available under the Revolving Facility.

      The Company has entered into a number of note agreements with a third
party to acquire equipment for use in its operations. The balance of these notes
was $169 and $22,145 at December 31, 2003 and 2002, respectively. These notes
with fixed interest rates ranging from 7.75% to 8.75% mature at various dates
through January 2006 and require monthly principal and interest payments through
maturity. These notes are secured by the equipment acquired.

(b) Related-Party Financing

      In 1998, the Company entered into an agreement with Southwest Premier
Properties, L.L.C. ("Southwest Premier"), an entity controlled by the Company's
principal stockholder, for the sale and leaseback of the land, structures and
improvements of 36 of the Company's terminals and one additional Waco, Texas
property. The sale price for the properties was $27,755. Annual payments
initially were approximately $3,100. For financial accounting purposes, this
transaction has been accounted for as a financing arrangement. Consequently, the
related land, structures and improvements remain on the Company's consolidated
balance sheet. The initial lease term is for ten years with an option for an
additional ten years at the then fair market rental rate. At the expiration of
the original lease term, the Company has an option to purchase all of the
properties, excluding certain surplus properties, for the then fair market
value.


                                      F-13
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

      Since the fair value of the properties sold and leased back has always
equaled or exceeded the proceeds from the financing arrangement, the annual
lease payments have been reflected as a cost of the financing and recorded as
interest expense. The amount outstanding under the financing agreement was
$23,154 and $23,543 at December 31, 2003, and 2002 respectively. If the Company
exercises the fair value purchase option, the excess of the amount paid over the
recorded financing obligation will be reflected as additional interest expense.
If the fair value purchase option is not exercised at the end of the lease term,
the excess of the recorded financing obligation over the net book value of the
related properties will be reflected as a gain on the financing arrangement.

      Included in the sale agreement was approximately $2,851 of excess land,
which was not subject to the fair value purchase option. Additionally, during
2000, Southwest Premier sold certain property subject to the financing
arrangement with a net book value of $1,361 and reduced the annual lease payment
to $2,930. Accordingly, the excess land and property sold have been recorded as
a reduction in the financing obligation and a reduction in property.

      The lease agreement under the related party financing was amended February
20, 2003, to increase the aggregate annual payments from $2,930 to $6,267, which
the Company believes represents fair market value of these leases. The increase
in the annual financing cost has been reflected as non-cash interest expense and
contributed capital of $500 for 2003 and $3,300 for 2002 and 2001 in the
accompanying consolidated financial statements. During 2003, $390 of these
properties were sold and accounted for as a reduction of the related party
financing.

(c) Aggregate Maturities

      Aggregate maturities of long-term debt, related party financing and
capital lease obligations for each of the five years following December 31,
2003, and thereafter are as follows:

      Years ending December 31:

         2004 .......................................    $ 6,375
         2005 .......................................      9,074
         2006 .......................................      4,577
         2007 .......................................      5,759
         2008 .......................................        436
         Thereafter .................................     23,296
                                                         -------
                                                         $49,517

(7) Stockholders' Equity

      During 2003, the Company amended its Articles of Incorporation, and all
Class A and Class B common stock were combined into a single class of stock. All
shares existing, prior to the public offering, were canceled and re-issued with
shares of the new publicly traded company. The number of authorized common
shares was increased from 60,000,000 to 100,000,000. The newly issued shares
have a par value of $0.001 per share.

      At December 31, 2003, there were 17,632,545 issued and outstanding shares
of common stock. 5,700,000 newly issued shares of the Company were sold during
the initial public offering along with 2,800,000 sold by selling stockholders.

      The authorized number of preferred shares was also increased from
5,000,000 to 10,000,000. No shares of preferred stock have been issued.


                                      F-14
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(8) Stock-Based Compensation

      In 1997, the Company established an incentive stock plan that provides
multiple alternatives to compensate eligible employees and non-employee
directors with Company common stock. Under the plan, the Company is authorized
to award, in aggregate, options to purchase not more than 5,000,000 shares of
its common stock. Grants to optionees of qualified stock options shall have a
per share exercise price of no less than fair value of the underlying common
stock on the date of grant. At December 31, 2003, there were 936,644 shares
available for grant under the plan.

      The awards are issuable at the discretion of the board of directors. All
option grants to date expire 10 years from the date of grant. Options granted
under the plan to senior management (1,269,257 outstanding at December 31, 2003)
generally vest 20% on the first anniversary of the date of grant and 20% on each
subsequent anniversary until fully vested. On January 7, 2002, the Company
granted 1,260,000 options at an exercise price of $1.35 to its newly hired CEO
as part of his employment agreement. These options vest 50% at grant date and
20% per year beginning January 7, 2003 (756,000 options were exercised in the
fourth quarter of 2003). Options granted under the plan to upper management
(640,906 outstanding at December 31, 2003) vest 20% on the fifth anniversary of
the date of grant and 20% on each subsequent anniversary until fully vested.
Termination of the employee for any reason other than death, disability or
certain cases of retirement causes the unvested portion of the award to be
forfeited.

      The Company issued 60,000 options, in July 2002, to non-employee
directors. In December 2003, the Company issued 80,000 options to the newly
elected non-employee directors of the publicly traded company. These options
vest ratably over a five-year period beginning July 10, 2003.

      Stock option activity during the years ended December 31, 2001, 2002, and
2003 is as follows:

                                                                   Weighted
                                                    Number of       Average
                                                     Shares      Exercise Price
                                                     ------      --------------

      Balance at December 31, 2000 .......         1,600,541         $4.18
      Granted ............................                --            --
      Exercised ..........................                --            --
      Forfeited ..........................          (447,919)         5.76
                                                  ----------
      Balance at December 31, 2001 .......         1,152,622          3.53
      Granted ............................         2,161,428          1.46
      Exercised ..........................                --            --
      Forfeited ..........................          (276,793)         4.50
                                                  ----------
      Balance at December 31, 2002 .......         3,037,257          1.96
                                                  ----------
      Granted ............................           305,000          8.22
      Exercised ..........................        (1,064,327)         1.70
      Forfeited ..........................          (227,767)         1.79
                                                  ----------
      Balance at December 31, 2003 .......         2,050,163         $2.26
                                                  ==========


                                      F-15
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

      The fair value of options granted was estimated using the Black-Scholes
option pricing model with the following assumptions for 2002 and 2003 grants to
employees: risk-free interest rate of 6.51% and 4.75%, respectively; 15% and 0%
expected volatility, respectively; an expected life of 10 and 5 years,
respectively; and a zero dividend yield. The fair values of options granted were
as follows:

                                                       Weighted Average
                                                 ---------------------------
                                                                 Fair Value
                                                 Exercise Price   of Option
                                                 --------------   ---------
      Granted during 2002 ...............           $ 1.46        $  2.56
      Granted during 2003 ...............             8.22          11.27

     Options outstanding and exercisable are summarized as follows:

<TABLE>
<CAPTION>

                                            December 31, 2003
--------------------------------------------------------------------------------------------------------
                                                             Weighted
                                                              Average
                                           Weighted          Remaining                       Weighted
   Exercise               Options           Average         Contractual      Options          Average
     Price              Outstanding     Exercise Price         Life        Exercisable    Exercise Price
--------------          -----------     --------------      -----------    -----------    --------------
<S>                       <C>              <C>                 <C>             <C>           <C>
$         1.35           1,182,536         $   1.35            4.6             314,542       $   1.35
   2.15-- 2.70             359,933             2.29            4.5             164,012           2.37
 5.77 --- 5.86             225,000             5.81            9.2                  --           5.81
          6.50             202,694             6.50            7.4              80,500           6.50
         15.00              80,000            15.00            10.0                 --          15.00
                        ----------                                             -------
                         2,050,163             2.26                            559,054           2.39
                        ==========                                             =======
</TABLE>

      At December 31, 2003, 2002, and 2001, options exercisable were 559,054,
1,353,998 and 585,107 respectively, and the weighted average exercise price of
these options was $2.39, $2.04 and $2.77 respectively.

(9) Income Taxes

      On November 1, 2003, the Company converted to a C Corporation for federal
income tax purposes.

      Prior to the C Corporation election, the Company elected S Corporation
status for federal income tax purposes. Accordingly, the accompanying
consolidated financial statements prior to November 1, 2003 do not include the
effects of federal income taxes, and income taxes consist solely of state income
taxes.

      In 1998, the Company elected S Corporation status for federal income tax
purposes. Due to the uncertainty of the recognition of certain items as an S
Corporation versus a C Corporation, the Company recorded a $1,784 reserve for
the contingent expense that could have resulted from any related tax
assessments. In June 2002, the Company determined that this reserve was no
longer necessary. Accordingly, during the quarter ended June 15, 2002, the
Company reversed the amount of the reserve as a reduction of income tax expense.

      The components of income tax (benefit) expense consist of:

                                            Years Ended December 31,
                                   ---------------------------------------
                                     2003           2002           2001
                                   --------       --------       --------
      Current-- Federal .....      $   (110)      $ (1,784)      $     --
      Deferred -Federal .....        10,867             --             --
      Current-- state .......           162           (340)            69
      Deferred-- state ......           674            712           (188)
                                   --------       --------       --------
                                   $ 11,593       $ (1,412)      $   (119)
                                   ========       ========       ========


                                      F-16
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

      The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2003, and 2002, are as follows:

                                                           2003          2002
                                                        --------       --------
Deferred tax assets:
  Current:
     Accounts receivable and other current assets .     $  2,921       $    261
     Accrued expenses and other current liabilities        3,871            579
     Other assets .................................        1,313             --
                                                        --------       --------
                                                           8,105            840
  Noncurrent:
     Other assets .................................           --             57
     Lease obligations ............................       19,399          2,501
     Other liabilities ............................        2,917            798
                                                        --------       --------
                                                          22,316          3,356
                                                        --------       --------
Total deferred tax assets .........................       30,421          4,196
                                                        --------       --------
Deferred tax liabilities:
  Current:
     Prepaid expenses .............................       (1,317)          (121)
     Other liabilities ............................       (2,200)            --
                                                        --------       --------
                                                          (3,517)          (121)
  Noncurrent:
     Other assets .................................          (67)            --
     Property and equipment due to differences in
      Depreciation and basis ......................      (37,882)        (5,088)
                                                        --------       --------
                                                         (37,949)        (5,088)
                                                        --------       --------
Total deferred tax liabilities ....................      (41,466)        (5,209)
                                                        --------       --------
Net deferred tax liability (included in
  other liabilities) ..............................     $(11,045)      $ (1,013)
                                                        ========       ========

      A reconciliation of the statutory federal income tax rate with our
effective income tax rate from continuing operations is as follows:

                                                                    2003
                                                                  --------
           Federal income tax at statutory rate (35%) ......      $  4,910
           Income not subject to tax at statutory rate (35%)        (4,177)
           Establishment of federal deferred taxes upon
             conversion to C corporation ...................         9,834
           State income tax ................................           836
           Permanent  differences ..........................            27
           Other ...........................................           163
                                                                  --------
      Total income tax expense .............................      $ 11,593
                                                                  ========

      In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Taxable
income for the year ended December 31, 2003 was $14,500. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences.


                                      F-17
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(10) Employee Benefit Plans

      The Company maintains a defined contribution employee retirement plan,
which includes a 401(k) option, under which employees are eligible to
participate after they complete 90 days of service. Employees are eligible for
Central matching contributions after one year of service. The Company's
contributions to the plan each year are made at the discretion of the Company's
board of directors. For the years ended December 31, 2003, 2002, and 2001, the
Company's contributions to the plan, including matching 401(k) contributions,
were $2,199, $2,282 and $2,406, respectively.

      The Company also sponsors a health plan that provides postretirement
medical benefits to full-time employees who meet minimum age and service
requirements. The plan is contributory, with retiree contributions adjusted
annually, and contains other cost-sharing features such as deductibles and
coinsurance. The Company's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management. The plan has no assets, and
accordingly, no reconciliation of fair value of plan assets is provided and the
funded status is based solely on the benefit obligation.

      During 2003 the Company amended its health plan resulting in a reduction
of benefits. The amendment to the plan eliminated any future post retirement
benefit obligation. The Company reported a gain of $7,799 as a result of the
amendment.

                                                           Years Ended
                                                          December 31,
                                                    ------------------------
                                                      2002           2002
                                                    -------         -------
Change in benefit obligation:
  Benefit obligation at beginning of year ......    $ 8,313         $ 7,564
  Service cost .................................         --              36
  Interest cost ................................         --             194
  Benefits paid ................................     (2,212)         (1,910)
  Plan amendment ...............................     (7,799)         (5,245)
  Participant contributions ....................      1,698           1,258
  Actuarial loss ...............................         --           1,171
                                                    -------         -------
  Benefit obligation at end of year ............         --           3,068
  Unrecognized plan amendment gain .............         --           5,245
                                                    -------         -------
  Accrued postretirement benefits ..............    $    --         $ 8,313
                                                    =======         =======

                                                       Years Ended December 31
                                                       -------------------------
                                                       2003      2002      2001
                                                       ----      ----      ----
Net benefit cost included the following components:

  Service cost ....................................    $ --      $ 36      $116
  Interest cost ...................................      --       194       493
                                                       ----      ----      ----
                                                                           ----
                                                       $ --      $230      $609
                                                       ====      ====      ====

      For measurement purposes, a 1% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed, which
is also the maximum employer provided increase per year. An increase in the
health care cost trend assumption has no effect on the amounts reported because
the amounts are provided assuming the maximum employer provided increase per
year.

      The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% at December 31, 2002.


                                      F-18
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(11) Fair Value of Financial Instruments

      At December 31, 2003 and 2002, the carrying value of the Securitization
Facility approximates fair value because amounts outstanding bear interest at
current commercial paper rates. At December 31, 2003 and 2002, the fair value of
the related party financing arrangement cannot be determined without incurring
excessive costs due to the related party nature of the instrument. At December
31, 2003, and 2002, the carrying value of other long-term debt approximates fair
value.

(12) Leases

      In 1998, the Company entered into agreements with its principal
stockholder to lease the land and related improvements of three terminals. The
leases are for 10 years, cancelable within one month's notice by either party,
with a renewal option for an additional ten-year term. The annual lease payments
over the initial term of the lease are $310. The leases have been accounted for
as operating leases.

      In 1999, the Company entered into agreements to lease three terminals from
Southwest Premier for 10 years with a renewal option for an additional 10 years.
The annual lease payments over the initial term of the leases are $703. These
leases have been accounted for as operating leases.

      In 2001, the Company entered into agreements to lease two terminals from
Southwest Premier for 76 and 77 months with a renewal option for an additional
10 years. The annual lease payments over the initial term of the leases are
$744. These leases have been accounted for as operating leases.

      The Company leases various terminal and office facilities, tractors,
trailers and other equipment under noncancelable operating leases. Rental
expense was $5,084, $5,114 and $5,263 for the years ended December 31, 2003,
2002, and 2001, respectively. Included in these amounts are $1,903, $1,779, and
$1,600 in 2003, 2002, and 2001, respectively, paid to affiliates of the Company
for the rental of revenue and service equipment, terminals and office space.

      Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and capital leases at
December 31, 2003, are:

                                             Capital       Operating
                                              Leases        Leases
                                             -------       ---------
Year ending December 31:
  2004 ...............................       $ 7,618       $ 4,473
  2005 ...............................         9,988         3,713
  2006 ...............................         5,201         2,952
  2007 ...............................         5,904         2,671
  2008 ...............................           590         2,212
Thereafter ...........................            --         4,442
                                            --------       -------
     Total minimum lease payments ....        29,301        20,463
                                                           =======
Less amount representing interest ....        3,107
                                            -------
                                            $26,194
                                            =======


                                      F-19
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(13) Cash Flow Information

      Short-term interest-bearing instruments with maturities of three months or
less at the date of purchase are considered cash equivalents.

      During 2003, 2002, and 2001, the Company paid cash for interest of $9,852,
      $7,815, and $8,630, respectively.

      During 2003, 2002, and 2001, the Company paid cash for income taxes of
      $132, $31, and $94, respectively.

      During 2003, 2002, and 2001, the Company leased certain equipment under
      capital leases in the amount of $5,672, $2,680, and $9,136, respectively.

      During 2003, the Company had a $390 non-cash reduction of properties held
      for sale, which was accounted for as a reduction of the related party
      financing.

      During 2002, the Company assumed certain notes payable totaling $11,400 as
      part of the Central Refrigerated acquisition. See note 3.

(14) Contingencies

      The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts, management believes the resolution of the claims and pending litigation
will not have a material adverse effect on the consolidated financial position,
results of operations or liquidity of the Company.

      The Company is subject to loss contingencies pursuant to federal, state,
and local environmental regulations dealing with the transportation, storage,
presence, use, disposal, and handling of hazardous materials, discharge of storm
water and fuel storage tanks. Environmental liabilities, including remediation
costs, are accrued when amounts are probable and can be reasonably estimated.

(15) Related-Party Transactions

      At December 31, 2002, the Company had approximately $7,988 of outstanding
advances to its principal stockholder, including $3,488 of notes receivable
bearing interest at a rate of 4.10%. There is also an unsecured note agreement
in the amount of $4,500 with a stated interest rate of 9.0%. These notes have
been reflected as a reduction of stockholders' equity. These notes, along with
$660 of unaccrued interest, were paid off in 2003.

      During the years ended December 31, 2003, 2002, and 2001, the Company
incurred approximately $18,582, $21,106, and $17,708, respectively, for
transportation services provided by companies for which the Company's principal
stockholder is the Chairman. At December 31, 2003, and 2002, the Company had
payables of $1,020 and $1,710, respectively, for these transportation services.

      During the years ended December 31, 2003, 2002, and 2001, the Company
incurred $12, $286 and $53, respectively, to an entity owned by a stockholder of
the Company for legal services. The Company also paid $525 for legal services in
2003, which are related to the initial public offering and accounted for as a
reduction of proceeds.

      During the years ended December 31, 2003, 2002, and 2001, the Company had
tire sales of approximately $962, $3,330, and $2,590, respectively, to an
affiliate. The Company had trade receivables of approximately $0 and $651 as of
December 31, 2003 and 2002, respectively, for these sales.

      See also notes 3, 6, 7, and 12 for additional disclosures regarding
related party transactions.


                                      F-20
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(16) Pro Forma Income (Loss) Per Share

     The calculation for pro forma income (loss) per share was calculated as
shown below.

<TABLE>
<CAPTION>

                                                                   2003               2002              2001
                                                              ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>
Net income (loss):
  Net (loss) income ....................................      $     (5,905)      $      5,242       $     (6,892)
  Pro forma federal tax adjustment (unaudited) .........            14,268             (4,193)               989
                                                              ------------       ------------       ------------
  Pro forma net income (loss) from continuing operations
(unaudited) ............................................             8,363              1,049             (5,903)
  Loss from discontinued operations ....................            (8,341)                --                 --
                                                              ------------       ------------       ------------
  Pro forma net income (loss) (unaudited) ..............      $         22       $      1,049       $     (5,903)
                                                              ============       ============       ============
Shares:
  Basic shares (weighted-average shares
     outstanding) ......................................        11,162,814         10,868,218         10,916,315
  Stock options ........................................           935,124            654,348                 --
  Other ................................................             4,796             25,004                 --
                                                              ------------       ------------       ------------
  Diluted shares .......................................        12,102,734         11,547,570         10,916,315
                                                              ============       ============       ============
Pro forma basic income (loss) per share
  (unaudited) ..........................................      $       0.00       $       0.10       $      (0.54)

Pro forma diluted income (loss) per share
  (unaudited) ..........................................      $       0.00       $       0.09       $      (0.54)
</TABLE>

      For the years ended December 31, 2002, and 2001, the Company had 245,295,
and 1,152,622 stock options that were anti-dilutive. There were no anti-dilutive
options in 2003. As a result, the assumed shares under the treasury stock method
have been excluded from the calculation of diluted income (loss) per share.

(17) Pro Forma C Corporation Data (unaudited)

      On November 1, 2003, the Company converted from an S corporation to a C
corporation for federal income tax purposes. The unaudited pro forma C
corporation data for the years ended December 31, 2003, 2002, and 2001 are based
on the historical consolidated statements of operations and give effect to pro
forma income taxes as if the Company were a C corporation for the entire
duration of all years presented.


                                      F-21
<PAGE>

CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS -continued
(Thousands of dollars, except share and per share amounts)

(18) Valuation and Qualifying Accounts

                                   Balance at   Charged to            Balance at
                                    Beginning    Costs and     Net      End of
                                     of Year     Expenses   Writeoffs    Year
                                     -------     --------   --------- ----------
Allowance for doubtful accounts
  Year ended December 31, 2003 ..    $ 2,294     $   876    $   718    $ 2,452
  Year ended December 31, 2002 ..      3,591          82      1,379      2,294
  Year ended December 31, 2001 ..      3,113       3,025      2,547      3,591
Allowance for revenue adjustments
  Year ended December 31, 2003 ..    $ 2,850     $12,356    $12,305    $ 2,901
  Year ended December 31, 2002 ..      3,112      13,692     13,954      2,850
  Year ended December 31, 2001 ..      7,633      16,706     21,227      3,112


                                   Balance at   Charged to            Balance at
                                    Beginning    Costs and   Claims     End of
                                     of Year     Expenses     Paid       Year
                                     -------     --------   --------- ----------

 Cargo claims accruals
   Year ended December 31, 2003 .    $ 4,039     $10,326    $10,577    $ 3,788
   Year ended December 31, 2002 .      4,023      10,793     10,777      4,039
   Year ended December 31, 2001 .      4,108       8,457      8,542      4,023
 Insurance accruals
   Year ended December 31, 2003 .    $14,717     $28,947    $26,687    $16,977
   Year ended December 31, 2002 .     15,532      26,632     27,447     14,717
   Year ended December 31, 2001 .      7,377      34,622     26,467     15,532

(19) Subsequent Event

      Effective March 5, 2004, the Company purchased selected terminals and
rolling stock of Eastern Oregon Fast Freight ("EOFF") a non-union
less-than-truckload carrier that operates 21 terminals in the states of Oregon,
Washington, and Idaho. The selected assets of EOFF were purchased for
approximately $10.0 million in cash. The purpose of the acquisition was to
expand the Company operations into the Pacific Northwest. The assets acquired
were recorded at estimated fair values as determined by the Company's
management.


                                      F-22
<PAGE>

                                  EXHIBIT INDEX

Number   Description
------   -----------
2.1      Amended and Restated Asset Purchase Agreement dated April 18, 2002, by
         and among Central Refrigerated Service, Inc., a Nebraska corporation,
         and Simon Transportation Services Inc., a Nevada corporation, and its
         subsidiaries, Dick Simon Trucking, Inc., a Utah corporation, and Simon
         Terminal, LLC, an Arizona limited liability company. (Incorporated by
         reference to Exhibit 2.1 to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

2.2(a)   Separation Agreement dated November 30, 2002, by and among Central
         Freight Lines, Inc., a Texas corporation, Central Refrigerated Service,
         Inc., a Nebraska corporation, the Jerry and Vickie Moyes Family Trust,
         Interstate Equipment Leasing, Inc., an Arizona corporation, and Jerry
         Moyes individually. (Incorporated by reference to Exhibit 2.2(a) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

2.2(b)   Amendment Number One to Separation Agreement dated December 23, 2002,
         by and among Central Freight Lines, Inc., a Texas corporation, Central
         Refrigerated Service, Inc., a Nebraska corporation, the Jerry and
         Vickie Moyes Family Trust, Interstate Equipment Leasing, Inc., an
         Arizona corporation, and Jerry Moyes individually. (Incorporated by
         reference to Exhibit 2.2(b) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

2.2(c)   Amendment Number Two to Separation Agreement effective as of October
         28, 2003, by and among Central Freight Lines, Inc., a Texas
         corporation, Central Refrigerated Service, Inc., a Nebraska
         corporation, the Jerry and Vickie Moyes Family Trust, Interstate
         Equipment Leasing, Inc. an Arizona corporation, and Jerry Moyes
         individually. (Incorporated by reference to Exhibit 2.2(c) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

2.3      Agreement and Plan of Merger, dated as of June 9, 1999, by and among
         Jaguar Fast Freight, Inc., an Arizona corporation, and Central Freight
         Lines, Inc., a Texas corporation and the stockholders of Jaguar.
         (Incorporated by reference to Exhibit 2.3 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

3.1      Amended and Restated Articles of Incorporation of Central Freight
         Lines, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 3.1(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

3.2      Bylaws of Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 3.2 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

4.1      Amended and Restated Articles of Incorporation of Central Freight
         Lines, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 3.1 to this Report on Form 10-K.)

4.2      Bylaws of Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 3.2 to this Report on Form 10-K.)

4.3      Stockholders' Agreement, dated as of June 11, 1999, by and among Jerry
         Moyes, Richard Slater, Mark Fabritz, Kent Chapman, and Larry Rockwell.
         (Incorporated by reference to Exhibit 4.4 to the Company's Registration
         Statement on Form S-1 No. 333-109068.)

10.1(a)  Central Freight Lines, Inc. 401(k) Savings Plan. (Incorporated by
         reference to Exhibit 10.1(a) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.1(b)  First Amendment to Central Freight Lines, Inc. 401(k) Savings Plan.
         (Incorporated by reference to Exhibit 10.1(b) to the Company's
         Registration Statement on Form S-1 No. 333-109068.)


                                      IV-1
<PAGE>

10.2(a)  Central Freight Lines, Inc. Incentive Stock Plan. (Incorporated by
         reference to Exhibit 10.2(a) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.2(b)  Form of Stock Option Agreement. (Incorporated by reference to Exhibit
         10.2(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.3     Form of Outside Director Stock Option Agreement. (Incorporated by
         reference to Exhibit 10.3 to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.4(a)  Revolving Credit Loan Agreement dated April 30, 2002, by and between
         Central Freight Lines, Inc., a Texas corporation, and Suntrust Bank, a
         Georgia state banking corporation. (Incorporated by reference to
         Exhibit 10.4(a) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.4(b)  First Amendment to Revolving Credit Loan Agreement and First Amendment
         to Revolving Credit Note dated June 26, 2002, by and between Central
         Freight Lines, Inc., a Texas corporation, and Suntrust Bank, a Georgia
         state banking corporation. (Incorporated by reference to Exhibit
         10.4(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.4(c)  Second Amendment to Revolving Credit Loan Agreement and Second
         Amendment to Revolving Credit Note dated February 5, 2003, by and
         between Central Freight Lines, Inc., a Texas corporation, and Suntrust
         Bank, a Georgia state banking corporation. (Incorporated by reference
         to Exhibit 10.4(c) to the Company's Registration Statement on Form S-1
         No. 333-109068.)

10.4(d)  Third Amendment to Revolving Credit Loan Agreement dated March 21,
         2003, by and between Central Freight Lines, Inc., a Texas corporation,
         and Suntrust Bank, a Georgia state banking corporation. (Incorporated
         by reference to Exhibit 10.4(d) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.4(e)  Fourth Amendment to Revolving Credit Loan Agreement dated May 19, 2003,
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(e) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.4(f)  Fifth Amendment to Revolving Credit Loan Agreement dated July 5, 2003,
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(f) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.4(g)  Sixth Amendment to Revolving Credit Loan Agreement dated September 22,
         2003 by and between Central Freight Lines, Inc., a Texas corporation,
         and Suntrust Bank, a Georgia state banking corporation. (Incorporated
         by reference to Exhibit 10.4(g) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.4(h)  Seventh Amendment to Revolving Credit Loan Agreement dated September
         22, 2003 by and between Central Freight Lines, Inc., a Texas
         corporation, and Suntrust Bank, a Georgia state banking corporation.
         (Incorporated by reference to Exhibit 10.4(h) to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.4(i)  Third Amendment to Revolving Credit Note dated May 19, 2003 by and
         between Central Freight Lines, Inc., a Texas corporation, and Suntrust
         Bank, a Georgia state banking corporation. (Incorporated by reference
         to Exhibit 10.4(i) to the Company's Registration Statement on Form S-1
         No. 333-109068.)


                                      IV-2
<PAGE>

10.4(j)  Third Amendment (sic) to Revolving Credit Note dated September 22, 2003
         by and between Central Freight Lines, Inc., a Texas corporation, and
         Suntrust Bank, a Georgia state banking corporation. (Incorporated by
         reference to Exhibit 10.4(j) to the Company's Registration Statement on
         Form S-1 No. 333-109068.)

10.5     Guaranty dated April 30, 2002, by Central Freight Lines, Inc., a Nevada
         corporation, in favor of Suntrust Bank, a Georgia state banking
         corporation. (Incorporated by reference to Exhibit 10.5 to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

10.6     Security Agreement dated April 30, 2002, by and among Central Freight
         Lines, Inc., a Texas corporation, Jerry C. Moyes, and Suntrust Bank, a
         Georgia state banking corporation. (Incorporated by reference to
         Exhibit 10.6 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.7     Note dated April 30, 2002, by Jerry C. Moyes in favor of Central
         Freight Lines, Inc., a Texas corporation. (Incorporated by reference to
         Exhibit 10.7 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.8(a)  Loan Agreement dated April 30, 2002, by and among Central Receivables,
         Inc., a Nevada corporation, Three Pillars Funding Corporation, a
         Delaware corporation, and Suntrust Capital Markets, Inc., a Tennessee
         corporation, as agent. (Incorporated by reference to Exhibit 10.8(a) to
         the Company's Registration Statement on Form S-1 No. 333-109068.)

10.8(b)  First Amendment to Loan Agreement dated April 29, 2003, by and among
         Central Receivables, Inc., a Nevada corporation, Three Pillars Funding
         Corporation, a Delaware corporation, and Suntrust Capital Markets,
         Inc., a Tennessee corporation, as agent. (Incorporated by reference to
         Exhibit 10.8(b) to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.9     Receivables Purchase Agreement dated April 30, 2002, by and between
         Central Freight Lines, Inc., a Texas corporation, and Central
         Receivables, Inc., a Nevada corporation. (Incorporated by reference to
         Exhibit 10.9 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.10    Second Amended and Restated Master Lease Agreement-- Parcel Group A
         dated February 20, 2003 by and between Southwest Premier Properties,
         L.L.C., a Texas limited liability company, and Central Freight Lines,
         Inc., a Texas corporation. (Incorporated by reference to Exhibit 10.10
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.11    Second Amended and Restated Master Lease Agreement-- Parcel Group B
         dated February 20, 2003 by and between Southwest Premier Properties,
         L.L.C., a Texas limited liability company, and Central Freight Lines,
         Inc., a Texas corporation. (Incorporated by reference to Exhibit 10.11
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.12    Amended and Restated Lease dated February 20, 2003 by and between JVM
         Associates and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.12 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.13    Amended and Restated Lease dated February 20, 2003 by and between Jerry
         and Vickie Moyes and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.13 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.14    Amended and Restated Lease dated February 20, 2003 by and between Jerry
         and Vickie Moyes and Central Freight Lines, Inc., a Texas corporation.
         (Incorporated by reference to Exhibit 10.14 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.15    Employment Agreement dated January 7, 2002, by and between Central
         Freight Lines, Inc., a Texas corporation, and Robert V. Fasso.
         (Incorporated by reference to Exhibit 10.15 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)


                                      IV-3
<PAGE>

10.16    Employment Offer Letter to Doak D. Slay, dated December 23, 2002, by
         Central Freight Lines, Inc., as countersigned by Doak D. Slay.
         (Incorporated by reference to Exhibit 10.16 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.17    Equity Advancement Letter to Doak D. Slay, dated July 9, 2003, by
         Central Freight Lines, Inc., as countersigned by Doak D. Slay and
         Denise D. Slay. (Incorporated by reference to Exhibit 10.17 to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

10.18    Employment Offer Letter to J. Mark Conard, dated August 16, 2003, by
         Central Freight Lines, Inc. (Incorporated by reference to Exhibit 10.18
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.19    Employment Offer Letter to Jeffrey A. Hale, dated June 7, 2002, by
         Central Freight Lines, Inc. (Incorporated by reference to Exhibit 10.19
         to the Company's Registration Statement on Form S-1 No. 333-109068.)

10.20    Employment Separation Agreement and Release, dated as of February 21,
         2002, to be effective as of March 9, 2002, by and between Central
         Freight Lines, Inc. and Joseph Gentry. (Incorporated by reference to
         Exhibit 10.20 to the Company's Registration Statement on Form S-1 No.
         333-109068.)

10.21    Consulting Agreement, dated February 20, 2002, by and between Joseph B.
         Gentry and Central Freight Lines, Inc., a Nevada corporation.
         (Incorporated by reference to Exhibit 10.21 to the Company's
         Registration Statement on Form S-1 No. 333-109068.)

10.22    Contract for the Sale of Land dated September 19, 2003, between Doak D.
         Slay and Denise D. Slay and Central Freight Lines, Inc. (Incorporated
         by reference to Exhibit 10.22 to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.23(a) Indemnification Agreement, effective as of December 31, 2002, by and
         between Central Freight Lines, Inc., a Texas corporation, and Central
         Refrigerated Service, Inc., a Nebraska corporation. (Incorporated by
         reference to Exhibit 10.23(a) to the Company's Registration Statement
         on Form S-1 No. 333-109068.)

10.23(b) Amendment Number One to Indemnification Agreement effective as of
         December 31, 2002, by and between Central Freight Lines, Inc., a Texas
         corporation, and Central Refrigerated Service, Inc., a Nebraska
         corporation. (Incorporated by reference to Exhibit 10.23(b) to the
         Company's Registration Statement on Form S-1 No. 333-109068.)

21.1*    Subsidiaries of Central Freight Lines, Inc., a Nevada corporation.

23.1*    Consent of KPMG LLP.

31.1*    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Robert V.
         Fasso, the Company's Chief Executive Officer.

31.2*    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Jeffrey
         A. Hale, the Company's Chief Financial Officer.

32.1*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002, by Robert V. Fasso,
         the Company's Chief Executive Officer.

32.2*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002, by Jeffrey A. Hale,
         the Company's Chief Financial Officer.
---------------
*  Filed herewith.


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