-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFPoL7vEnj4pyifImO/7vNK6W/QMXqBEtzeujHnD4AFGrxO5EtQ4QlgHRj1THHbv rcSwKKFDQqVH2fnbkQgBLA== 0000912057-02-038673.txt : 20021015 0000912057-02-038673.hdr.sgml : 20021014 20021015162322 ACCESSION NUMBER: 0000912057-02-038673 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANNON EXPRESS INC CENTRAL INDEX KEY: 0000801558 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710650141 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13917 FILM NUMBER: 02789391 BUSINESS ADDRESS: STREET 1: 1457 ROBINSON STREET 2: P O BOX 364 CITY: SPRINGDALE STATE: AR ZIP: 72765 BUSINESS PHONE: 5017519209 MAIL ADDRESS: STREET 1: PO BOX 364 STREET 2: PO BOX 364 CITY: SPRINGDALE STATE: AR ZIP: 72765 10-K 1 a2091298z10-k.htm 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

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

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.

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.

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

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	2001
Drivers and Driver Trainees (including Owner-Operators)	664	797
Management	11	16
Operations, Marketing and Administration	98	163
Maintenance and Repair	34	46

Total	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.

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 TRAILERS
2001	59	—	100
2000	611	—	100
1999	100	—	—
1998	—	—	594
1997	—	—	296
1996	2	232
1995 thru 1983	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 4^thquarter 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.

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

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.

Part II

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

(a): Prior to March 3, 1998, the Company's common stock was traded on the NASDAQ National Market System under the symbol CANX.

On March 3, 1998, the Company transferred its listing from the NASDAQ National Market System to the American Stock Exchange under the symbol AB.

The range of high and low sales prices for the last eight fiscal quarters is as follows:

	COMMON STOCK
	HIGH		LOW
YEAR ENDED JUNE 30, 2002:
First Quarter	$	1.88	$	1.20
Second Quarter		1.30		1.00
Third Quarter		1.10		.60
Fourth Quarter		1.09		.65
YEAR ENDED JUNE 30, 2001:
First Quarter	$	2.50	$	1.75
Second Quarter		1.81		.75
Third Quarter		1.88		.88
Fourth Quarter		2.63		.88

(b): The approximate number of holders of common stock as of August 29, 2002, was 1,600.
(c): The Company has not paid any dividends on its Common Stock and does not anticipate paying dividends in the new future.

Item 6. Selected Financial Data

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

	FISCAL YEAR ENDED JUNE 30,
	2002			2001			2000		1999			1998
	(in thousands except per share data)
Operating Revenue	$	79,077		$	85,795		$	91,779	$	95,213		$	109,245
Income (loss)		(12,205	)		(7,303	)		520		(487	)		1,815
Basic and diluted earnings (loss) per share (1 & 2):		(3.81	)		(2.28	)		..16		(.15	)		..57
Total assets	$	55,737		$	75,529		$	103,889	$	75,968		$	80,886
Long term debt, less current portion	$	30,950		$	38,840		$	56,648	$	25,999		$	29,768

(1): Basic and diluted earnings per share are computed based on the weighted average number of shares outstanding during the year.
(2): The calculation for fiscal 2002, 2001, and 2000 does not include the effect of certain out of market options as they are anti-dilutive. (See Note 1 of the Notes to Consolidated Financial Statements).

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,
			2002		2001		2000
Operating revenue			100	%	100.0	%	100.0	%
Operating expenses and costs:
	Salaries, wages and fringe benefits		36.0	%	29.6	%	28.1	%
	Operating supplies and expenses		32.8		25.1		24.1
	Operating taxes and licenses		5.5		4.5		4.5
	Insurance and claims		6.4		4.0		5.2
	Depreciation and amortization		12.1		10.0		4.4
	Rents and purchased transportation		12.4		28.8		28.8
	Loss on Impaired assets		3.2
	Other		3.0		2.8		3.0
		Total operating expenses	111.6		104.8		98.1

Operating income (loss)			(11.6	)	(4.8	)	1.9
Other income (expense):
	Interest and dividend income		0.1		0.4		0.5
	Gain (loss) on marketable securities		(0.4	)	(0.0	)	(0.1	)
	Interest expense		(3.9	)	(5.4	)	(4.2	)

Income (loss) before income taxes			(15.8	)	(9.8	)	(1.9	)
Income taxes			(0.4	)	(1.3	)	(2.5	)

Net income (loss)			(15.4	)%	(8.5	)%	0.6	%

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

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 1^st and 2^nd 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.

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.

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 2 of 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.

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	Position
Dean G. Cannon(1)	61	President and Chairman of the Board
Rose Marie Cannon(1)	61	Secretary, Treasurer and Director
Bruce W. Jones(2)	55	Chief Executive Officer
Calvin Turner, Jr.(2)	43	President
James T. Schnoes(2)	43	Treasurer
Duane Wormington(3)	45	Vice President of Finance, Secretary
Sam F. Fiser	54	Director
Glenn E. Kelley	40	Director

(1): Dean G. Cannon and Rose Marie Cannon resigned as President and Secretary/Treasurer, respectively, on August 19, 2002.
(2): Bruce W. Jones, Calvin Turner, Jr., and James T. Schnoes of CFOex, were appointed as Chief Executive Officer, President, and Treasurer, respectively on August 19, 2002.
(3): Duane Wormington was appointed as Secretary on August 19, 2002.

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,

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:

(1): The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

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

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:

(1): The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

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

Part IV

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

INDEX TO EXHIBITS
3.(i)(a)		Certificate of Incorporation(1)
3.(i)(b)		Certificate of Amendment of Certificate of Incorporation(1)
3.(ii)(a)		Bylaws of the Company(1)
3.(ii)(b)		Amended Bylaws(1)
10.(a)		Lease between the Company and Dean G. Cannon and Rose Marie Cannon(3)
10.(b)		Incentive Stock Option Plan(2)
10.(c)		Engagement letter for CFOex
21.(a)		Subsidiaries of the registrant
(1)		Incorporated by reference from the Registrant's Registration Statement on Form S-18, dated February 26, 1987.
(2)		Incorporated by reference from the Registrant's Registration Statement on Form S-8, dated November 20, 2001.
(3)		Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988

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 14^th day of October, 2002.

		Cannon Express, Inc.
		By:		/s/ DEAN G. CANNON Dean G. Cannon, Chairman, Chief Executive Officer (Principal Executive Officer and Chief Accounting Officer)

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

By:		/s/ ROSE MARIE CANNON Rose Marie Cannon Director, Secretary and Treasurer		By:		/s/ SAM F. FISER Sam F. Fiser Director
By:		/s/ GLENN E. KELLEY Glenn E. Kelley Director

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.

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of Cannon 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 of Cannon Express, Inc. and subsidiaries as 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.

Tullius Taylor Sartain & Sartain, LLP.

Fayetteville, Arkansas
August 16, 2002

Cannon Express, Inc. and Subsidiaries

Consolidated Balance Sheets

			June 30,
			2002		2001
Assets
Current assets:
	Cash and cash equivalents		$	402,317	$	2,958,450
	Receivables, less allowance for doubtful accounts (2002—$395,080 2001—$542,618):
		Trade		8,470,387		10,348,355
		Other		238,351		837,987
	Current portion of net investment in direct financing leases			559,000		2,678,000
	Prepaid expenses and supplies			1,592,832		1,703,016
	Revenue equipment held for sale			2,695,600		—

Total current assets				13,958,487		18,525,808

Property and equipment:
	Land, buildings and improvements			1,376,193		1,368,273
	Revenue equipment			64,049,192		74,067,666
	Service, office and other equipment			3,119,598		2,982,769

				68,544,983		78,418,708
	Less allowance for depreciation			29,394,809		27,003,925

				39,150,174		51,414,783

Other assets:
	Receivable from stockholders			23,406		23,406
	Restricted cash			2,426,153		2,417,686
	Marketable securities			980		342,550
	Net investment in direct financing leases, less current portion			66,339		2,693,838
	Other			111,182		111,182

				2,628,060		5,588,662

			$	55,736,721	$	75,529,253

See accompanying notes.

Cannon Express, Inc. and Subsidiaries

Consolidated Balance Sheets (Continued)

			June 30,
			2002			2001
Liabilities and Stockholders' Equity
Current liabilities:
	Trade accounts payable		$	1,693,076		$	1,435,153
	Accrued expenses:
		Insurance reserves		3,594,084			3,539,724
		Other		1,566,562			2,064,307
	Federal and state income taxes payable			1,807,312			2,175,579
	Current portion of long-term debt			47,774,491			15,969,109

Total current liabilities				56,435,525			25,183,872

Long-term debt, less current portion				—			38,839,680
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			32,654			32,654
	Additional paid-in capital			3,747,575			3,747,575
	Retained earnings (accumulated deficit)			(4,277,816	)		7,926,689
	Accumulated other comprehensive income, net of income taxes (credit) of $(1,549) and $(2,097) in 2002 and 2001			(953	)		(953	)

				(498,540	)		11,705,965
	Less treasury stock, at cost (60,125 shares in 2002 and 2001)			200,264			200,264

				(698,804	)		11,505,701

			$	55,736,721		$	75,529,253

See accompanying notes.

Cannon Express, Inc. and Subsidiaries

Consolidated Statements of Operations

			Years ended June 30,
			2002			2001			2000
Operating revenue			$	79,077,131		$	85,795,395		$	91,778,766
Operating expenses and costs:
	Salaries, wages and fringe benefits			28,503,754			25,392,576			25,820,469
	Rents and purchased transportation			9,817,567			24,795,672			26,511,107
	Operating supplies and expenses			25,952,113			21,501,052			22,088,998
	Operating taxes and licenses			4,355,331			3,826,877			4,091,827
	Insurance and claims			5,039,644			3,452,596			4,790,074
	Depreciation and amortization			9,564,516			8,577,086			4,006,992
	Loss on impaired assets			2,535,105			—			—
	Other			2,476,897			2,384,620			2,755,118

				88,244,928			89,930,479			90,064,585

Operating income (loss)				(9,167,796	)		(4,135,084	)		1,714,181
Other income (expense):
	Interest expense			(3,109,117	)		(4,658,484	)		(3,838,907	)
	Interest and dividend income			73,895			353,259			469,942
	Loss on marketable equity securities			(341,458	)		(5,104	)		(99,715	)

				(3,376,680	)		(4,310,329	)		(3,468,680	)

Income (loss) before income taxes				(12,544,476	)		(8,445,413	)		(1,754,499	)
Federal and state income taxes:
		Current (Credit)		(339,971	)		(1,141,971	)		(1,303,000	)
		Deferred (Credit)		—			—			(972,000	)

				(339,971	)		(1,141,971	)		(2,275,000	)

Net income (loss)			$	(12,204,505	)	$	(7,303,442	)	$	520,501

Basic and diluted earnings (loss) per share			$	(3.81	)	$	(2.28	)	$	0.16

Weighted average number of shares and share equivalents outstanding (basic and diluted)				3,205,276			3,205,276			3,207,172

See accompanying notes.

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	)		(200,264	)		18,169,861
Comprehensive income
	Net income			—		—		520,501			—			—			520,501
	Accumulated other comprehensive income:
		Unrealized appreciation on marketable securities		—		—		—			54,107			—			54,107
		Realized loss on marketable securities		—		—		—			61,325			—			61,325

Total comprehensive income																	635,933

Balances at June 30, 2000				32,654		3,747,575		15,230,131			(4,302	)		(200,264	)		18,805,794

Comprehensive income
	Net loss			—		—		(7,303,442	)		—			—			(7,303,442	)
	Accumulated other comprehensive income:
		Unrealized appreciation on marketable securities		—		—		—			210			—			210
		Realized loss on marketable securities		—		—		—			3,139			—			3,139

Total comprehensive income																	(7,300,093	)

Balances at June 30, 2001			$	32,654	$	3,747,575	$	7,926,689		$	(953	)	$	(200,264	)	$	11,505,701
Net loss				—		—		(12,204,505	)		—			—			(12,204,505	)
Balances at June 30, 2002			$	32,654	$	3,747,575	$	(4,277,816	)	$	(953	)	$	(200,264	)	$	(698,804	)

See accompanying notes.

Cannon Express, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

		Years ended June 30,
		2002			2001			2000
Operating activities
Net income (loss)		$	(12,204,505	)	$	(7,303,442	)	$	520,501
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		9,916,489			9,783,036			9,173,125
	Provision for losses on accounts receivable		75,000			270,639			75,000
	Provision for Impaired assets		2,535,105			0			0
	Deferred income tax benefit		0			(1,930,000	)		(2,632,000	)
	Gain on disposal of equipment		(351,973	)		(1,205,951	)		(5,163,933	)
	Loss on sale of marketable securities		341,570			5,104			99,715
Changes in operating assets and liabilities:
	Receivables		2,402,604			2,367,647			(3,039,879	)
	Prepaid expenses and supplies		110,184			(79,749	)		(92,924	)
	Accounts payable, accrued expenses, income taxes payable, and other liabilities		(553,730	)		737,182			(36,884	)
	Net investment in direct financing leases		1,175,641			3,234,652			3,651,121
	Other assets		—			—			(25,020	)

Net cash provided by operating activities			3,446,385			5,879,118			2,525,822

Investing activities
Purchases of property and equipment			(196,392	)		(433,106	)		(32,112,256	)
Net increase in restricted cash			(8,467	)		(10,770	)		(25,832	)
Investment in outside driver training facility			—			—			(37,550	)
Proceeds from sales of marketable securities			—			4,762			371,669
Proceeds from equipment sales			1,236,639			4,104,434			21,921,095

	Net cash provided by (used in) investing activities		1,031,780			3,665,320			(9,882,874	)

Financing activities
Proceeds from long-term borrowings			—			246,437			31,227,405
Principal payments on long-term debt and capital lease obligations			(10,135,849	)		(15,184,007	)		(25,205,565	)
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	)		(14,937,570	)		6,021,840

Decrease in cash and cash equivalents			(2,556,133	)		(5,393,132	)		(1,332,212	)
Cash and cash equivalents at beginning of year			2,958,450			8,351,582			9,683,794

Cash and cash equivalents at end of year		$	402,317		$	2,958,450		$	8,351,582

See accompanying notes.

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.

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

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

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.

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.

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

	June 30,
	2002			2001
Cost	$	2,529		$	344,099
Unrealized 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.

2. Long-term Debt

	June 30,
	2002		2001
Equipment notes(1)	$	13,254,824	$	20,843,065
Capital lease obligations(2)		28,202,118		33,965,724
Equipment notes(3)		2,887,512		—
Capital lease obligations(4)		380,342		—
Line of credit(5)		3,049,695		—

		47,774,491		54,808,789
Less current portion(6)		47,774,491		15,969,109

	$	—	$	38,839,680

(1): Represents loans on revenue equipment, payable in various installments through 2004 with a weighted average interest rate of 7.1%. Revenue equipment, having a book value of approximately $13,895,000 at June 30, 2002, is pledged as collateral. The carrying amount of equipment notes payable approximates fair value at June 30, 2002.
(2): Capital lease obligations are for revenue equipment with an aggregate net book value of approximately $26,079,000 at June 30, 2002. The leases have a weighted average interest rate of 6.7%. The leases extend from three to seven years and contain renewal or fixed price purchase options. The lease agreements require the Company to pay property taxes, maintenance and operating expenses.
(3): Represents loans on equipment held for sale with a weighted average interest rate of 7.1%. The equipment has a net book value (after write-down) of $2,695,600.
(4): Capital lease obligations for equipment held for sale with an aggregate net book value of $0 at June 30, 2002.
(5): The Company has a $6 million working capital line of credit that is collateralized by qualifying accounts receivables. This line of credit is limited to 50% of eligible receivables while the Company's Net Worth is less than $6 million, increasing to 75% when the Tangible Net Worth is greater than $10 million. The Company pays a monthly fee of 1% over prime rate, subject to floor of 6%, for balances outstanding against this line. There are no monthly minimum fees. 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.

Revenue equipment having an original cost of approximately $1.65 million and leased to owner operators per direct financing leases described in (Note 5) are pledged as collateral in part against both the equipment notes and capital lease obligations.

(6): Subsequent to year-end the Company was not in compliance with debt covenants as the Company has not made its September payments in accordance with the terms of the loan agreements. Management is currently renegotiating terms that would be more favorable to the Company, however, there is no guarantee that management will be successful. The Company's long-term debt is classified on the Balance sheet as a current liability while the Company is not in compliance with these terms. Under the terms of the original agreements, approximately $30.9 million would be classified as long-term debt.

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	$	6,627,564
2004		2,610,533
2005		6,105,309
2006		3,035,803
2007		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,
		2002			2001			2000
Income taxes at the statutory federal rate of 34%		$	(4,265,000	)	$	(2,871,000	)	$	(596,000	)
Federal income tax effects of:
	Equipment leasing transactions		(354,500	)		(1,074,000	)		(1,660,000	)
	Other		125,529			69,029			50,000
Increase in valuation allowance			4,847,000			3,087,000			—
State income taxes			(693,000	)		(353,000	)		(69,000	)

		$	(339,971	)	$	(1,141,971	)	$	(2,275,000	)

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

			June 30,
			2002			2001
Deferred tax assets:
	Revenue equipment leases		$	10,880,000		$	13,005,000
	Self-insurance accruals			1,321,000			1,355,000
	Net operating loss carryforwards			11,639,000			7,558,000
Allowance/valuation reserves				437,000			414,000
	Revenue recognition			0			28,000

		Total deferred income tax assets		24,277,000			22,360,000
Deferred tax liabilities:
	Depreciation			15,843,000			16,998,000
	Net investment in direct financing leases			239,000			2,057,000
	Prepaids and other			261,000			218,000

		Total deferred income tax liabilities		16,343,000			19,273,000
Net deferred tax asset (liability)				7,934,000			3,087,000
Valuation allowance for deferred tax assets				(7,934,000	)		(3,087,000	)

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

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	$	874,000
2006		742,000
2013		703,000
2019		705,000
2020		255,000
2021		11,000,000
2022		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.

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.

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
	Options			Wt Avg Exercise Price		Options			Wt Avg Exercise Price		Options			Wt Avg Exercise Price
Outstanding at July 1		97,504		$	6.22		104,504		$	6.27		139,197		$	5.47
Granted		—			—		—			—		—			—
Exercised		—			—		—			—		—			—
Canceled		(82,004	)	$	6.08		(7,000	)		7.00		(34,693	)		3.04

Outstanding at June 30		15,500		$	7.00		97,504		$	6.22		104,504		$	6.27

Weighted average remaining life		4.72 years
Exercisable at June 30		11,071					84,861					84,647
Weighted average price	$	7.00				$	6.17				$	6.18
Price range at June 30		$5.33 to $7.59					$5.33 to $7.59					$5.33 to $7.59

Earnings Per Share

	June 30,
	2002			2001			2000
Average shares outstanding		3,205,276			3,205,276			3,207,072
Net effect of dilutive stock options		—			—			—

Basic and diluted shares outstanding		3,205,276			3,205,276			3,207,072

Net income (loss) for the period	$	(12,204,505	)	$	(7,303,442	)	$	520,501
Basic and diluted earnings (loss) per share	$	(3.81	)	$	(2.28	)	$	0.16

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

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,
	2002		2001
Total minimum lease payments to be received	$	699,493	$	6,151,061
Less unearned revenue		74,154		779,223

Net investment in direct financing leases	$	625,339	$	5,371,838
Less current portion		559,000		2,678,000

Net investment in direct financing leases, less current portion	$	66,339	$	2,693,838

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,
	2002		2001
Revenue equipment	$	41,250,497	$	39,115,760
Accumulated depreciation		10,672,023		9,855,984

	$	30,578,474	$	29,259,776

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

Capital lease amortization is included in depreciation expense.

7. Legal Proceedings

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,
		2002	2001	2000
Interest paid		3,109,117	4,601,000	1,683,000
Income taxes paid		—	29,000	63,000
Non-cash investing and financing activities:
	Decrease in direct financing leases	3,570,858	8,312,017	—
	Debt incurred due to investment in direct financing leases	—	—	20,863,301

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

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.

Cannon Express, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

13. Quarterly Results of Operations (Unaudited)

	Fiscal 2002
	September 30			December 31			March 31			June 30
Operating revenue	$	21,725,631		$	19,774,737		$	18,527,847		$	19,048,916
Operating expenses and costs		23,224,376			21,567,580			20,162,089			23,290,882

Operating loss		(1,498,745	)		(1,792,843	)		(1,634,242	)		(4,241,966	)
Other income (expense), net		7,359			17,362			13,556			(305,840	)
Interest expense		911,738			738,313			752,979			706,088

Income (loss) before income taxes		(2,403,124	)		(2,513,794	)		(2,373,665	)		(5,253,894	)
Income taxes		(339,971	)		0			0			0

Net loss	$	(2,063,153	)	$	(2,513,794	)	$	(2,373,665	)	$	(5,253,894	)

Basic and diluted earnings (loss) per share	$	(0.64	)	$	(0.78	)	$	(0.74	)	$	(1.64	)

Average shares and share equivalents outstanding (basic and diluted)		3,205,276			3,205,276			3,205,276			3,205,276

	Fiscal 2001
	September 30			December 31			March 31			June 30
Operating revenue	$	22,615,464		$	20,460,341		$	20,850,239		$	21,869,351
Operating expenses and costs		23,645,889			22,013,073			21,741,888			22,529,629

Operating loss		(1,030,425	)		(1,552,732	)		(891,649	)		(660,278	)
Other income (expense), net		105,079			118,242			80,500			44,334
Interest expense		1,275,992			1,229,753			1,106,128			1,046,611

Income (loss) before income taxes		(2,201,338	)		(2,664,243	)		(1,917,277	)		(1,662,555	)
Income taxes		(1,134,500	)		(1,409,500	)		(1,121,500	)		2,523,529

Net loss	$	(1,066,838	)	$	(1,254,743	)	$	(795,777	)	$	(4,186,084	)

Basic and diluted earnings (loss) per share	$	(0.33	)	$	(0.39	)	$	(0.25	)	$	(1.31	)

Average shares and share equivalents outstanding (basic and diluted)		3,205,276			3,205,276			3,205,276			3,205,276

Cannon Express, Inc. and Subsidiaries

Schedule II
Valuation and Qualifying Accounts

Column A			Column B		Column C		Column D	Column E			Column F
					Additions
Description			Balance at Beginning of Period		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts Describe	Deductions- Describe			Balance at End of Period
Year ended June 30, 2002:
	Deducted from asset accounts:
		Reserve for doubtful trade receivables	$	542,618	$	75,000	—	$	222,538	(A)	$	395,080

		Insurance reserves	$	3,539,724	$	367,561	—	$	313,201	(B)	$	3,594,084

Year ended June 30, 2001:
	Deducted from asset accounts:
		Reserve for doubtful trade receivables	$	267,405	$	275,213	—	$	—	(A)	$	542,618

		Insurance reserves	$	3,666,103	$	161,612	—	$	287,991	(B)	$	3,539,724

Year ended June 30, 2000:
	Deducted from asset accounts:
		Reserve for doubtful trade receivables	$	199,579	$	75,000	—	$	7,174	(A)	$	267,405

	Insurance reserves		$	3,295,528	$	949,996	—	$	579,421	(B)	$	3,666,103

(A): Uncollectible accounts written off, net of recoveries
(B): Actual claims paid, net of refunds

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:

President
Cannon Express, Inc.
P.O. Box 364
Springdale, Arkansas 72765

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.

QuickLinks

Part I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

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

Part II

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

Item 6. Selected Financial Data

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

RESULTS OF OPERATIONS

Item 7a. Quantitative and Qualitative Disclosure about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Part III

Item 10. Directors and Executive Officers of Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

Item 14. Controls and Procedures

Part IV

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

SIGNATURES

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

INDEPENDENT AUDITORS' REPORT
Cannon Express, Inc. and Subsidiaries Consolidated Balance Sheets
Cannon Express, Inc. and Subsidiaries Consolidated Balance Sheets (Continued)
Cannon Express, Inc. and Subsidiaries Consolidated Statements of Operations
Cannon Express, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity
Cannon Express, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Cannon Express, Inc. and Subsidiaries Notes to Consolidated Financial Statements June 30, 2002 and 2001
Cannon Express, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Schedule II Valuation and Qualifying Accounts
EX-10.C 3 a2091298zex-10_c.htm EXHIBIT 10(C)
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Exhibit 10.(c) Engagement letter for CFOex

CFOex, Inc.
401 Henley Street
Suite 300, Mezzanine Level
Knoxville, TN 37902

July 23, 2002

PERSONAL & CONFIDENTIAL

Mr. Dean Cannon
Chairman & Chief Executive Officer
Cannon Express, Inc.
1457 E. Robinson
Springdale, Arkansas 72764

Dear Dean:

This letter will serve as the agreement (the "Agreement") between Cannon Express, Inc. ("Cannon" or the "Company") and CFOex, Inc. ("CFOex") regarding the retention of CFOex as the exclusive financial advisor to Cannon. Cannon seeks CFOex's assistance in addressing its evolving liquidity constraint and with implementing one, or several, strategic alternatives to be determined.

CFOex's Role

CFOex understands that the Company seeks CFOex's assistance in addressing Cannon's current funding constraints and in determining its strategic alternatives. It is anticipated that throughout the term of this engagement, CFOex will assist in the review of various activities, which could include, but not necessarily be limited to, the following:

•: Restructuring the company's working capital facilities
•: Arranging for a secured bridge loan/financing
•: Restructuring equipment obligations and term obligations
•: Developing merger and acquisition alternatives including the outright sale of the Company
•: Identifying and implementing a financial strategy to improve the operating performance and associated shareholder value of the Company
•: Issuing a fairness opinion ("Fairness Opinion") relating to the sale and/or merger of the Company

CFOex's Proposed Actions

CFOex proposes that Cannon engage the firm via this Agreement to initiate a series of advisory actions focusing on:

•: A Needs and Situational Assessment Analysis
•: Liquidity Constraints and Renegotiated Credit Facilities
•: Implementation of Strategic Alternatives

Needs and Situational Assessment Analysis

CFOex agrees to immediately initiate a Needs and Assessment Analysis by visiting the Company's Springdale, Arkansas facility. CFOex would focus on reviewing the appropriate corporate files and records in conjunction with various management interviews and meetings. The principal objective of this exercise is to prepare and compile an assessment of Cannon's immediate operating and financial needs, its competitive position and to present a series of strategic alternatives for consideration. It is

anticipated that this process will take 3 to 4 days on-site with the report provided by the 7^thcalendar day following completion of the onsite visitation.

Liquidity Constraints and Renegotiated Credit Facilities

The role of CFOex, on a best efforts basis, regarding the financing or refinancing (the "Financing") of all or any portion of the Company's balance sheet, is to secure a lender(s) and/or investor(s) which will enable Cannon to meet its immediate financing objectives and on-going operational needs. In this capacity, CFOex shall advise Cannon in regard to all structure, terms, conditions, flexibility, timing and strategic advantages provided by various lender(s)/investor(s) relationships.

•: Advise, in light of current market conditions, on all aspects of the Financing, including timing, structure, and terms
•: Conduct due diligence and create a Financing Memorandum which describes the Financing and the Company's business, including its history and future prospects
•: Approach potential lenders and investors, including commercial banks, commercial financing companies, insurance companies and private investment funds
•: Solicit term sheets from those lenders and investors interested in the Financing
•: Negotiate with lenders and investors regarding the terms and structure of the Financing
•: Advise Cannon, its attorneys, accountants and consultants, as required, regarding documentation

Implementation of Strategic Alternatives

As determined in conjunction with the Company, CFOex is prepared to assist in executing Cannon's decided strategic direction. The principal activities associated with these initiatives are highlight in Appendix I.

CFOex's Fees

CFOex's fees for acting as the Company's exclusive advisor in connection with the financial advisory and transaction services outlined herein will depend, in part, upon the strategic initiative that Cannon elects to pursue. Such fees will consist of:

Needs and Situational Assessment Analysis Fee

The fee shall be $25,000 and is due upon signing this Agreement via check or wire transfer to CFOex.

Transaction and Execution Fees Associated with Refinancing Activities and Implementation of Strategic Alternatives

CFOex extends Cannon two options for the payment of transaction and execution related activity fees associated with this Agreement.

Equity Payment—per Appendix II
Cash Payment—per Appendix II

Other Terms and Conditions

To best perform the services contemplated above, Cannon agrees to furnish or cause to be furnished to CFOex any and all such information as CFOex reasonably believes appropriate to the successful execution of its engagement hereunder (all such information so furnished being the "Information"). The Company represents that all Information furnished to CFOex or its agents will be complete and correct in all material respects, to the best of its knowledge, and that until the expiration of CFOex's engagement hereunder, the Company will advise CFOex immediately of the occurrence of any event or any other change known which results in the Information ceasing to be complete and correct in all

material respects. The Company recognizes and confirms that CFOex (a) will use and rely primarily on the Information and on information available form generally recognized public sources in performing the services contemplated herein without having independently verified any of the same and (b) does not assume responsibility for accurateness or completeness of the Information and such other information and (c) will not make an appraisal of any of the assets or liabilities of the Company.

Term of Engagement

This Agreement shall remain in force for a period of six (6) months from the date this Agreement (the "Term"). The Term will automatically renew for an additional six (6) month period (the "Renewal Period"), unless either the Company or CFOex serve the other party written notice 30 days prior to the end of the Term. Expiration of this Agreement shall not affect CFOex's right (i) to indemnification under the Indemnification paragraph below, or (ii) to the Financing Fee or Advisory Fee, if subsequent to, but within a period of one (1) year from the termination of this Agreement a financing source and/or buyer and/or seller contacted by CFOex or by the Company or by any other party during the Applicable Fee Period provides Financing and/or acquires and/or merges with the Company.

Indemnification

Cannon will indemnify CFOex, (the term "CFOex" in this paragraph shall include CFOex, its employees, agents, including its counsel, and affiliates, and each of them) and hold CFOex harmless from and against any loss, claim, damage, expense, liability or action or any right to reimbursement which might arise in connection with CFOex's assignment and involvement in this transaction, including reimbursement for reasonable legal fees. The indemnity agreement contained in this paragraph, however, shall not extend to any loss, claim, damage, expense, liability or action or any right to reimbursement if and at the extent that any such loss, claim, damage, expense, liability or action or any right to reimbursement arises by reason of gross negligence or willful misconduct.

Any amendment, modification or other changes to this Agreement must be in writing and signed by both parties to be enforceable. This Agreement will be governed by laws of the State of Tennessee.

Please indicate your acceptance of the foregoing by executing and returning the enclosed copy of this Agreement. We look forward to assisting Cannon with its continuing operations.

Bruce W. Jones
President
CFOex, Inc.

Dean Cannon
Chairman, Chief Executive Officer
Cannon Express, Inc.

APPENDIX I

Selling the Company

Prepare an Offering Memorandum describing Cannon, its historical performance and prospects, including existing contracts, marketing and sales, labor/driver force, management and anticipated proforma financial results of the Company. This Offering Memorandum shall not be given to any potential buyer without the prior consent of the Company and only after execution of a confidentiality agreement from the prospective buyer.

•: Develop a list of potential buyers to be contacted on a discreet and confidential basis after approval by the Company.
•: Draft and monitor the execution of all confidentiality agreements for those potential buyers wishing to review the Offering Memorandum.
•: Coordinate site visits for interested buyers and develop presentation material.
•: Solicit competitive offers from potential buyers.
•: Advise and assist Cannon in structuring and negotiating the transaction agreements.

Upon execution of a letter of intent or similar documents, CFOex will assist in negotiating the transaction and assist Cannon's attorneys, accountants and consultants, as necessary, through closing, on a best efforts basis. In addition, if requested by Cannon, CFOex will provide a fairness opinion ("Fairness Opinion") relating to the sale of the Company to be included in the appropriate Security and Exchange Commission filings.

Implementation of a Merger or Acquisition

Contact on a confidential basis and at the appropriate level, those companies identified by CFOex or the Company as potential targets to assess the level of interest in a sale or divestiture;

•: Develop a list of potential merger candidates to be contacted on a discreet and confidential basis after approval by the Company.
•: Draft and monitor the execution of all confidentiality agreements for those potential merger candidates.
•: Advise and assist in the related discussions, negotiations and structuring of the supporting transactions;
•: Assist Cannon in arranging the necessary financing to consummate a transaction;
•: Advise Cannon, its attorneys, accountants and consultants, as required, regarding documentation; and
•: On a best efforts basis, move toward closing the transaction.

In addition, if requested by Cannon, CFOex will provide a Fairness Opinion relating to the merger by the Company to be included in the appropriate Security and Exchange Commission filings.

APPENDIX II

Equity Payment

Regarding transaction and execution fees associated with refinancing activities and implementation of strategic alternatives, CFOex extends Cannon the following equity-based fee schedule payable in common stock/options of the Company.

To CFOex		500,000 shares of Cannon common stock/options
To mgmt.		up to 250,000 shares of Cannon common stock/options

Financing Fees

A financing fee (the "Financing Fee"') with respect to any Senior Debt Financing which was initiated by CFOex and/or any Subordinated Debt/Equity linked Financing that was initiated by any party that the Company, in its sole discretion, chooses to accept during the Applicable Fee Period. The Financing Fee will be payable in cash, in federal funds via wire transfer or certified check, at, and as a condition of, closing of such Financing, regardless of whether the Company chooses to draw down the full amount of the committed Financing at that time, equal to the greater of:

•	Senior Debt	1.5% of proposed Financing
•	Subordinated Debt	4.0% of proposed Financing
•	Subordinated/Equity-linked	8.0% of proposed Financing
or
•	$75,000

In the event the financing source increases the total Financing amount made available to the Company within eighteen months (18) months of a Financing Closing, CFOex shall be entitled to receive an additional Financing Fee based upon the above formulas in Section (iv)(a) above only; no minimum fee will apply in such case. In the event that Financing is provided to the Company during the Applicable Fee Period by the Company's existing lender(s) (the "Existing Lender(s)), on better terms than exist as of the date of this agreement (i.e. including, but not limited to, additional availability, and/or lower interest rates or lower all in costs and/or less restrictive loan covenants), then CFOex will be owed a full Financing Fee as it relates to the Existing Lender(s) Financing.

Merger and Sale Fees

CFOex will receive a fee (the "Advisory Fee") on a roll up merger or acquisition (i.e. Cannon's common stock outstanding, as of the date of this Agreement, is not diluted by more than 50%) that was initiated by either CFOex or Cannon or any other party during the Applicable Fee Period, due and payable in cash, in federal funds via wire transfer or certified check, at and as a condition of, closing of such merger or acquisition (the "Roll Up Closing") equal to the greater of:

•: 1% of merger/target company's annual gross revenue
•: $100,000

CFOex will receive a fee (the "Advisory Fee") on a reverse merger or acquisition (i.e. Cannon's common stock outstanding, as of the date of this Agreement is diluted by more than 50%) that was initiated by either CFOex or Cannon or any other party during the Applicable Fee Period, due and payable in cash, in federal funds via wire transfer or certified check, at and as a condition of, closing of such merger or acquisition (the "M&A Closing") equal to the greater of:

•: 2.5% of the first $5.0 million or any portion thereof of reverse merger consideration; and 1.5% of reverse merger consideration in excess of $5.0 million
•: $100,000

Fairness Opinion

If requested by the Company, CFOex will provide the Company with a Fairness Opinion as it relates to the sale of the Company or a merger entered into by the Company during the Applicable Fee Period. Upon CFOex providing the Company with the final Fairness Opinion CFOex will receive a fee (the "Fairness Opinion Fee") of $50,000.

Other

Cannon will be responsible for all legal and transaction support expenses associated with CFOex performing hereunder. In addition, the Company will reimburse CFOex for all reasonable out-of-pocket expenses incurred in performing its duties hereunder not to exceed $15,000 without prior permission from the Company.

APPENDIX III

Definitions

For the purpose of this agreement,

Senior Debt means funds (i) received or to be received by the Company, or any entity acquired, or controlled by, or under common control with the Company, in the form of revolving credit facilities, notes, term loans, lines of credit, offering lines, purchase and sale of accounts receivable facilities, or any other type of credit facility, for which the Company or any entity acquired, or controlled, by or under common control with the Company, is obligated to repay the funds on a fixed schedule with interest on the unpaid balance thereof at a fixed interest rate or a floating interest rate, without any profit participation or yield enhancement as a return on the repayment of the funds received by the Company, or any entity acquired, or controlled by, or under common control with the Company, and (ii) for which the lender has a claim to the assets of the Company, or any entity acquired, or controlled by, or under common control with the Company, superior or prior to the claim of the holders of Subordinated Debt.

Subordinated Debt means (a) funds (i) received or to be received by the Company, or any entity acquired, or controlled by, or under common control with the Company, or for which the Company, or any entity acquired, or controlled by, or under common control with the Company, is obligated to repay the funds on a fixed schedule with interest on the unpaid balance therefore at a fixed interest rate or a floating rate, and (ii) for which the lender does not have a senior claim to the assets of the Company, or any entity acquired, or controlled by, or under common control with the Company, on parity with or prior to the claim of the holder-, of Senior Debt, or (b) funds (i) received or to be received by the Company, or any entity acquired, or controlled by, or under common control with the Company, is obligated to repay the funds on a fixed schedule with interest on the unpaid balance thereof at a fixed interest rate or a floating interest rate, and (ii) for which part of the overall return to the investor on these funds is anticipated to consist of a participation in the profits of the Company and/or some other type of income enhancement (whether realized through equity warrants conversions of the debt to equity, or otherwise) which has the effect of raising the overall return on these funds to the investors above the level that could be realized solely due to the receipt of stated interest income.

Equity shall include, but not be limited to, common stock preferred stock, convertible stock, and the proceeds "from any joint venture agreement, including contributions by a joint venture partner involving cash, stock, property, plant and equipment or any other assets, or asset sale,

Reverse Merger Consideration shall mean the aggregate consideration paid for all or a portion of the ABC stock plus the assumption or payoff of ABC interest bearing debt in a stock transaction by a reverse merger partner or the purchase price paid for all or a portion of the ABC's net assets of the business (i.e., assets less non-interest bearing liabilities) plus the assumption or payoff of ABC interest bearing debt if assets are acquired by a reverse merger partner. The aggregate consideration shall be deemed to be the total amount received-upon consummation of the merger and shall include those amounts paid in cash, note, stock or other evidence of indebtedness and the assumption or payoff of interest bearing debt. In the event that the consideration is paid in whole or in part in the form of securities, the value of such securities, for purposes of calculating CFOex's fee, shall be the fair market value thereof as of the date of the purchase agreement. If such aggregate consideration may be increased by contingent payments such as an "earnout", or any other monetary agreement in the transaction (e.g., non-compete agreement), the portion of CFOex's fee relating thereto shall be calculated and paid when and as such contingent payments or other monetary amounts are received.

Total Consideration shall mean the purchase price paid for the stock plus the assumption or payoff of interest bearing debt if stock is sold or the purchase price paid for the net assets of the business (i.e., assets less non-interest bearing liabilities) plus the assumption or payoff of interest bearing debt if assets are sold. Total Consideration received by the Company shall include those amounts paid in cash, notes, stock or other evidence of indebtedness and the assumption or payoff of interest bearing debt. In the event that the consideration is paid in whole or in part in the form of securities of the acquiring entity, the value of such securities, for the purposes of calculating CFOex's fee, shall be the fair market value thereof as of the date of the purchase agreement. If such aggregate consideration may be increased by contingent payments such as an "earnout" or any other monetary agreement in the transaction (e.g., non-compete agreement), the portion of CFOex's fee relating thereto shall be calculated and paid when and as such contingent payments or other monetary amounts are received.

CFOex, Inc.
401 Henley Street
Suite 300, Mezzanine Level
Knoxville, TN 37902

August 17, 2002

PERSONAL & CONFIDENTIAL

Mr. Dean Cannon
Chairman & Chief Executive Officer
Cannon Express, Inc.
1457 E. Robinson
Springdale, Arkansas 72764

Dear Dean:

This letter will serve as an amendment (the "Amendment") to the agreement dated July 23, 2002 (the "Agreement") between Cannon Express, Inc. ("Cannon" or the "Company") and CFOex, Inc. ("CFOex") regarding the retention of CFOex as the exclusive financial advisor to Cannon.

Whereas, Cannon seeks CFOex's assistance in addressing its operations and immediate financial needs, including but not limited to, a liquidity, freight rates, equipment utilization, driver standards, maintenance expense, as well as, in determining and potentially implementing one, or several, strategic alternatives, as they may be determined; and,

Whereas, Cannon acknowledges that the distressed nature of the Company does not permit a customary advisory relationship to address the depth and breadth of its issues; and,

Whereas, Cannon acknowledges and accepts in full the presentation by CFOex of a Needs and Situational Assessment addressing the Company's operational and financial challenges; and,

Whereas, Cannon desires to engage industry experienced executives to address its operations and immediate financial needs;

Therefore be it known, that Cannon hereby further engages CFOex and expressly agrees to the following terms and conditions which shall be an amendment to and therefore become part of the Agreement to be fully incorporated therein.

CFOex's Role

Under the Agreement, the Company engaged CFOex to: 1) initiate a Needs and Situational Assessment Analysis; 2) on a best efforts basis, to secure lenders and/or investors to permit the Company to meet its immediate financing needs, and, 3) to determine with the Company and subsequently assist in executing a decided strategic direction focusing a sale or merger of the Company, in the normal course of operations.

In executing these contractual commitments, CFOex delivered the Needs and Situational Assessment by compiling a team of five professionals who assembled at the Company's Springdale facilities for the required field work and making a presentation to the Company. CFOex advised the Company in regard to its immediate financing needs and provided guidance, counsel and document review, the result of which was an immediate increase in free cash of approximately $1.9mm. These actions permitted Cannon to meet its cash commitments for another 30 to 45 days. Finally, the Company's serious financial condition and poor base operations does not permit a developed strategic direction other than a decision based on some form of a cessation of operations and a resulting liquidation of assets. Such a strategic direction was not contemplated in the Agreement.

Short of a near-term decision to cease operations, the Company must take immediate actions to address its multiple operating and financial challenges.

CFOex's Proposed Actions

CFOex proposes that Cannon engage the firm via this Amendment and initiate a series of immediate actions focusing on:

1.

Change in the leadership and culture of the company

a)

An immediate change in executive leadership—August 19th

•: Dean Cannon is named Chairman of the Board and steps down from all day-to-day managerial responsibilities
•: Termination fee of $600,000 less payments made to date

b)

CFOex is retained as the Company's Crisis Management Team—August 19th

•: CFOex assumes all chief executive responsibilities and corporate authorities via an interim President reporting to the Board—Bruce Jones
•: An interim Chief Operating Officer—Calvin Turner is named by CFOex
•: An interim Maintenance Department Head is named by CFOex
•: Duane Wormington retains the CFO position reporting to the interim President

c): Other key executive/senior positions to be assessed on a go forward basis
d): Solicit input from previous company consultants and use services ad hoc as needed
e): Communicate with company employees regarding changes and required company direction

2.

Development and implement a six month survival plan

a)

Reduce cash burn rates to the targeted levels in four and eight months

b)

Investigate the feasibility of prepackaged filing

c)

Downsize freight network and fleet size

d)

Monetize excess resources and unproductive assets

e)

Communicate with key creditors and gain their support for plan

f)

Develop required financial reporting and analytical tools

•: Cash projection for 30 days
•: Profit projections for 6 to 12 months
•: Freight network analysis and profitability
•: Operational key factor reporting

g): Visit key customers (new and existing) to gain their support

3.

Develop and implement longer term financial options 12 to 24 months

a): Reconfigure existing freight network
b): Secure required freight rate increases
c): Recast the company's cost structure to match its freight base
d): Restructure company's capital structure
e): Find and retain an appropriate management team
f): Investigate the opportunities of a sale and/or merger

4.: Execute on behalf of Cannon Express, Inc. any filings required to be made by the Chief Executive Officer of Cannon Express, Inc. with the Securities and Exchange Commission or other regulatory agencies, to the extent so named by Cannon's Board.

CFOex's Fees

Given the Company's immediate need to address its liquidity challenges as well as the need to install a Crisis Management Team, CFOex proposes the fee structure highlighted in Appendix I. These fees are in addition to any and all fees associated with the Agreement.

Other Terms and Conditions

To best perform the services contemplated herein, Cannon agrees to furnish or cause to be furnished to CFOex any and all such information as CFOex reasonably believes appropriate to the successful execution of its engagement hereunder (all such information so furnished being the "Information"). The

Company represents that all Information furnished to CFOex or its agents will be complete and correct in all material respects, to the best of its knowledge, and that until the expiration of CFOex's engagement hereunder, the Company will advise CFOex immediately of the occurrence of any event or any other change known which results in the Information ceasing to be complete and correct in all material respects. The Company recognizes and confirms that CFOex (a) will use and rely primarily on the Information and on information available form generally recognized public sources in performing the services contemplated herein without having independently verified any of the same and (b) does not assume responsibility for accurateness or completeness of the Information and such other information and (c) will not make an appraisal of any of the assets or liabilities of the Company.

Term of Engagement

This Amendment modifies the Agreement and shall remain in force for a period of twelve (12) months from the date of the Agreement (the "Term"). The Term will automatically renew for an additional six (6) month period (the "Renewal Period"), unless either the Company or CFOex serve the other party written notice 30 days prior to the end of the Term. Expiration of this Agreement shall not affect CFOex's right to indemnification under the Indemnification paragraph below.

Issuer and Grantee agree and acknowledge that, notwithstanding any provision herein or in the Engagement Letter, the sole consideration payable by Issuer under the Engagement Letter, as amended hereby, or for the services referred to therein consists of the payment by the Issuer of a $15,000 Needs and Situational Assessment Analysis Fee and the grant of options to acquire 1,500,000 shares of the Issuer's common stock pursuant to option agreements dated the date hereof.

Indemnification

CFOex hereby expressly acknowledges and agrees that this agreement has been negotiated with Cannon Express, Inc. and that Cannon Express, Inc. is solely responsible to perform its obligations hereunder. Without limiting the foregoing, CFOex hereby expressly acknowledges and agrees Mr. Dean Cannon shall have no personal obligation for performing any of duties or obligations of Cannon Express, Inc. hereunder, and Mr. Dean Cannon shall incur no liability with respect to any such duties or obligations of Cannon Express, Inc. CFOex hereby releases Mr. Dean Cannon from any liability or obligation to perform any duties or obligations hereunder.

Any amendment, modification or other changes to this Amendment or the related Agreement must be in writing and signed by both parties to be enforceable. This Amendment will be governed by laws of the State of Tennessee.

Please indicate your acceptance of the foregoing by executing and returning the enclosed copy of this Amendment. We look forward to assisting Cannon with its operations.

Bruce W. Jones
President
CFOex, Inc.

Dean Cannon
Chairman, Chief Executive Officer
Cannon Express, Inc.

APPENDIX I

Crisis Management Fees

Reflecting the need for the immediate actions contemplated by this Amendment, the following fees are required:

•

CFOex Retainer Fee

a.: A monthly fee of $50,000, paid in advance, on the first of each month during the term of the Term.

•

Expenses

a.: All reasonable and necessary expenses for CFOex personnel and associates, including travel to and from the Company's Springdale, Arkansas facility, as well as any other location necessary to perform under the Agreement and/or this Amendment.
b.: Such expenses to be repaid on a weekly basis. However, CFOex has the right to establish an imprest account of $5,000 for the purpose of timely settlement of such expenses.

•

Stock/Options

a.: Per Stock Option Agreements executed concurrently herewith.

•

Termination Fee

a.: Cannon agrees that, if for any reason other than gross negligence, if the Agreement or Amendment is terminated prior August 15, 2003, the Company shall pay CFOex a termination fee of $600,000 less the retainer fees paid CFOex during the Term hereunder.

QuickLinks

Exhibit 10.(c) Engagement letter for CFOex

APPENDIX I
APPENDIX II
APPENDIX III
APPENDIX I
EX-21.A 4 a2091298zex-21_a.htm EXHIBIT 21(A)

Exhibit 21(a)

Subsidiaries of the Registrant

Cannon Express Corp
American Freight Forwarders, International, Inc.
TCC Leasing, Inc.

-----END PRIVACY-ENHANCED MESSAGE-----

The response to this portion of Item 15 is submitted as a separate section of this report.

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:

Cannon Express 401(k)
Cannon Express, Inc. Incentive Stock Option Plan

On June 17, 2002, the Company filed a Form 8-K reporting Item 4—Change in Registrant's Certifying Accountant.

See Item 15(a)(2) above.

The response to this portion of Item 15 is submitted as a separate section of this report.