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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|o                                  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                    
|FOR THE TRANSITION PERIOD FROM
 TO

Commission File No. 0-16386

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CANNON EXPRESS, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                     |  | 71-0650141(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|1457 E. Robinson
P.O. Box 364
Springdale, Arkansas(Address of principal executive offices) |  | 72764(Zip Code)                               
|Registrant's telephone number, including Area Code: (479) 751-9209                        
|Securities Registered Pursuant to Section 12(b) of the Act:
None                          
|Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value  

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K Yes ý    No o

Aggregate
market value of voting stock held by non-affiliates of the registrant at August 29, 2002: $839,376.

Number
of shares of common stock outstanding at August 29, 2002
Common Stock3,205,276

Documents
incorporated by reference: Company's Notice and Proxy Statement for its annual meeting of stockholders to be held on Tuesday, November 19, 2002.

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Part I

Item 1. Business

Cannon
Express, Inc. (the "Company" or "Registrant") is an irregular route, truckload carrier with headquarters in Springdale, Arkansas, transporting a wide range of general commodities in the
United States pursuant to nationwide operating authorities granted by the Department of Transportation ("DOT"), and in Canada through operating authorities granted by the Canadian provinces. At
June 30, 2002, the Company operated a fleet of 777 tractors and 1,444 trailers, and employed 807 people, none of whom is represented by a collective bargaining agreement. Revenues from
truckload operations accounted for approximately 97.3% of total revenues for the year ended June 30, 2002.

The
Company, in May of 2002, elected to discontinue providing logistics services utilizing equipment and services provided by unrelated third parties. Revenues from logistics services represented
approximately 2.7% of total revenues realized for the year ended June 30, 2002.

Marketing and Customers

The
Company's marketing strategy is to be one of a select group of carriers serving financially sound customers who provide shipments to and from locations within the Company's operating area. The
Company's sales effort is carried out by salespersons domiciled in strategic locations and by its telemarketing staff consisting of salespersons who solicit new customers and customer service
representatives who arrange shipments for existing customers.

The
Company publishes its own freight rates instead of using rates published for a group of carriers by freight rate publishing bureaus. This practice permits pricing that is responsive to changing
market conditions as well as to a particular customer's needs. Most arrangements for transportation are made in the form of contracts with customers.

During
the fiscal year ended June 30, 2002, an unaffiliated customer accounted for 8% of the Company's operating revenue. During the fiscal years ended June 30, 2001 and 2000, this
customer accounted for 15.4% and 17.9%, respectively, of operating revenue. Management of the Company believes that its longer-term interests will be best served by diversifying its
customer base. The Company does not have long-term contracts with its customers, and, accordingly, there is no assurance that the current volume of business from these major customers will
continue. Management believes that the sudden loss of a significant customer could have a material adverse effect on revenue, equipment utilization and operating efficiencies.

The
principal types of freight transported by the Company include: retail and wholesale goods primarily for discount merchandisers, paper goods, automotive supplies and parts, and
non-perishable food products.

Operations

A
customer's initial contact with the Company is through one of the Company's salespersons. This initial contact will involve computerized collection of information regarding the customer's financial
condition and its payment history together with information on its loads, including the volume of freight to be delivered, the origins and destinations of shipments, the schedule in which such
shipments are to be made and any special needs. Once this information has been collected, the Company and the shipper will negotiate and agree upon the shipment rates.

One
or more of the Company's customer service representatives is then assigned to the shipper's account. Customer coordinators are assigned to a specific region of the United States and are
responsible for matching a shipper's load with a truck located within the customer coordinator's assigned region. The customer coordinator then assigns a shipment to a dispatcher.

2

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Dispatchers
are responsible for conveying shipment information to assigned drivers. Dispatchers and drivers communicate with one another either by telephone as the driver makes routine stops in
transit,
or through on-board computers and a satellite link. This link also enables the dispatcher to monitor the progress of a particular shipment. At the shipment's origin, the driver notifies
the dispatcher when the shipment has been loaded and then proceeds to the shipment's destination. When the shipment has reached its destination, the driver is assigned another shipment by the
dispatcher.

Once
documents (such as driver's log, bill of lading and fuel tickets) have been received by the Company, they are examined by the fuel and safety departments and then by the billing department, which
verifies shipment and billing information previously entered into the computer by operations personnel. Computer-generated bills are typically sent to the customer on the same day shipment documents
are received. The Company transmits freight bills and shipment status information electronically through "EDI" ("Electronic Data Interchange") for certain customers.

Through
the use of its computer system, complimentary software and inter-computer linkage with a fuel billing network, the Company monitors and coordinates routes and shipments. This system also
enables dispatchers and customer coordinators to instantaneously send and receive shipment information. The computer system is also used for payroll, billing and bookkeeping.

Drivers and Other Employees

As
of June 30, 2002, the Company employed 664 drivers and driver trainees. All drivers are selected in accordance with Company guidelines relating primarily to safety record, driving experience
and personal evaluation. The Company requires all drivers to meet experience requirements or to satisfactorily complete a training program, which pairs a trainee with one of the Company's proven
driver trainers. Trainees sharpen the skills necessary for success and are evaluated daily by their trainer. Once selected, a driver or driver trainee is instructed in all phases of Company policies
and operations as well as safety techniques and fuel efficient operation of the equipment.

The
Company's drivers are compensated on the basis of miles driven, loading, unloading and delivery stops, plus bonuses. Base pay per mile increases with a driver's completion of a specified number of
miles safely driven. Effective January 1, 2000, the Company implemented an increase in drivers' starting base pay ranging from 2 to 4 cents per mile and discontinued paying its drivers a
quarterly performance bonus. The Company has targeted its pay increase and its recruiting efforts toward drivers with 3 or more years driving experience. Company drivers who qualify are also paid an
annual safety bonus. Company drivers were awarded approximately $240,000 in safety bonuses during fiscal 2002 as compared with approximately $201,000 awarded during fiscal 2001.

Like
other truckload carriers, the Company experiences significant driver turnover. The Company experienced a shortage of qualified drivers during fiscal 2002. Management anticipates that competition
for qualified drivers will intensify. The Company seeks to attract drivers by advertising job openings,
encouraging referrals from existing employees and providing a training program for applicants whose experience does not meet the Company's minimum requirements; however, no assurance can be made that
the Company will not experience a shortage of drivers in the future.

In
an effort to improve its operating results, the Company implemented a new program during fiscal 2000 in which owner-operators may qualify to lease/purchase a truck and be paid a percentage of the
Company's revenue to operate the truck under a contract with the Company to haul freight for its customers. This program was intended to provide benefits to the Company during the term of the lease
approximately equal to the current employee driver program. The program was an option for drivers which the Company believed would improve driver retention. Since the owner/operator is responsible for
certain of the costs borne by the company for employee drivers, the Company's income statement will reflect a shift between individual cost categories. Due to a higher than expected turnover rate in
the program, the Company discontinued its recruiting efforts for the program in the third quarter of

3

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fiscal 2002. Trucks previously in the lease/purchase program were moved to the Company's employee driver fleet as they became available. At June 30, 2002, the Company's lease/purchase truck
fleet had decreased to 23 trucks.

The
Company's cost for owner/operators is reflected in the income statement as part of "Rents and purchased transportation." The Company experienced a significant reduction in its costs for Salaries,
wages and fringe benefits, Operating supplies and expense, Operating taxes and licenses, and Depreciation and amortization with a corresponding increase in "Rents and purchased transportation" in the
fiscal years ending in June of 2000 and June of 2001. During fiscal 2002, as the lease/purchase program became less prominent, the Company experienced the reverse effect and "Rents and purchased
transportation decreased while the Company's normal operating expenses increased.

The
Company's lease program is structured in such a way that the owner/operator may elect to purchase the equipment for its fair market value at the end of the lease. Alternatively, the owner/operator
may elect not to purchase the equipment. In the event that an operator does not purchase the equipment, the Company had anticipated that it might realize a benefit at the end of the lease term when
trucks are sold as a result of a higher trade-in or re-sale value due to better care and maintenance by the owner/operator. However, the current market value for used trucks is
depressed and the Company does not believe it will see a significant benefit when the used trucks are sold.

The
Company employed:

June 30,2002

2001Drivers and Driver Trainees (including Owner-Operators)

664

797Management

11

16Operations, Marketing and Administration

98

163Maintenance and Repair

34

46Total

807

1,022


Management
considers relations with its employees to be satisfactory and has not experienced collective bargaining efforts in the past, nor does it anticipate any collective bargaining by employees in
the future. The Company has a 401(k) plan for its drivers and other employees. Company contributions, if any, are determined annually by its Board of Directors.

Tractors and Trailers

At
June 30, 2002, the fleet consisted of 777 tractors and 1,444 trailers, compared to 777 tractors and 1,654 trailers at June 30, 2001. During the fiscal year ended June 30, 2002,
the Company sold 210 trailers.

Tractors
are acquired primarily with driver comfort, fuel efficiency and overall economy in mind. All tractors operated by the Company are conventionals, rather than cab-overs. Management
believes that this type of tractor will provide the driver greater comfort and will require less overall maintenance because of the tractor's easier ride on the road. As of June 30, 2002,
substantially all of the Company's tractors were manufactured by International, while trailers were manufactured by Pines and Great Dane. The Company has negotiated extended warranties on many of its
tractors and had made plans to trade-in such tractors on approximately a three-year cycle. However, due to depressed values for used trucks, the Company may elect to increase
the trade time. Manufacturers of tractors are required to
certify to the Company that new tractors meet federal emissions standards. All trailers in the fleet measure 48 or 53 feet in length by 102 inches in width.

4

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The
Company has a comprehensive preventive maintenance program for its tractors and trailers. Inspections and different levels of repair or maintenance are performed at regular intervals. At each
inspection, diagnostic tests are performed to ensure proper operation of equipment.

The
following table shows the type and age of equipment operated by the Company at June 30, 2002:

MODEL
YEAR

OVER-the-ROAD
TRACTORS

48-FOOT
TRAILERS

53-FOOT
TRAILERS2001

59



1002000

611



1001999

100



1998





5941997





2961996

2

2321995thru1983

5

122

777

354

1,090


Fuel

The
Company, and the motor carrier industry as a whole, is dependent upon the availability and cost of diesel fuel. Both the availability and the cost of diesel fuel are influenced by economic and
political events not within the Company's control. The Company does not presently participate in any program to insure price stability. During fiscal 2002, the Company's average cost per gallon was
approximately 22 cents lower than in fiscal 2001. During the 4thquarter of fiscal 2002, the Company's average price per gallon was approximately 16 cents higher than in the same period
of the previous year. Historically, increases in fuel costs have been passed through to the Company's customers, either in the form of fuel surcharges, or if deemed permanent in nature, through
increased rates. Although the Company has currently implemented fuel surcharges for its customers, there is no assurance that any future increases in fuel costs can be passed through to the Company's
customers. The current cost or future cost increases or shortages of fuel could affect the Company's future profitability.

Governmental Regulation

The
Company is a motor common and contract carrier previously regulated by the Department of Transportation ("DOT") and various state agencies. These regulatory authorities have broad powers generally
governing matters such as authority to engage in motor carrier operations, rates and charges, accounting systems, certain mergers, consolidations and acquisitions and periodic financial reporting. In
addition, the Company's Canadian business activities are subject to similar requirements imposed by provincial and Canadian regulations. Canadian business activities represent less than 1% of total
company operations.

The
Company, like other motor carriers, is subject to certain safety requirements governing interstate operations prescribed by the United States Department of Transportation ("DOT") and by Canadian
provincial authorities. In addition, vehicle weight and dimensions are subject to federal, state and provincial regulations. Management believes that the Company is in compliance in all material
respects with applicable regulatory requirements relating to its operations. The failure of the Company to comply with regulations of the DOT, state or provincial agencies could result in substantial
fines or revocation of operating authorities. Federal, state and local environmental laws and regulations impose requirements relating to, among other things, contingency planning for spills of
petroleum products, disposal of waste oil and maintenance and testing of underground storage tanks. Management believes that future compliance with such laws and regulations will not have a material
effect upon the Company's capital expenditures, earnings or competitive position.

5

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Competition

The
trucking industry as a whole is highly competitive. The Company competes primarily with other irregular route, truckload carriers. To a lesser degree, railroads,
less-than-truckload carriers and contract carriers also provide competition. Competition from any one of these sources, however, may be significant in one geographic area or at
any one time. Competition for freight is based primarily on service and efficiency and, to a lesser degree, upon freight rates. A number of other irregular routes, truckload carriers have
substantially greater financial resources, own more equipment or carry a larger volume of freight than the Company.

Safety and Insurance

The
Company is self-insured up to certain limits for workers' compensation, cargo loss and damage, and certain property damage and liability claims. Provision has been made for the
estimated liabilities for such claims as incurred, including liabilities for claims incurred but not reported. The amount of actual losses incurred could differ materially from the estimates reflected
in these financial statements.

The
Company maintains cargo loss and damage insurance and collision coverage on owned and leased equipment. During fiscal 2002, the Company was responsible for the first $500,000 in costs associated
with each automobile accident, with an upper limit of $10,000,000. Due to substantially increased costs, as of July 1, 2002, the Company purchased an automobile liability policy with a $500
deductible per accident with an upper limit of $1,000.000. In addition, with the assistance of its third-party administrator, workers' compensation claims are self-insured up to $750,000.
Management believes that current insurance coverage adequately protects the Company from liability arising from normal operations; however, an accident with costs exceeding the Company's policy limits
could have a material adverse effect on the Company's profitability.

Item 2. Properties

The
Company's executive offices and its maintenance facility are located at 1383, 1457 & 1457A E. Robinson Ave. in Springdale, Arkansas.

The
office facility is located on a 4.85 acre tract of land. It is leased from Dean G. Cannon and Rose Marie Cannon.

The
Company's maintenance facility, purchased in 1987, is located on a 17-acre tract of land adjacent to the office facility. The 13,000 square foot facility contains 7 drive-through bays
and other improvements and is used by the Company for equipment maintenance and repairs.

The
Company owns approximately 31.3 acres of commercial land adjacent to the above locations which is currently listed for sale.

Item 3. Legal Proceedings

The
Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. Management
believes that adverse results in one or more of these cases would not have a material adverse effect on the Company's financial position. Additionally, a decision has been rendered against the Company
by the Equal Employment Opportunity Commission ("EEOC") for unlawful hiring practices regarding pre-employment questions about medical issues. The Company believed it was required by
Department of Transportation regulations to ask these questions. The Company has entered into a settlement agreement with the EEOC which requires the Company to pay certain individuals who may have
been discriminated against a fee and/or be offered employment with the Company. The Company accrued $250,000 for these payments and associated legal fees during fiscal year 2001. Management believes

6

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that settlement of this charge will not have a material adverse effect on the financial position of the Company. In 2002 approximately $68,000 was paid out in connection with this decision.

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

None.

7

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Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters



COMMON STOCKHIGH

LOWYEAR ENDED JUNE 30, 2002:First Quarter

$
1.88

$
1.20Second Quarter


1.30


1.00Third Quarter


1.10


.60Fourth Quarter


1.09


.65YEAR ENDED JUNE 30, 2001:First Quarter

$
2.50

$
1.75Second Quarter


1.81


.75Third Quarter


1.88


.88Fourth Quarter


2.63


.88


Item 6. Selected Financial Data

The
following table provides a summary of selected financial data for Cannon Express, Inc.

|                                                     |  | FISCAL YEAR ENDED JUNE 30,
|---------------------------------------------------- |  | --------------------------
|
|
|Operating Revenue                                    |  | $                         
|Income (loss)                                        |  |                           
|Basic and diluted earnings (loss) per share
(1 & 2): |  |                           
|Total assets                                         |  | $                         
|Long term debt, less current portion                 |  | $                         

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8

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

The following table sets forth the percentage relationship of certain revenue and expense items for the fiscal years indicated.

|                                  |                                      | Percentages of
Operating Revenue
Year Ended June 30, |     
|--------------------------------- | ------------------------------------ | ---------------------------------------------------- | ----
|
|Operating revenue                 |                                      | 100                                                  | %   
|Operating expenses and costs:     |                                      |                                                      |     
|                                  | Salaries, wages and fringe benefits  |                                                      | 36.0
|                                  | Operating supplies and expenses      |                                                      | 32.8
|                                  | Operating taxes and licenses         |                                                      | 5.5 
|                                  | Insurance and claims                 |                                                      | 6.4 
|                                  | Depreciation and amortization        |                                                      | 12.1
|                                  | Rents and purchased transportation   |                                                      | 12.4
|                                  | Loss on Impaired assets              |                                                      | 3.2 
|                                  | Other                                |                                                      | 3.0 
|                                  |                                      | Total operating expenses                             |     
|                                  |                                      |                                                      |     
|Operating income (loss)           |                                      | (11.6                                                | )   
|Other income (expense):           |                                      |                                                      |     
|                                  | Interest and dividend income         |                                                      | 0.1 
|                                  | Gain (loss) on marketable securities |                                                      | (0.4
|                                  | Interest expense                     |                                                      | (3.9
|                                  |                                      |                                                      |     
|Income (loss) before income taxes |                                      | (15.8                                                | )   
|Income taxes                      |                                      | (0.4                                                 | )   
|                                  |                                      |                                                      |     
|Net income (loss)                 |                                      | (15.4                                                | )%  
|                                  |                                      |                                                      |     

RESULTS OF OPERATIONS:

Fiscal year ended June 30, 2002 compared to Fiscal year ended June 30, 2001

Operating
revenue for fiscal 2002 decreased to $79.1 million from $85.8 million in fiscal 2001. Logistics and intermodal revenue decreased to $2.1 million during fiscal 2002 from
$4.0 million in fiscal 2001. The Company's revenue continued to be negatively impacted by a shortage of qualified drivers to operate its trucks in fiscal 2002. Additionally, the Company was
affected by a shortage of freight during fiscal 2002.

The
Company experienced significant turnover in its lease program during fiscal 2002 and is not currently accepting new applications for the program. As of June 30, 2002, the Company had 23
drivers in the lease-purchase program. Salaries, wages and fringe benefits increased 12.3% or $3,111,178 to $28,503,754 in fiscal 2002 due to the Company's smaller owner-operator fleet and its
increased dependence on Company drivers. Rents and purchased transportation decreased 60.4% or $14,978,105 to $9,817,567 in fiscal 2002 primarily due to the decrease in the Company's owner operators
and to decreased logistics activities.

Operating
supplies and expenses increased 20.7% or $4,451,061 to $25,952,113 in fiscal 2002. Fuel costs for the fiscal year ended June 30, 2002, averaged 22 cents per gallon lower than in the
comparable period of fiscal 2001, which together with the increased purchases of fuel by Company drivers, increased operating expense by approximately $1,351,000 during the 12 month period.
Maintenance and

9

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tire costs increased by approximately $2,874,000 also due to the Company's decreased reliance on owner operators.

Operating
taxes and licenses increased 13.8% or $528,454 to $4,355,331 in fiscal 2002 primarily due to the Company's decreased reliance on owner-operators who are responsible for taxes and licenses on
the equipment they operate.

Insurance
and claims increased 31.5% or $1,587,048 to $5,039,644 in fiscal 2002 due to unfavorable claims experience.

Depreciation
and amortization increased 11.5% or $987,430 to $9,564,516 in fiscal 2002. This increase is primarily due to the Company's larger fleet of Company drivers and a smaller gain on sale of
equipment of $351,973 realized in fiscal 2002, as compared to a gain of $1,205,951 in fiscal 2001, as gains are netted against depreciation and amortization.

At
June 30, 2002, the Company recognized a Loss on impaired assets of $2,535,105. This loss is reflected on approximately 200 trucks and 400 trailers. Approximately 100 trucks and 200 trailers
are carried on the Company's financial records as "Held for sale" at year end. The Company expects that these assets will be sold during the 1st and 2nd quarter of fiscal
2003. The remaining 100 trucks and 200 trailers are identified as "Impaired" at year end. The Company will continue to operate and depreciate these assets until such time as a determination may be
made as to whether or not they will be sold.

The
Company's operating ratio increased to 111.6% for fiscal 2002 from 104.8% for the prior year.

Interest
expense decreased 33.3% or $1,549,368 in fiscal 2002 due to the decrease in total debt outstanding.

Beginning
in 1999 and continuing through the first quarter of fiscal 2002, the Company recognized a previously unrealized tax benefit resulting from a sale/leaseback transaction entered into during
fiscal year 1995. The Company took a position on its 1995 and later tax returns, which the Company believed might be challenged by the Internal Revenue Service (IRS). The Company initially did not
recognize any tax benefit for financial reporting purposes. In December 2001, the Company received a Notice of Proposed Deficiency from the IRS related to years ending June 30, 1994
through 1999. The Company is appealing the proposed tax deficiency with the Appeals Section of the IRS. Management believes its position on the material issues will be up-held in appeal
and that the ultimate outcome will not have a material adverse impact on the Company's financial position or results of operations. However, the Company will not recognize any current income tax
credits until the appeal process is concluded.

Net
loss for the fiscal year ended June 30, 2002 was ($12,204,505) ($3.81 loss per diluted share) compared to net loss of $7,303,442 ($2.28 loss per diluted share) during fiscal 2001, an
increase of $4,901,063 or 67.1%.

Liquidity and Capital Resources

Cash
flows from OperationsOperating activities provided cash of $3.4 million and $5.9 million in fiscal 2002 and 2001, respectively. Net cash flows from operations in fiscal
2002 were primarily the result of $12.2 million net loss, $9.9 million in depreciation offset by $.4 million from gain on disposal of assets, $1.2 million decrease in net
investment in direct financing leases, and a $2.4 million decrease in accounts receivable and other assets.

Cash
flows from Investing ActivitiesInvesting activities provided net cash of $1.0 million in fiscal 2002 and provided net cash of $3.7 million in fiscal 2001. Proceeds from
equipment sales totaling $1.2 million was offset by $.2 million other investing activities for 2002.

Cash
flows from Financing ActivitiesFinancing activities used net cash of $7.0 million in fiscal 2002 and used net cash of $14.9 million in fiscal 2001.

10

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Working
capital needs have been met primarily from cash generated from operations. During the fiscal year ended June 30, 2002, cash provided by operating activities was $3,446,386, down from
$5,879,118 for the prior fiscal year ended June 30, 2001. The current ratio decreased from .25 at June 30, 2001 to .54 at June 30, 2002. Working capital decreased by
$35.8 million to a deficit of $42.5 million, including $47.8 million in current maturities of long-term debt, at June 30, 2002 from a deficit of
$6.7 million at June 30, 2001. The Company has classified all its debt as current on the balance sheet while attempting to renegotiate the terms of its debt obligations. Historically,
working capital needs have been met from cash generated from operations. Management believes that the Company's working capital will be sufficient for its short-term needs. The Company has
a $6 million working capital line of credit that is collateralized by qualifying accounts receivable. The line of credit is limited to 50% of eligible receivables. The Company had $3,049,695
outstanding and $0 available on this line of credit at June 30, 2002. The line of credit maturity date is February 2005.

During
the fiscal year ended June 30, 2002, the Company sold 210 trailers.

Future Operations

The
financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial statements, the Company has experienced increasing net losses before income taxes of approximately $12.5 million,
$8.4 million and $1.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. In addition, the Company
has experienced significant declines in operating revenues and cash reserves over the past few years. The Company also has a working capital deficit of approximately $11.5 million, which
includes approximately $16.8 million in current debt obligations coming due in fiscal year 2003.

As
of October 15, the Company has not made its September debt payments. Although the Company is currently attempting to renegotiate terms that are more favorable to the Company, there is no
guarantee that management will be successful.

These
factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. The ability
of the Company to continue as a going concern is dependant upon its ability to significantly improve its operating ratios, its ability to generate sufficient cash flow to meet its obligations on a
timely basis, the support of its stockholders and its ability to obtain additional financing or refinancing as may be required.

The
Company is currently implementing a plan, which management believes will significantly improve its operating efficiencies over the next fiscal year. The Company has retained the services of CFOex,
a transportation management consulting firm, having significant experience in the transportation industry, to improve its financial position. CFOex, as of August 19, 2002 will assume complete
responsibility for the operation of the Company. CFOex is currently implementing a plan designed to reduce the Company's expenses and to increase its revenue per mile. The Company is negotiating with
its lenders and some of its vendors to extend the terms of certain obligations in order to improve the Company's financial position in the near term and has identified cost-cutting
measures to eliminate unnecessary overhead. Future plans will include an increased emphasis on identifying and targeting those lanes which are profitable for the Company and to eliminating those lanes
which do not fit the Company's marketing philosophy.

The
Company has also identified certain unencumbered assets for disposition. These assets include real estate, an airplane, and other miscellaneous assets.

11

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There
is no assurance that the Company will be able to improve its operating ratios or that the Company will be successful in securing capital resources to fund maturities of debt and other
obligations as they become due in fiscal 2003 or to support the Company until such time that the Company is able to consistently generate results sufficient to support its operations.

Inflation

Inflation
continues to have a minimal impact on operations.

Seasonality

In
the trucking industry, results of operations generally show a seasonal pattern because customers reduce shipments during the winter. Historically, the Company's operating efficiency has decreased
during the winter months due to increased maintenance costs, reduced fuel efficiency, detours and delays for weather.

Forward-Looking Statements

This
report contains forward-looking statements that are based on assumptions made by management from information currently available to management. These statements address future plans, expectations
and events or conditions concerning various matters such as the results of the Company's sales efforts as set forth in the discussion of results of operations, capital expenditures, and litigation and
capital resources and accounting matters. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results could differ materially from
those currently reported.

Item 7a. Quantitative and Qualitative Disclosure about Market Risk

The
Company is exposed to cash flow and interest rate risks due to changes in interest rates with respect to its long-term debt. See Note 2of the Notes to Consolidated Financial Statements for details
on the Company's long-term debt.

Item 8. Financial Statements and Supplementary Data

The
response to this Item is presented in a separate section of this report.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

There
have been no disagreements with accountants or accounting and financial disclosures during the year ended June 30, 2002.

There
was a change in accountants on June 17, 2002. See form 8K filed with the SEC in June 2002.

12

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Part III

Item 10. Directors and Executive Officers of Registrant

Certain
information about directors and executive officers of the Company is set forth below:

Name

Age

PositionDean G. Cannon(1)

61

President and Chairman of the BoardRose Marie Cannon(1)

61

Secretary, Treasurer and DirectorBruce W. Jones(2)

55

Chief Executive OfficerCalvin Turner, Jr.(2)

43

PresidentJames T. Schnoes(2)

43

TreasurerDuane Wormington(3)

45

Vice President of Finance, SecretarySam F. Fiser

54

DirectorGlenn E. Kelley

40

Director


---

Dean
G. Cannon has been the President and a Director of Cannon Express Corp., the wholly-owned operating subsidiary of the Company, from 1981 to August 19, 2002, and served as President and as
Director of the Company from its inception to August 19, 2002. Mr. Cannon continues to serve as chairman of the board and as a director. Dean G. Cannon is the husband of Rose Marie
Cannon.

Rose
Marie Cannon has been the Secretary, Treasurer and a Director of Cannon Express Corp., from 1981 to August 19, 2002, and served as Secretary, Treasurer and Director of the Company from its
inception to August 19, 2002. Mrs. Cannon continues to serve as a director. Rose Marie Cannon is the wife of Dean G. Cannon.

Duane
Wormington has been Vice-President of Finance of Cannon Express Corp. from 1987 to the present. Mr. Wormington is a graduate of Southwest Baptist University in Bolivar,
Missouri and is a Certified Public Accountant.

Glenn
E. Kelley has been a director since 2001. Mr. Kelley is an attorney with the Kelley Law Firm, a professional limited liability company located in Rogers, Arkansas. He has been licensed to
practice law in the state and federal courts in Arkansas since 1987 with primary emphasis on commercial transactions, commercial litigation, and employment matters.

Sam
F. Fiser has been a director since 2001. Mr. Fiser is a partner in S.F. Fiser & Company, a regional accounting firm headquartered in Springdale, Arkansas. He is a graduate of the
University of Arkansas. Mr. Fiser is a member of the American Institute of Certified Public Accountants, the Arkansas Society of Certified Public Accountants, and is a former chairman of the
Arkansas Savings and Loan Board.

Section 16(a)
of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission reports of ownership and changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

Based
solely upon a review of the copies of such reports furnished to the Company, or written representations from certain reporting persons, the Company believes that, during the 2002 fiscal year,

13

---

all filing requirements were complied with as they apply to its officers, directors and greater than 10% beneficial owners. The remainder of this item is incorporated by reference from the Company's
Notice and Proxy Statement for its annual meeting of stockholders to be held on Tuesday, November 19, 2002.

Item 11. Executive Compensation

This
item is incorporated by reference from the Company's Notice and Proxy Statement for its annual meeting of stockholders to be held on Tuesday, November 19, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management

This
item is incorporated by reference from the Company's Notice and Proxy Statement for its annual meeting of stockholders to be held on Tuesday, November 19, 2002.

Item 13. Certain Relationships and Related Transactions

This
item is incorporated by reference from the Company's Notice and Proxy Statement for its annual meeting of stockholders to be held on Tuesday, November 19, 2002.

Item 14. Controls and Procedures

CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In
connection with the Annual Report of Cannon Express, Inc., (the "Company") on Form 10-K for the year ending June 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Dean G. Cannon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley
Act of 2002, that:

|/s/DEAN G. CANNON                                       |  | 
|------------------------------------------------------- |  | 
|Dean G. Cannon
Chief Executive Officer
October 14, 2002 |  | 

14

---

CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In
connection with the Annual Report of Cannon Express, Inc., (the Company") on Form 10-K for the year ending June 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Duane Wormington, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley
Act of 2002, that:

|/s/DUANE WORMINGTON                                       |  | 
|--------------------------------------------------------- |  | 
|Duane Wormington
Chief Financial Officer
October 14, 2002 |  | 

15

---



Part IV

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

|(a) |  | (1)                                                                                                           |  | The response to this portion of Item 15 is submitted as a separate section of this report.                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | (2)                                                                                                           |  | the exhibits as listed in the Exhibit Index are submitted as a separate section of this report. In accordance with SEC Rules, the following is a list of all Compensatory Plans or Arrangements of the Company:
|    |  |                                                                                                               |  |                                                                                                                                                                                                                
|(b) |  | On June 17, 2002, the Company filed a Form 8-K reporting Item 4Change in Registrant's Certifying Accountant.
|(c) |  | See Item 15(a)(2) above.                                                                                     
|(d) |  | The response to this portion of Item 15 is submitted as a separate section of this report.                   

|INDEX TO EXHIBITS
|-----------------
|3.(i)(a)         
|3.(i)(b)         
|3.(ii)(a)        
|3.(ii)(b)        
|10.(a)           
|10.(b)           
|10.(c)           
|21.(a)           
|(1)              
|(2)              
|(3)              

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. Dated this 14th day of October, 2002.

| |  | Cannon Express, Inc.
| |  | --------------------
| |  | By:                 

16

---

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

|By: |  | /s/ROSE MARIE CANNONRose Marie Cannon
Director, Secretary and Treasurer |  | By: |  | /s/SAM F. FISERSam F. Fiser
Director
|--- |  | ----------------------------------------------------------------------- |  | --- |  | ------------------------------------
|By: |  | /s/GLENN E. KELLEYGlenn E. Kelley
Director                              |  |     |  |                                     

17

---



FORM 10-K-ITEM 8, ITEM 14(a)(1) AND (2)  CANNON EXPRESS, INC., AND SUBSIDIARIES  LIST OF FINANCIAL STATEMENTS AND  FINANCIAL STATEMENT SCHEDULE

The
following consolidated financial statements of Cannon Express, Inc. and Subsidiaries are included in Item 8:

Report
of Independent Public Accountants.

Consolidated
Balance Sheets as of June 30, 2002 and 2001.

Consolidated
Statements of Operations for the years ended June 30, 2002, 2001 and 2000.

Consolidated
Statements of Changes in Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000.

Consolidated
Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000.

Notes
to Consolidated Financial Statements as of June 30, 2002 and 2001.

The
following consolidated financial statement schedule of Cannon Express, Inc. and Subsidiaries is included in Item 14(d):

Schedule (II)
Valuation and Qualifying Accounts.

All
other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable,
and therefore have been omitted.

18

---



INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders
of Cannon Express, Inc. and Subsidiaries:

We
have audited the accompanying consolidated balance sheet ofCannon Express, Inc. and subsidiaries(a Delaware Corporation) as of
June 30, 2002, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The consolidated
financial statements of Cannon Express, Inc. and subsidiaries for the years ended June 30, 2001 and 2000 were audited by other auditors who have ceased operations and whose report, dated
August 3, 2001, on those financial statements included an explanatory paragraph that expressed substantial doubt about the Company's ability to continue as a going concern.

We
conducted our audit 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 audit provides a reasonable basis for our opinion.

In
our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position ofCannon Express, Inc. and
subsidiariesas of June 30, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has a deficit working capital at June 30, 2002, which, among other things, raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Our
audit was made for the purpose of forming an opinion on the basic financial statements for the year ended June 30, 2002 taken as a whole. The Valuation and Qualifying Accounts Schedule is
presented for purposes of additional analysis and is not a required part of the basic financial statements. This supplementary information for the year ended June 30, 2002 has been subjected to
the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a
whole. The supplementary information for the years ended June 30, 2001 and 2000 was audited by other auditors who have ceased operations and whose report, dated August 3, 2001, expressed
an unqualified opinion on such information in relation to the basic financial statements taken as a whole.



Fayetteville,
Arkansas
August 16, 2002

19

---



Cannon Express, Inc. and Subsidiaries        Consolidated Balance Sheets

|                        |                                                                                  | June 30,
|----------------------- | -------------------------------------------------------------------------------- | --------
|
|Assets                  |                                                                                  |         
|Current assets:         |                                                                                  |         
|                        | Cash and cash equivalents                                                        |         
|                        | Receivables, less allowance for doubtful accounts (2002$395,080 2001$542,618): |         
|                        |                                                                                  | Trade   
|                        |                                                                                  | Other   
|                        | Current portion of net investment in direct financing leases                     |         
|                        | Prepaid expenses and supplies                                                    |         
|                        | Revenue equipment held for sale                                                  |         
|                        |                                                                                  |         
|Total current assets    |                                                                                  |         
|                        |                                                                                  |         
|Property and equipment: |                                                                                  |         
|                        | Land, buildings and improvements                                                 |         
|                        | Revenue equipment                                                                |         
|                        | Service, office and other equipment                                              |         
|                        |                                                                                  |         
|                        |                                                                                  |         
|                        | Less allowance for depreciation                                                  |         
|                        |                                                                                  |         
|                        |                                                                                  |         
|                        |                                                                                  |         
|Other assets:           |                                                                                  |         
|                        | Receivable from stockholders                                                     |         
|                        | Restricted cash                                                                  |         
|                        | Marketable securities                                                            |         
|                        | Net investment in direct financing leases, less current portion                  |         
|                        | Other                                                                            |         
|                        |                                                                                  |         
|                        |                                                                                  |         
|                        |                                                                                  |         
|                        |                                                                                  | $       
|                        |                                                                                  |         

See accompanying notes.

20

---

Cannon Express, Inc. and Subsidiaries        Consolidated Balance Sheets (Continued)

|                                     |                                                                                                                                    | June 30,           |           
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----------
|
|Liabilities and Stockholders' Equity |                                                                                                                                    |                    |           
|Current liabilities:                 |                                                                                                                                    |                    |           
|                                     | Trade accounts payable                                                                                                             |                    | $         
|                                     | Accrued expenses:                                                                                                                  |                    |           
|                                     |                                                                                                                                    | Insurance reserves |           
|                                     |                                                                                                                                    | Other              |           
|                                     | Federal and state income taxes payable                                                                                             |                    |           
|                                     | Current portion of long-term debt                                                                                                  |                    |           
|                                     |                                                                                                                                    |                    |           
|Total current liabilities            |                                                                                                                                    |                    | 56,435,525
|                                     |                                                                                                                                    |                    |           
|Long-term debt, less current portion |                                                                                                                                    |                    |          
|Stockholders' equity:                |                                                                                                                                    |                    |           
|                                     | Common stock: $.01 par value; authorized 10,000,000 shares; issued 3,265,401 shares; outstanding 3,205,276 shares in 2002 and 2001 |                    |           
|                                     | Additional paid-in capital                                                                                                         |                    |           
|                                     | Retained earnings (accumulated deficit)                                                                                            |                    |           
|                                     | Accumulated other comprehensive income, net of income taxes (credit) of $(1,549) and $(2,097) in 2002 and 2001                     |                    |           
|                                     |                                                                                                                                    |                    |           
|                                     |                                                                                                                                    |                    | (498,540  
|                                     | Less treasury stock, at cost (60,125 shares in 2002 and 2001)                                                                      |                    |           
|                                     |                                                                                                                                    |                    |           
|                                     |                                                                                                                                    |                    | (698,804  
|                                     |                                                                                                                                    |                    |           
|                                     |                                                                                                                                    | $                  | 55,736,721
|                                     |                                                                                                                                    |                    |           

See accompanying notes.

21

---



Cannon Express, Inc. and Subsidiaries        Consolidated Statements of Operations

|                                                                                        |                                      | Years ended June 30, |            
|--------------------------------------------------------------------------------------- | ------------------------------------ | -------------------- | -----------
|
|Operating revenue                                                                       |                                      | $                    | 79,077,131 
|Operating expenses and costs:                                                           |                                      |                      |            
|                                                                                        | Salaries, wages and fringe benefits  |                      |            
|                                                                                        | Rents and purchased transportation   |                      |            
|                                                                                        | Operating supplies and expenses      |                      |            
|                                                                                        | Operating taxes and licenses         |                      |            
|                                                                                        | Insurance and claims                 |                      |            
|                                                                                        | Depreciation and amortization        |                      |            
|                                                                                        | Loss on impaired assets              |                      |            
|                                                                                        | Other                                |                      |            
|                                                                                        |                                      |                      |            
|                                                                                        |                                      |                      | 88,244,928 
|                                                                                        |                                      |                      |            
|Operating income (loss)                                                                 |                                      |                      | (9,167,796 
|Other income (expense):                                                                 |                                      |                      |            
|                                                                                        | Interest expense                     |                      |            
|                                                                                        | Interest and dividend income         |                      |            
|                                                                                        | Loss on marketable equity securities |                      |            
|                                                                                        |                                      |                      |            
|                                                                                        |                                      |                      | (3,376,680 
|                                                                                        |                                      |                      |            
|Income (loss) before income taxes                                                       |                                      |                      | (12,544,476
|Federal and state income taxes:                                                         |                                      |                      |            
|                                                                                        |                                      | Current (Credit)     |            
|                                                                                        |                                      | Deferred (Credit)    |            
|                                                                                        |                                      |                      |            
|                                                                                        |                                      |                      | (339,971   
|                                                                                        |                                      |                      |            
|Net income (loss)                                                                       |                                      | $                    | (12,204,505
|                                                                                        |                                      |                      |            
|Basic and diluted earnings (loss) per share                                             |                                      | $                    | (3.81      
|                                                                                        |                                      |                      |            
|Weighted average number of shares and share equivalents outstanding (basic and diluted) |                                      |                      | 3,205,276  
|                                                                                        |                                      |                      |            

See accompanying notes.

22

---

Cannon Express, Inc. and Subsidiaries        Consolidated Statements of Changes in Stockholders' Equity

|                           |                                         | Common
Stock                                     |        | Additional
Paid-In
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income |             | Treasury
Stock |   | Total    |  
|-------------------------- | --------------------------------------- | ------------------------------------------------ | ------ | -------------------------- | - | ----------------- | - | -------------------------------------- | ----------- | -------------- | - | -------- | -
|Balances at July 1, 1999   |                                         |                                                  | 32,654 |                            |   | 3,747,575         |   |                                        | 14,709,630  |                |   | (119,734 | )
|Comprehensive income       |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           | Net income                              |                                                  |        |                           |   |                   |  |                                        |             | 520,501        |   |          | 
|                           | Accumulated other comprehensive income: |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           |                                         | Unrealized appreciation on marketable securities |        |                            |  |                   |   |                                       |             |                |  |          |  
|                           |                                         | Realized loss on marketable securities           |        |                            |  |                   |   |                                       |             |                |  |          |  
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|Total comprehensive income |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|Balances at June 30, 2000  |                                         |                                                  | 32,654 |                            |   | 3,747,575         |   |                                        | 15,230,131  |                |   | (4,302   | )
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|Comprehensive income       |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           | Net loss                                |                                                  |        |                           |   |                   |  |                                        |             | (7,303,442     | ) |          | 
|                           | Accumulated other comprehensive income: |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           |                                         | Unrealized appreciation on marketable securities |        |                            |  |                   |   |                                       |             |                |  |          |  
|                           |                                         | Realized loss on marketable securities           |        |                            |  |                   |   |                                       |             |                |  |          |  
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|Total comprehensive income |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  
|Balances at June 30, 2001  |                                         | $                                                | 32,654 |                            | $ | 3,747,575         |   | $                                      | 7,926,689   |                | $ | (953     | )
|Net loss                   |                                         |                                                  |       |                            |   |                  |   |                                        | (12,204,505 | )              |   |         |  
|Balances at June 30, 2002  |                                         | $                                                | 32,654 |                            | $ | 3,747,575         |   | $                                      | (4,277,816  | )              | $ | (953     | )
|                           |                                         |                                                  |        |                            |   |                   |   |                                        |             |                |   |          |  

See accompanying notes.

23

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Cannon Express, Inc. and Subsidiaries        Consolidated Statements of Cash Flows

|                                                                                  |                                                                                 | Years ended June 30, |            
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------- | -----------
|
|Operating activities                                                              |                                                                                 |                      |            
|Net income (loss)                                                                 |                                                                                 | $                    | (12,204,505
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                 |                      |            
|                                                                                  | Depreciation and amortization                                                   |                      |            
|                                                                                  | Provision for losses on accounts receivable                                     |                      |            
|                                                                                  | Provision for Impaired assets                                                   |                      |            
|                                                                                  | Deferred income tax benefit                                                     |                      |            
|                                                                                  | Gain on disposal of equipment                                                   |                      |            
|                                                                                  | Loss on sale of marketable securities                                           |                      |            
|Changes in operating assets and liabilities:                                      |                                                                                 |                      |            
|                                                                                  | Receivables                                                                     |                      |            
|                                                                                  | Prepaid expenses and supplies                                                   |                      |            
|                                                                                  | Accounts payable, accrued expenses, income taxes payable, and other liabilities |                      |            
|                                                                                  | Net investment in direct financing leases                                       |                      |            
|                                                                                  | Other assets                                                                    |                      |            
|                                                                                  |                                                                                 |                      |            
|Net cash provided by operating activities                                         |                                                                                 |                      | 3,446,385  
|                                                                                  |                                                                                 |                      |            
|Investing activities                                                              |                                                                                 |                      |            
|Purchases of property and equipment                                               |                                                                                 |                      | (196,392   
|Net increase in restricted cash                                                   |                                                                                 |                      | (8,467     
|Investment in outside driver training facility                                    |                                                                                 |                      |           
|Proceeds from sales of marketable securities                                      |                                                                                 |                      |           
|Proceeds from equipment sales                                                     |                                                                                 |                      | 1,236,639  
|                                                                                  |                                                                                 |                      |            
|                                                                                  | Net cash provided by (used in) investing activities                             |                      |            
|                                                                                  |                                                                                 |                      |            
|Financing activities                                                              |                                                                                 |                      |            
|Proceeds from long-term borrowings                                                |                                                                                 |                      |           
|Principal payments on long-term debt and capital lease obligations                |                                                                                 |                      | (10,135,849
|Proceeds from line of credit                                                      |                                                                                 |                      | 34,845,818 
|Principal payments on line of credit                                              |                                                                                 |                      | (31,744,267
|                                                                                  |                                                                                 |                      |            
|Net cash provided by (used in) financing activities                               |                                                                                 |                      | (7,034,298 
|                                                                                  |                                                                                 |                      |            
|Decrease in cash and cash equivalents                                             |                                                                                 |                      | (2,556,133 
|Cash and cash equivalents at beginning of year                                    |                                                                                 |                      | 2,958,450  
|                                                                                  |                                                                                 |                      |            
|Cash and cash equivalents at end of year                                          |                                                                                 | $                    | 402,317    
|                                                                                  |                                                                                 |                      |            

See accompanying notes.

24

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Cannon Express, Inc. and Subsidiaries        Notes to Consolidated Financial Statements  June 30, 2002 and 2001

1.    Nature of Operations and Summary of Significant Accounting Policies

Consolidation and BusinessThe consolidated financial statements include the accounts of Cannon Express, Inc. (the "Company") and its
subsidiaries. All intercompany accounts and transactions have been eliminated.

The
Company operates as an irregular route, truckload carrier.

Future OperationsThe financial statements of the Company have been prepared on the basis of accounting principles applicable to a going
concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company has experienced increasing
net losses before income taxes of approximately $12.5 million, $8.4 million and $1.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. In addition,
the Company has experienced significant declines in operating revenues and cash reserves over the past few years. The Company also has a working capital deficit of approximately $11.5 million,
which includes approximately $16.8 million in current debt obligations coming due in fiscal year 2003.

As
of October 15, the Company has not made its September debt payments. Although the Company is currently attempting to renegotiate terms that are more favorable to the Company, there is no
guarantee that management will be successful.

These
factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. The ability
of the Company to continue as a going concern is dependant upon its ability to significantly improve its operating ratios, its ability to generate sufficient cash flow to meet its obligations on a
timely basis, the support of its stockholders and its ability to obtain additional financing or refinancing as may be required.

The
Company is currently implementing a plan, which management believes will significantly improve its operating efficiencies over the next fiscal year. The Company has retained the services of CFOex,
a transportation management consulting firm, having significant experience in the transportation industry, to improve its financial position. CFOex, as of August 19, 2002 will assume complete
responsibility for the operation of the Company. CFOex is currently implementing a plan designed to reduce the Company's expenses and to increase its revenue per mile. The Company is negotiating with
its lenders and some of its vendors to extend the terms of certain obligations in order to improve the Company's financial position in the near term and has identified cost-cutting
measures to eliminate unnecessary overhead. Future plans will include an increased emphasis on identifying and targeting those lanes which are profitable for the Company and to eliminating those lanes
which do not fit the Company's marketing philosophy.

The
Company has also identified certain unencumbered assets for disposition. These assets include real estate, an airplane, and other miscellaneous assets.

There
is no assurance that the Company will be able to improve its operating ratios or that the Company will be successful in securing capital resources to fund maturities of debt and other
obligations as they become due in fiscal 2003 or to support the Company until such time that the Company is able to consistently generate results sufficient to support its operations.

Property and EquipmentProperty and equipment are recorded at cost. For financial reporting purposes, the cost of such property is
depreciated using the straight-line method. For tax reporting

25

---

purposes, accelerated cost recovery methods are used. Gains on sales of revenue equipment are recognized in the period realized as a reduction to depreciation expense. Tires purchased with revenue
equipment have been capitalized as a part of the cost of such equipment; however, replacement tires are expensed when placed in service. The estimated useful life of revenue equipment is 3 to
7 years, and the estimated useful life of service, office and other equipment is 5 to 7 years.

The
Company has adopted Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived
Assets". SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS supersedes FASB Statement No. 121 but retains
Statement 121's fundamental provisions for (a) recognition/measurement of impairment of long-lived assets to be held and used and (b) measurement
of long-lived assets to be disposed of by sale. SFAS No. 144 requires an assessment of the recoverability of the Company's investment in long-lived assets to be held and
used in operations whenever events or circumstances indicate that their carrying amounts may not be recoverable. Such assessment requires that the future cash flows associated with the
long-lived assets be estimated over their remaining useful lives and an impairment loss recognized when the future cash flows are less than the carrying value of such assets.

The
Company has determined that the value of certain revenue assets was overstated at June 30, 2002. A study was done to identify the Company's profitable freight lanes and to determine the
volume of freight which could be moved in those lanes. The study indicated that the Company could reasonably expect volumes in these profitable lanes to support a fleet size of approximately
550 - 600 trucks. The Company then began to identify certain trucks and trailers which could be sold in order to decrease the Company's fleet size to 550 trucks. A decision
was made to decrease the fleet size initially by 96 trucks and 200 trailers. The Company hired an independent third party to assign values to these trucks and trailers based on their expertise in the
market-place. After reviewing the results of the appraisal, the Company determined that it would likely be able to realize the "Orderly Liquidation Value" for these assets. Orderly Liquidation Value
was defined by the appraiser as "The price at which the property would change hands when there is a financial situation existing at the time of the sale so as to require the sale in an orderly time
frame, and all parties having reasonable knowledge of relevant facts." These 96 trucks and 200 trailers are identified on the Company's June 30, 2002 Balance Sheet as "Revenue equipment held
for sale." A "Loss on impaired assets" was recognized as of June 30, 2002 in the amount of $.8 million related to these assets. The Company expects to complete the sale of these assets
in the second fiscal quarter of 2003.

Additionally,
since the Company has determined that its current freight volumes would only support a fleet of 550 - 600 trucks, a second group of 100 trucks and 200 trailers
has been identified which may be sold in the future. The Company will continue to operate these assets and will continue to recognize depreciation expense related to their operation. The Company has
recognized an additional "Loss on impaired assets" in the amount of $1.7 million relating to these assets. These assets may be sold in the future, or, alternatively, retained in the Company's
fleet if efforts to increase freight volumes are successful. The Company will determine, in the near future, whether or not these assets will be sold.

Income TaxesDeferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax
bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

26

---

Revenue RecognitionThe Company recognizes revenue and related direct expenses when freight is delivered.

Comprehensive IncomeThe Company accounts for comprehensive income under Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income.This statement establishes standards for reporting and display of comprehensive income and its components.

Earnings Per ShareThe Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,Earnings
Per Share, effective June 30, 1998, and all earnings per share amounts disclosed herein have been calculated under the provisions of SFAS No. 128. Basic earnings
per share is computed based on the weighted average number of shares outstanding during the year, while diluted earnings per share is based on the weighted average number of shares adjusted to include
common stock equivalents attributable to dilutive warrants and stock options.

The
Company accounts for earnings (loss) per share in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. In computing diluted
earnings per share, only potential common shares that are dilutivethose that reduce earnings per share or increase loss per shareare included. Exercise of options and
warrants or conversion of convertible securities is not assumed if the result would be antidilutive, such as when a loss from continuing operations is reported or the exercise price of the convertible
securities exceeds the market price. As the exercise price of all potentially dilutive financial instruments was less than the market price at June 30, 2002, and the Company incurred a loss
from continuing operations for the year ended June 30, 2002, basic earnings per share and diluted earnings per share were computed in the same manner. Although such financial instruments were
not included due to being antidilutive, the Company does have 15,500 shares of potentially dilutive financial instruments in the form of options at June 30, 2002.

InsuranceThe Company was self-insured up to certain limits for workers' compensation, cargo loss and damage, and certain
property damage and liability claims until June 30, 2002. Provision has been made for the estimated liabilities for claims incurred, including liabilities for claims incurred but not reported.
The amount of actual losses incurred could differ materially from the estimates reflected in these financial statements.

The
Company's insurance activities are secured by $2,600,000 in letters of credit. Restricted cash of $2,426,153 and $2,417,686 at June 30, 2002 and 2001, respectively, represents certificates
of deposit held as collateral for these letters of credit.

The
Company, on July 1, 2002 secured a new policy for its property damage and liability insurance. This new policy limits the Company's responsibility to $500 for any accident and does not
require a letter of credit for deductible amounts.

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

Marketable Equity SecuritiesNoncurrent marketable equity securities for which the Company has no immediate plan to sell are classified as
available-for-sale and are carried at fair value. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders'equity.

Realized
gains and losses, based on the specifically identified cost of the security, are included in net income.

27

---

The
amortized cost and approximate fair values of noncurrent marketable equity securities classified as available-for-sale are as follows:

June 30,2002

2001Cost

$
2,529

$
344,099Unrealized losses


(1,549
)

(1,549
)Fair value

$
980

$
342,550


Proceeds
from sales of available-for-sale equity securities were $0, $4,762 and $371,669 for 2002, 2001 and 2000, respectively. Resultant gross losses of $(341,570), $(5,104)
and $(99,715) were recognized and included in net income for 2002, 2001 and 2000, respectively. The Company's available-for-sale equity securities were recorded at their market
value as of June 30, 2002, 2001 and 2000.

Deferred
income taxes (Note 3) related to the net change in unrealized appreciation (depreciation) on available-for-sale
securities, shown in stockholders' equity, were approximately $(1,549), $(2,097) and $72,262 for 2002, 2001 and 2000, respectively.

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

ReclassificationCertain reclassifications have been made to the 2000 financial statements to conform to the 2001 and 2002 financial
statement presentation. These reclassifications had no effect on net income.

28

---

2.    Long-term Debt

|                             |  | June 30,
|---------------------------- |  | --------
|
|Equipment notes(1)           |  | $       
|Capital lease obligations(2) |  |         
|Equipment notes(3)           |  |         
|Capital lease obligations(4) |  |         
|Line of credit(5)            |  |         
|                             |  |         
|                             |  |         
|Less current portion(6)      |  |         
|                             |  |         
|                             |  | $       
|                             |  |         

---



29

---

Annual
maturities of long-term debt, in accordance with the original terms of the respective agreements, excluding capital lease obligations
(Note 6) at June 30, 2002, are:

2003

$
6,627,5642004


2,610,5332005


6,105,3092006


3,035,8032007


812,822$
19,192,031


3.    Federal and State Income Taxes

A
reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:

|                                                  |                                | Years ended June 30, |           
|------------------------------------------------- | ------------------------------ | -------------------- | ----------
|
|Income taxes at the statutory federal rate of 34% |                                | $                    | (4,265,000
|Federal income tax effects of:                    |                                |                      |           
|                                                  | Equipment leasing transactions |                      |           
|                                                  | Other                          |                      |           
|Increase in valuation allowance                   |                                |                      | 4,847,000 
|State income taxes                                |                                |                      | (693,000  
|                                                  |                                |                      |           
|                                                  |                                | $                    | (339,971  
|                                                  |                                |                      |           

The
tax effects of temporary differences related to deferred taxes shown on the balance sheets were:

|                                            |                                           | June 30,                              |           
|------------------------------------------- | ----------------------------------------- | ------------------------------------- | ----------
|
|Deferred tax assets:                        |                                           |                                       |           
|                                            | Revenue equipment leases                  |                                       | $         
|                                            | Self-insurance accruals                   |                                       |           
|                                            | Net operating loss carryforwards          |                                       |           
|Allowance/valuation reserves                |                                           |                                       | 437,000   
|                                            | Revenue recognition                       |                                       |           
|                                            |                                           |                                       |           
|                                            |                                           | Total deferred income tax assets      |           
|Deferred tax liabilities:                   |                                           |                                       |           
|                                            | Depreciation                              |                                       |           
|                                            | Net investment in direct financing leases |                                       |           
|                                            | Prepaids and other                        |                                       |           
|                                            |                                           |                                       |           
|                                            |                                           | Total deferred income tax liabilities |           
|Net deferred tax asset (liability)          |                                           |                                       | 7,934,000 
|Valuation allowance for deferred tax assets |                                           |                                       | (7,934,000
|                                            |                                           |                                       |           
|Net deferred taxes                          |                                           | $                                     |          
|                                            |                                           |                                       |           

SFAS 109,
"Accounting for Income Taxes," requires deferred tax assets to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets
will not be

30

---

realized. As the Company has generated net operating losses for the last few years and there is no assurance of future income, a valuation allowance of $7,934,000 has been established at
June 30, 2002, to recognize its deferred tax assets only to the extent of its deferred tax liabilities. The Company will continue to evaluate the need for such valuation allowance in the
future.

On
June 30, 2002, the Company had Federal and State NOL tax carryforwards, which expire as follows:

2003

$
874,0002006


742,0002013


703,0002019


705,0002020


255,0002021


11,000,0002022


10,500,000


The
Company, in fiscal 1995, entered into a leasing transaction, which was accounted for on a consolidated financial reporting basis as a sale/leaseback transaction. For income tax reporting purposes,
the Company recognized a benefit in fiscal 1995, 1996, 1997, 1998 and 1999. This benefit is being recognized in the Company's consolidated financial statements as a reduction in current provision for
income taxes upon the expiration of the statutory period. Approximately $354,000, $1.5 million and $1.7 million of this benefit was recognized in the Company's consolidated financial
statements for the years ended June 30, 2002, 2001, and 2000, respectively.

Beginning
in 1999 and continuing through the first quarter of fiscal 2002, the Company recognized a previously unrealized tax benefit resulting from a sale/leaseback transaction entered into during
fiscal year 1995. The Company took a position on its 1995 and later tax returns, which the Company believed might be challenged by the Internal Revenue Service (IRS). The Company initially did not
recognize
any tax benefit for financial reporting purposes. In December 2001, the Company received a Notice of Proposed Deficiency from the IRS related to years ending June 30, 1994 through 1999.
The Company is appealing the proposed tax deficiency with the Appeals Section of the IRS. Management believes its position on the material issues will be up-held in appeal and that the
ultimate outcome will not have a material adverse impact on the Company's financial position or results of operations. However, the Company will not recognize any current income tax credits until the
appeal process is concluded.

4.    Common Stock

Stock OptionsThe Company has reserved 1,000,000 shares of common stock for issuance under the Company's Incentive Stock Option Plan.
Options are granted for five to ten year terms and are exercisable in cumulative increments of 10 to 20% annually, commencing one year after the date of grant, except for certain options which vest
100% after five years from the date of grant.

Additionally,
from time to time, the Company issues stock options to non-employee directors and a consultant. At June 30, 2002, there were no common stock options outstanding for
non-employee directors. These options have been included in the following summary information.

The
Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based
Compensation(SFAS No. 123). Accordingly, no compensation cost has been recognized for the stock option plan. There were no options granted during fiscal year 2002,
2001, and 2000. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1997 consistent with the provisions of SFAS
No. 123, the effect on the Company's net income and earnings per share would not be materially different from amounts reported.

31

---

The
fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997: dividend
yield of 0%; expected volatility of 50.6%; risk-free interest rate of 6.25%; and expected lives range from 7 to 10 years.

Option
transactions are summarized as follows (adjusted for all stock distributions, redemptions and splits):

|                                |  | 2002 |                | 2001 |   | 2000          
|------------------------------- |  | ---- | -------------- | ---- | - | --------------
|
|Outstanding at July 1           |  |      | 97,504         |      | $ | 6.22          
|Granted                         |  |      |               |      |   |              
|Exercised                       |  |      |               |      |   |              
|Canceled                        |  |      | (82,004        | )    | $ | 6.08          
|                                |  |      |                |      |   |               
|Outstanding at June 30          |  |      | 15,500         |      | $ | 7.00          
|                                |  |      |                |      |   |               
|Weighted average remaining life |  |      | 4.72 years     |      |   |               
|Exercisable at June 30          |  |      | 11,071         |      |   |               
|Weighted average price          |  | $    | 7.00           |      |   |               
|Price range at June 30          |  |      | $5.33 to $7.59 |      |   | $5.33 to $7.59

Earnings Per Share

|                                            |  | June 30,
|------------------------------------------- |  | --------
|
|Average shares outstanding                  |  |         
|Net effect of dilutive stock options        |  |         
|                                            |  |         
|Basic and diluted shares outstanding        |  |         
|                                            |  |         
|Net income (loss) for the period            |  | $       
|Basic and diluted earnings (loss) per share |  | $       
|                                            |  |         

5.    Net Investment in Direct Financing Leases

The
Company's net investment in direct financing leases consists of the leasing of transportation equipment acquired by a subsidiary of the Company to drivers. Terms of the direct financing leases
range from 156 to 182 weeks with weekly lease payments of $450 to $550. There were 23 and 110 direct financing leases in effect as of June 30, 2002 and 2001, respectively. Revenue equipment
that

32

---

relates to leases that has been cancelled during the year was transferred to fixed assets. The following lists the components of the net investment in direct financing leases:

|                                                                |  | June 30,
|--------------------------------------------------------------- |  | --------
|
|Total minimum lease payments to be received                     |  | $       
|Less unearned revenue                                           |  |         
|                                                                |  |         
|Net investment in direct financing leases                       |  | $       
|Less current portion                                            |  |         
|                                                                |  |         
|Net investment in direct financing leases, less current portion |  | $       
|                                                                |  |         

The
future minimum lease payments under direct financing leases at June 30, 2002, consisted of the following:

|2003                         |  | $ | 559,000
|---------------------------- |  | - | -------
|2004                         |  |   | 140,493
|                             |  |  
|Total minimum lease payments |  | $ | 699,493
|                             |  |  

6.    Leases and Commitments

The
future minimum payments under capital leases at June 30, 2002, consisted of the following:

|2003                                                                                                     |  | $ | 11,465,087
|-------------------------------------------------------------------------------------------------------- |  | - | ----------
|2004                                                                                                     |  |   | 12,751,344
|2005                                                                                                     |  |   | 4,355,632 
|2006                                                                                                     |  |   | 2,766,682 
|                                                                                                         |  |  
|Total minimum lease payments                                                                             |  |   | 31,338,745
|Amounts representing interest                                                                            |  |   | 2,756,285 
|                                                                                                         |  |  
|Present value of net minimum lease payments included in long-term debt ($9,884,343 due in 2003) (Note 2) |  | $ | 28,582,460
|                                                                                                         |  |  

Assets
held under capital leases are included in property, plant and equipment as follows:

|                         |  | June 30,
|------------------------ |  | --------
|
|Revenue equipment        |  | $       
|Accumulated depreciation |  |         
|                         |  |         
|                         |  | $       
|                         |  |         

The
Company incurred no capital lease obligations during 2002 or 2001.

Capital
lease amortization is included in depreciation expense.

7.    Legal Proceedings

The
Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. Management
believes that adverse results in one or more of these cases would not have a material adverse effect on the Company's financial position. Additionally, a decision has been rendered against the Company
by the

33

---

Equal Employment Opportunity Commission ("EEOC") for unlawful hiring practices regarding pre-employment questions about medical issues. The Company believed it was required by Department
of Transportation regulations to ask these questions. The Company has entered into a settlement agreement with the EEOC which requires the Company to pay certain individuals who may have been
discriminated against a fee and/or be offered employment with the Company. The Company accrued $250,000 for these payments and associated legal fees during fiscal year 2001. Management believes
that settlement of this charge will not have a material adverse effect on the financial position of the Company. In 2002 approximately $68,000 was paid out in connection with this decision.

8.    Related Party Transactions

The
Company leases a facility from the majority stockholders of the Company. The lease provides for monthly rental payments of $6,000. Rent totaled $54,000, $63,000 and $36,000 for fiscal years 2002,
2001 and 2000, respectively. The Company pays all insurance, taxes, and maintenance costs with respect to the facility. The lease is cancelable by the Company on 30 days notice.

9.    Concentration of Business and Credit Risk

The
Company provides services to customers throughout the United States, Mexico and Canada. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.
Historically, credit losses have not been significant.

One
unaffiliated customer accounted for approximately 8%, 15%, and 18% of revenue for fiscal 2002, 2001, and 2000, respectively. Accounts receivable as of June 30 for this
customer totaled approximately $452,000 and $1,235,000 for 2002 and 2001. No other customer accounted for more than 10% of the Company's revenue.

10.  Profit-Sharing Plan

The
Company has a profit-sharing plan covering all employees who have been employed a minimum of one year and attained the age of twenty-one. The Company's contributions to the plan are
determined annually by the Board of Directors. Contributions are limited to 10% of total compensation paid to participants during the plan year. Participant interests are 100% vested after completion
of three years of service. No contributions were made to the plan in 2002, 2001, or 2000.

11.  Supplemental Disclosures of Cash Flow Information

|                                             |                                                            | June 30, 
|-------------------------------------------- | ---------------------------------------------------------- | ---------
|
|Interest paid                                |                                                            | 3,109,117
|Income taxes paid                            |                                                            |         
|Non-cash investing and financing activities: |                                                            |          
|                                             | Decrease in direct financing leases                        |          
|                                             | Debt incurred due to investment in direct financing leases |          

12.  Subsequent events

Effective
August 19, 2002, Cannon Express, Inc. announced that CFOex, Inc. would assume day-to-day management responsibilities of the Company, including
the responsibilities of the Chief Executive Officer and the Chief Operating Officer of the Company. Dean G. Cannon resigned his position as President and Chief Executive Officer, and Rose Marie Cannon
resigned her position as Secretary and Treasurer of the Company. Dean Cannon will continue to serve as the Chairman of the Board of

34

---

Directors and Mrs. Cannon will remain as a director of the Company. CFOex will report to the Company's Board of Directors.

In
addition to daily management responsibilities, CFOex will pursue financial and strategic alternatives for the benefit of its shareholders. CFOex is composed of former chief financial officers and
senior executives from some of the most successful public and private trucking companies in the country and provides financial services exclusively to the transportation industry. CFOex extends
financial advisory, merger & acquisition structuring, and capital funding services.

Bruce
Jones serves as the Interim Chief Executive Officer of the Company. Mr. Jones is the founder and President of CFOex. Prior to CFOex, he served as the Managing Director of a transportation
merger and acquisition firm. Associated with the transportation industry since 1976, Bruce is the former CFO of two publicly traded truckload carriers including J. B. Hunt Transport Services. He was
the Corporate Controller & Treasurer of Schneider National, has served on numerous Boards of Directors and spoken at industry meetings on the topics of finance, business valuations and M&A
transactions.

Calvin
Turner serves as the Interim Chief Operating Officer of the Company. Mr. Turner brings considerable experience from the small to middle market sector of the industry. Cal served as
Executive Vice President of Alabama Motor Express and President of Summerford Truck Lines. He has led several entrepreneurial companies through successful acquisitions and divestitures. He has
extensive experience with "entrepreneurial owners" and the financial decisions they must make. Cal is also former Chairman of the Alabama Truck Association.

James
T. Schnoes serves as Interim Treasurer for the Company. Mr. Schnoes previously served as the Chief Financial Officer of Clicklogistics, a logistics technology and logistics management
services company based in Billerica, Massachusetts, and the Chief Financial Officer of Charger, Inc. a flatbed motor carrier based in Springdale, Arkansas. His prior motor carrier managerial
experience was as Senior Vice President, Finance and Treasurer for J.B. Hunt Transport of Lowell, Arkansas. Prior to that time, his career was in commercial banking with the Transportation Division of
The First National Bank of Chicago as a specialist in transportation lending.

Duane
Wormington continues to serve as CFO and was appointed Secretary for the Company.

35

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Cannon Express, Inc. and Subsidiaries        Notes to Consolidated Financial Statements

13.  Quarterly Results of Operations (Unaudited)

|                                                                     |  | Fiscal 2002 |           
|-------------------------------------------------------------------- |  | ----------- | ----------
|
|Operating revenue                                                    |  | $           | 21,725,631
|Operating expenses and costs                                         |  |             | 23,224,376
|                                                                     |  |             |           
|Operating loss                                                       |  |             | (1,498,745
|Other income (expense), net                                          |  |             | 7,359     
|Interest expense                                                     |  |             | 911,738   
|                                                                     |  |             |           
|Income (loss) before income taxes                                    |  |             | (2,403,124
|Income taxes                                                         |  |             | (339,971  
|                                                                     |  |             |           
|Net loss                                                             |  | $           | (2,063,153
|                                                                     |  |             |           
|Basic and diluted earnings (loss) per share                          |  | $           | (0.64     
|                                                                     |  |             |           
|Average shares and share equivalents outstanding (basic and diluted) |  |             | 3,205,276 
|                                                                     |  |             |           

|                                                                     |  | Fiscal 2001 |           
|-------------------------------------------------------------------- |  | ----------- | ----------
|
|Operating revenue                                                    |  | $           | 22,615,464
|Operating expenses and costs                                         |  |             | 23,645,889
|                                                                     |  |             |           
|Operating loss                                                       |  |             | (1,030,425
|Other income (expense), net                                          |  |             | 105,079   
|Interest expense                                                     |  |             | 1,275,992 
|                                                                     |  |             |           
|Income (loss) before income taxes                                    |  |             | (2,201,338
|Income taxes                                                         |  |             | (1,134,500
|                                                                     |  |             |           
|Net loss                                                             |  | $           | (1,066,838
|                                                                     |  |             |           
|Basic and diluted earnings (loss) per share                          |  | $           | (0.33     
|                                                                     |  |             |           
|Average shares and share equivalents outstanding (basic and diluted) |  |             | 3,205,276 
|                                                                     |  |             |           

36

---



Cannon Express, Inc. and Subsidiaries

Schedule II  Valuation and Qualifying Accounts

|Column A                  |                               | Column B                               |   | Column C  |           | Column D |         | Column E |   | Column F
|------------------------- | ----------------------------- | -------------------------------------- | - | --------- | --------- | -------- | ------- | -------- | - | --------
|
|
|Year ended June 30, 2002: |                               |                                        |   |           |           |          |         |          |   |         
|                          | Deducted from asset accounts: |                                        |   |           |           |          |         |          |   |         
|                          |                               | Reserve for doubtful trade receivables |   | $         | 542,618   |          | $       | 75,000   |   |        
|                          |                               |                                        |   |           |           |          |         |          |   |         
|                          |                               | Insurance reserves                     |   | $         | 3,539,724 |          | $       | 367,561  |   |        
|                          |                               |                                        |   |           |           |          |         |          |   |         
|Year ended June 30, 2001: |                               |                                        |   |           |           |          |         |          |   |         
|                          | Deducted from asset accounts: |                                        |   |           |           |          |         |          |   |         
|                          |                               | Reserve for doubtful trade receivables |   | $         | 267,405   |          | $       | 275,213  |   |        
|                          |                               |                                        |   |           |           |          |         |          |   |         
|                          |                               | Insurance reserves                     |   | $         | 3,666,103 |          | $       | 161,612  |   |        
|                          |                               |                                        |   |           |           |          |         |          |   |         
|Year ended June 30, 2000: |                               |                                        |   |           |           |          |         |          |   |         
|                          | Deducted from asset accounts: |                                        |   |           |           |          |         |          |   |         
|                          |                               | Reserve for doubtful trade receivables |   | $         | 199,579   |          | $       | 75,000   |   |        
|                          |                               |                                        |   |           |           |          |         |          |   |         
|                          | Insurance reserves            |                                        | $ | 3,295,528 |           | $        | 949,996 |          |  |         
|                          |                               |                                        |   |           |           |          |         |          |   |         

---

37

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Shareholder Information

Form 10-K
Availability

A
copy of the 2002 Form 10-K filed with the Securities and Exchange Commission will be forwarded, upon request, to any shareholder. Requests should be directed to:



Transfer Agent and Registrar

Continental
Stock Transfer
    and Trust Company
2 Broadway, 19th Floor
New York, New York 10004

Stock Listing

American
Stock Exchange
Symbol:
        AB

Independent Auditors

Tullius
Taylor Sartain & Sartain, LLP
Fayetteville, Arkansas

Communications Directory

Corporate
Offices: Cannon Express, Inc., 1457 E. Robinson, Springdale, Arkansas 72764.
Mailing Address: Post Office Box 364, Springdale, Arkansas 72765.
Telephone: (479) 751-9209.

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