**UNITED STATES****SECURITIES AND EXCHANGECOMMISSIONWashington, D.C. 20549**

 

**Form 10-KSB**

 
| **ý** | **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2002.**

 
| **o** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------|

 

**For the transition periodfrom            to            **

 

**Commission file number: 0-30185**

 

**Gasel Transportation Lines, Inc.**

(Name of small businessissuer in its charter)

 

| **Ohio**                                                        |   | **31-1239328**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **County  Road 10, Route 4, Box 181A, Marietta, OH**            |   | **45750**                             |
| (Address of principal  executive offices)                       |   | (Zip Code)                            |
|                                                            |   |                                  |
| Issuer’s telephone number  **(740) 373 - 6479**       |   |                                  |

 

Securities registered under Section 12(b) of the Exchange Act:

 

| **Title of  each class** |   | **Name of  each exchange on which registered** |
|--------------------------|--------|------------------------------------------------|
|                     |   |                                           |

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common shares, no parvalue

**(Title of class)**

 

 

**(Title of class)**

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. ý  Yes o  No

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B is not contained in this form, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. o

 

The issuer’s revenues for its most recent fiscal year were $14,642,798.

 

The aggregate market value of voting stock held by non-affiliates ofthe registrant as of March 27, 2003, was $5,931,565 (based upon $0.63 per share being the closing sale price onthat date as reported by the National Association of Securities Dealers AutomatedQuotation System-Over The Counter Bulletin Board). In making this calculation,the issuer has assumed, without admitting for any purpose, that all executiveofficers and directors of the company, and no other persons, are affiliates.

 

On March 27, 2003, Gasel Transportation Lines, Inc. had outstanding9,415,182 common shares, without par value, which is the issuer’s only class ofcommon equity.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

No documents are incorporated by reference.

 

Transitional Small Business Disclosure Format (Check one): Yes  o;No  ý

 

 

----

 

**PART I**

 

**Item 1.Description of Business.**

 

GENERAL

 

The Company operates primarily as a truckload contract carrier withvarious customers which ship truckload quantities of both refrigerated andnon-refrigerated commodities over various distances on a nationwide basis.  As a contract carrier, the freight rates arenegotiated with the shipper and are dependent upon competition, place of originand destination, and the type of commodity being hauled.  The Company formed a subsidiary corporation,GTL Logistics, Inc., during 2002 to operate as a freight broker, and itobtained its authority and commenced business as of the first of 2003.  As a freight broker, the Company takesshipping orders and selects carriers other than the Company owned equipment orleased owner/operators to transport the freight for a negotiated fee.

 

In addition to its primary business, the Company operates three drivertraining schools, located in Marietta, Nelsonville, and Lima Ohio through itswholly owned subsidiary, Gasel Driver Training Schools, Inc.  Operation of these schools is licensed bythe Ohio Department of Highway Patrol.

 

The Company intends to continue to expand its business and operationsthrough internal growth and acquisitions. It is primarily interested in medium to long haul truckload carrierswith compatible freight lanes and existing business that can be integrated intothe Company’s methods of operation.

 

HISTORY

 

Gasel Transportation Lines, Inc. (the “Company”) is a corporation thatwas organized under the laws of the State of Ohio on January 27, 1988.  The Company was initially formed for thepurpose of becoming a transportation freight broker hauling freight under theauthority of other motor carriers on a commission basis with its sole officeslocated in Marietta, Ohio.  Shortlyafter its inception, the Company evolved its business to obtain licensing withthe Interstate Commerce Commission (“ICC”) as a common and contract generalcommodities motor freight carrier in the 48 contiguous United States and Canadaand to operate its own tractors and trailers. In September 1988, the Company received licensing from the ICCauthorizing it to transport in interstate commerce both as a common andcontract carrier, and the Company obtained licenses in the 48 contiguous UnitedStates to operate under such licenses. Shortly thereafter, the Company sought approval to operate in Canada,and it was licensed to operate there, too. The Company also obtained its authority to broker freight.  In December, 1995, the ICC ceased operationsand its regulatory functions and jurisdiction over motor carriers wastransferred to the United States Department of Transportation.

 

In July, 1995, the Company acquired a trucking terminal and offices onCounty Road 10, Rt. 4, Box 181A, Marietta, Ohio.  This facility is now the principal office and main terminal forthe Company.  The actual mailing addressis P.O. Box 1199, Marietta, Ohio 45750, and the telephone is (740) 373-6479.

 

In July, 1996, the Company acquired the assets of a Florida basedtrucking company, Earl W. Kersey Trucking, Inc. that included a terminal andoffices located on Highway 301 N, Dade City, Florida.  During 1999, the Company purchased 5 acres of land adjoining theDade City, Florida terminal.  During2001, the Company ceased its Dade City, Florida operations and during 2002 soldthese properties.

 

Effective December 31, 2000, the Company entered into an agreement topurchase certain assets of Eagle Transport, Inc. and Eagle TransportationServices, Inc., affiliated companies with offices in Plain City, Ohio (which isin the greater Columbus, Ohio area.) Under the agreement, the Company purchased the transportation equipmentowned by Eagle Transport, Inc. and the freight transportation business of EagleTransportation Services, Inc., which historically had approximately $9,000,000in freight transportation revenues from both the equipment owned by EagleTransport, Inc. and through owner/operators and brokered freight.  The purchase included the leasing of an officeat the former Eagle offices and the hiring of some of Eagle’s former employees,primarily those involved in freight dispatching.  Since this acquisition commencing with business in 2001, theCompany was unable to continue to fund the brokerage business it had acquiredand ceased these operations in mid-2001. Its use of the owner/operators that it had acquired in the transactiondecreased from 10 to 1 by early 2002, when the Company relocated its offices inColumbus, Ohio from

 

2

----

 

the office it leased from Eagle. The Company retained the higher margin customers acquired in thetransaction, and has subsequently built a solid presence with a growing numberof large, national customers based in the Columbus area.

 

Until 2002, the Company has had a steady growth in revenues and ownedequipment over the past several years. During that time it had increased the number of owned, either directlyor by capital lease, tractors from 23 to 117, its number as of March 31, 2002,its dry van box trailers from 31 to 144, and its refrigerated climate controltrailers from 11 to 104, again as of March 31, 2002.  As of March 18, 2003, the numbers had decreased because of adecrease in freight demand and of various financing issues, so that it owned101 tractors, 122 dry van trailers, and 77 refrigerated climate controltrailers.  In addition, there are 12tractors and 11 dry van box trailers that are owned and used in the driver trainingschools.  Annual freight revenues wentfrom $3,325,606 for calendar year 1994 to $17,574,593 for calendar year 2001,and then decreased to $14,162,996 for the calendar year 2002.

 

The Company has an ISO 9002 certification by American SystemsRegistrar.  This certification meansthat the Company has been audited and verified to have written policies andprocedures for the Company’s operations that are designed to monitor andimprove customer service through a continuous documentation and correctiveaction procedure.

 

OPERATING STRATEGY

 

The Company is in direct competition with other motor freight carriers,including many companies that are significantly larger than the Company.  Therefore, the Company focuses on providinga high level of transportation services to its customer base with commensuraterates, rather than competing primarily on the basis of price.  Further, the Company has been able tocompete with these other carriers because its main terminal in Marietta, Ohio,together with the equipment that is based there, is located in an area wherethere are few competitors domiciled, and because the Columbus, Ohio area has anabundance of inbound and outbound freight. Also, the Company attempts toprovide better and more timely service, operate newer and specializedequipment, and to cater to certain major shippers as a means of competing.  With the Company commencing in 2001 itsoperations in the Columbus, Ohio market where there are many carriers, thecompetition helped to re-enforce the need for the Company to concentrate onproviding excellence in its services. The company continues to utilize the newest in equipment so that it nowoperates late model equipment utilizing fully integrated computer systems withonboard communications systems.

 

OPERATIONS

 

As a licensed carrier with the U. S. Department of Transportation andthe various states and Canada, the Company business is dependent uponmaintaining such operating authority. One condition of retaining such authority is that the Company must maintainliability insurance for protection of the public.  Another is that the Company meet the safety fitness regulationsas evidenced by a “satisfactory” rating by the U. S. Department ofTransportation.

 

The owned terminal in Marietta, Ohio is required to comply with variousstate and federal environmental regulations with regard to the storage of fueland oil and the disposal of waste oil and tires.  There is no significant cost associated with operating underthese regulations; however, in the event of a major fuel or oil spillage, thecost of clean up could be significant.

 

DRIVERS

 

During most of 2002, the Company did not have any employees thatdirectly worked for it because it leased them from an industry specificProfessional Employment Organization (PE0). This arrangement included the drivers. Because of some financial difficulties with the arrangement with thePEO, the lease agreement was terminated during 2002 and the Company hired allof the personnel directly.  On March 14,2003, the Company again began leasing its employees and outsourcing its relatedpayroll/taxes processing with another PEO. This allows the Company a savings on workers compensation premiums andrelieves it from administration of payroll and related tax processing.

 

All of the drivers must meet specific guidelines relating primarily tosafety record, driving experience and personal evaluation, including DOTmandated drug testing and personal background checks.  The Company recruits and retains drivers by offering competitivecompensation packages, purchasing quality tractors and equipping them withoptimal comfort and safety features, and emphasizing training and retentionprograms.  Drivers can earn bonuses on aper mile

 

3

----

 

basis for safety, paperwork, compliance and number of milesdriven.  All employees, includingdrivers, are eligible to participate in the health and life insurance plansmaintained by the Company for its personnel.

 

Although the Company currently has an adequate number of drivers, therecan be no assurance that it will not be affected by a shortage of qualifieddrivers in the future.  Some drivershortages were experienced during 2001. Significant driver turnover is a problem within the industry as a wholeand it has affected the Company operations for 2002, when it experienced ahigher than normal turnover rate.  Inaddition, the trucking industry is experiencing a diminished workforce ofqualified drivers.  As a result, theCompany must compete with other transportation service companies for the availabledrivers.  It is anticipated that theintense competition for qualified drivers in the trucking industry willcontinue.  The Company is able toacquire new, inexperienced drivers through its driver training schools andutilize them in conjunction with experienced drivers as teams, which helps withmeeting its driver needs.

 

In addition to the driver employees, the Company contracts with alimited select group of independent contractors who own and operate their owntractors and trailers (referred to as “owner/operators”).  There are currently 3 of them.  Each owner/operator is required to enterinto an owner/operator lease agreement which is cancelable by either party uponthirty days notice.  The owner/operatorsprovide the Company with an additional source of drivers and equipment.  The Company is currently trying to expandits fleet by contracting with additional owner/operators.  By doing so, the Company expects to increaseits revenue and margins without any cash outlay or equipment purchase obligation.

 

**Item 2.Description of Property.**

 

The principal offices and terminal for the Company are owned; they arelocated on 12.5 acres adjacent to State Route 4, approximately 4 milessouthwest of Marietta, Ohio.  Theproperty has four buildings on it, the major one of which is constructed ofcement block and steel, is in good condition, and has the corporate offices, adrivers’ lounge, and three maintenance bays located therein.  Other buildings include a freight transferbuilding made out of steel that is in fair to good condition, a wood buildingfor the drivers school and lounge that was recently remodeled and is in goodcondition, and a cement block supply storage building that is in goodcondition.  The lot is used for parkingthe Company transportation equipment and for operating a driving schoolpractice area.

 

The terminal has above ground fuel storage and a waste oil storagefacility that is regulated by the EPA.

 

The property is subject to a mortgage with the usual conditions thatthe Company is entitled to use of the property for its business needs so longas it is operated in a lawful manner and the mortgage note is paid and not indefault.  There are no other operatingor use restrictions.  The Company alsohas a second mortgage lien upon the properties that contains similarconditions.

 

The Company also leases an office and parking facilities in Columbus,Ohio.  The lease is for a term of 3years.  The premises have available forlease a two bay garage if the Company decides that it needs such facility.

 

**Item 3.Legal Proceedings.**

 

The Company from time to time has been a party to litigation incidentalto its business, primarily involving claims for personal injury and propertydamage incurred in the transportation of freight.  The Company is not a party to any litigation that, individuallyor in the aggregate, management believes will have a material adverse effect onits financial condition or operations. The Company maintains insurance that management believes is adequate tocover its liability risks.  In order tosettle litigation that was commenced or threatened during 2002, the Companyentered into various payment arrangements. None of these has caused the Company to incur significant additionalcosts beyond the amount being due to the claimants.

 

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

 

No matters were submitted to a vote of security holders during thefiscal year 2002.

 

4

----

 

**PART II**

 

**Item 5.Market for Common Equity and Related Stockholder Matters.**

 

**Market Information.**

 

(A)  During the past two years,the common shares of the Company have been traded in the over-the-countermarket and been included on the OTC Bulletin Board under the trading symbolGSEL.  The following table sets forththe range of the high and low bid prices for the common shares of the Companyfor each quarter during the past two years, as reported by The NASDAQ StockMarket, Inc.  These prices reflectinter-dealer prices, without retail mark-up, mark-down, or commission and maynot represent actual transactions.

 
|                |   | **Bid Prices** |   |
|---------------------|--------|----------------|--------|
|                |   | **High**       |   | **Low** |   |
| Calendar Year  2002 |   |           |   |   |   |
|                |   |           |   |   |   |
| First Quarter       |   | $              | 0.75   |   | $ | 0.35 |   |
|                |   |           |   |   |   |
| Second Quarter      |   | $              | 0.45   |   | $ | 0.20 |   |
|                |   |           |   |   |   |
| Third Quarter       |   | $              | 0.85   |   | $ | 0.20 |   |
|                |   |           |   |   |   |
| Fourth Quarter      |   | $              | 0.79   |   | $ | 0.30 |   |
|                |   |           |   |   |   |
| Calendar Year  2001 |   |           |   |   |   |
|                |   |           |   |   |   |
| First Quarter       |   | $              | 1.5625 |   | $ | 0.6875 |   |
|                |   |           |   |   |   |
| Second Quarter      |   | $              | 1.23   |   | $ | 0.43 |   |
|                |   |           |   |   |   |
| Third Quarter       |   | $              | 1.15   |   | $ | 0.65 |   |
|                |   |           |   |   |   |
| Fourth Quarter      |   | $              | 0.65   |   | $ | 0.31 |   |

 

(B)  On March 27, 2003, therewere 71 shareholders of record of the common shares.  There are also an estimated 375 beneficial shareholders who holdtheir shares in street name.

 

(C)  The Company has neverdeclared a cash dividend on its common shares and no assurance can be giventhat the Company will declare any cash dividend on its common shares in thefuture.  Payments of dividends arewithin the discretion of the Company’s Board of Directors and depend upon theearnings, capital requirements, and operating and financial condition of theCompany, among other factors.  TheCompany currently expects to retain its earnings to finance the growth of theCompany and does not expect to pay cash dividends in the foreseeable future.

 

**Recent Sales of Unregistered Securities.**

 

(A)  The following table setsforth information relating to sales of unregistered securities made by theCompany during the last quarter of 2002 and through the 24th ofMarch, 2003.  All of the sales were forcash.  There were no underwritingcommissions paid.  The securities weresold to Starz Investments Limited, a Belize corporation, pursuant to a contractentitled Regulation S Stock Purchase Agreement, under which it was to purchasethe shares at a discount of 65% of the closing bid price on the day prior to asale. The offering was made in reliance upon Regulation S adopted under TheSecurities Act of 1933, as amended (the “Act”), and resale of the shares isrestricted in accordance with the provisions of Regulation S, which restrictsresale for a period of one year after the purchase dates in the United Statesor to any person who is not a U.S. Person as defined in Regulation S.

 

5

----

 
| **Date of Sale**   |   | **Class of Securities**     |   | **Number of Shares  Sold** |   | **Price per  share** |   | **Total Amount Received** |       |
|--------------------|--------|-----------------------------|--------|----------------------------|--------|----------------------|--------|---------------------------|------------|
| December 3, 2002   |   | Common shares, no par value |   | 800,840                    |   | $                    | 0.1225 |                      | $          | 98,077.90 |   |
| December 6, 2002   |   | Common shares, no par value |   | 647,971                    |   | $                    | 0.1225 |                      | $          | 79,351.45 |   |
| December 19,  2002 |   | Common shares, no par value |   | 300,709                    |   | $                    | 0.1225 |                      | $          | 36,836.85 |   |
| December 19,2002   |   | Common shares, no par value |   | 674,903                    |   | $                    | 0.1050 |                      | $          | 70,864.82 |   |
| January 10, 2003   |   | Common shares, no par value |   | 452,458                    |   | $                    | 0.1050 |                      | $          | 47,483.09 |   |
| January 31, 2003   |   | Common shares, no par value |   | 2,091,373                  |   | $                    | 0.1482 |                      | $          | 309,980.00 |   |
| February 18,  2003 |   | Common shares, no par value |   | 371,052                    |   | $                    | 0.1482 |                      | $          | 55,000.00 |   |
| February 18,  2003 |   | Common shares, no par value |   | 115,793                    |   | $                    | 0.1750 |                      | $          | 20,238.78 |   |
| March 5, 2003      |   | Common shares, no par value |   | 715,229                    |   | $                    | 0.1995 |                      | $          | 142,688.19 |   |
| March 19, 2003     |   | Common shares, no par value |   | 482,912                    |   | $                    | 0.1995 |                      | $          | 96,340.94 |   |
| Total              |   | Common shares, no par value |   | 6,653,240                  |   |                 |   | $                         | 956,862.02 |   |

 
| Consulting fee  to 1st SB Partners, Ltd. for preparation of offering document and  arranging sale of shares |   | $ | 86,118  |   |
|-------------------------------------------------------------------------------------------------------------|--------|---|---------|--------|
| Balance of  amounts due to State of Ohio for license tags for tractors and trailers                         |   | $ | 135,000 |   |
| Reimburse  PeopLease Corporation for payroll paid by it during 2002                                         |   | $ | 113,000 |   |
| Past due payroll  taxes                                                                                     |   | $ | 100,000 |   |
| Settle past due  vendor and insurance payables                                                              |   | $ | 52,200  |   |
| Working capital                                                                                             |   | $ | 470,564 |   |

 

 

(B)  The following table setsforth information regarding issuance of shares made by the Company during thelast quarter of 2002 and through March 27, 2003, without use of an underwriterto persons in exchange for services:

 
| **Date of Sale**   |   | **Class of Securities**     |   | **Number of Shares  Issued** |   | **To Whom Issued**         |   |
|--------------------|--------|-----------------------------|--------|------------------------------|--------|----------------------------|--------|
| December 11,  2002 |   | Common shares, no par value |   | 30,000                       |   | Market Pathways(1)         |   |
| December 19,  2002 |   | Common shares, no par value |   | 200,000                      |   | Sarah R. Speno, Trustee(2) |   |
| February 7, 2003   |   | Common shares, no par value |   | 100,000                      |   | Sarah R. Speno, Trustee(2) |   |
| Total              |   | Common shares, no par value |   | 330,000                      |   |                       |   |

 

----

(1)          Market Pathways providedshareholder relations services and marketing reports that it decimated tosecurities broker/dealers and as part of its compensation, it received theshares in a non-public offering.  Theshares were not registered in reliance upon Section 4(2) of the Act in thatthey were not made available for sale to the public and are restricted againstresale until they are registered under the Act or sold under an exemption fromregistration.

(2)          Sarah R. Speno, Trusteeof The SRS Trust, received these shares as the nominee for 1st SBPartners, Ltd., a company that performed consulting services for the Company inthe preparation of the offering of its shares under Regulation S and innegotiating the Regulation S Stock Purchase Agreement that the Company executedwith Starz Investments, Ltd..  Theshares were not registered in reliance upon Section 4(2) of the Act in thatthey were not made available for sale to the public and are restricted againstresale until they are registered under the Act or sold under an exemption fromregistration.  1st SBPartners has the right to request that an additional 100,000 common shares, nopar value, be issued to it by the Company as part of its consultingcompensation.

 

**Item 6. Management’s Discussion andAnalysis or Plan of Operation.**

 

OVERVIEW.

 

The following discussion should be read in conjunction with theFinancial Statements, including footnotes, contained herein. The discussion isqualified in its entirety by the foregoing. Historical results of operations and the percentage

relationships among any amounts in the Financial Statements, and anytrends that may appear to be inferable therefrom, should not be taken asnecessarily indicative of trends of operations or results of operations for anyfuture periods.

 

Except for certain historical information contained herein, thefollowing discussion contains forward-looking statements that involve risks,assumptions and uncertainties which are difficult to predict.  All statements, other than statements ofhistorical fact, are statements that could be deemed forward-looking statements,including any projections of earnings, revenues, or other financial items, anystatement of plans, strategies, and objectives of management for futureoperations; any statements concerning proposed new services or developments;any statements regarding future economic conditions or performance; and anystatements of belief and any statement of assumptions underlying any of theforegoing.  Words such as “believe,”“may,” “could,” “expects,” “hopes,” “anticipates,” and “likely,” and variationsof these words, or similar expressions, are intended to identify suchforward-looking statements.  TheCompany’s actual results could differ materially from those discussedhere.  Factors that could cause orcontribute to such differences include, but are not limited to, the expectedwar in Iraq, adverse changes in general economic conditions, including adverseconditions to the companies that are the Company’s core of shippers, fuelprices, driver costs, the ability to finance equipment, interest rates, the abilityto borrow working capital, and other factors. The Company does not assume, and specifically disclaims, any obligationto update any forward-looking statement contained in this annual report.

 

6

----

 

RESULTS OF OPERATIONS

 

Freight revenues for the twelve months ended December 31, 2002,decreased $3,411,597 (19.4%) to $14,162, 996 from $17,574,593 for the yearended 2001.  Training school revenuesfor the twelve months ended December 31, 2002, also decreased going from$805,563 to $479,802, a decrease of $325,761 (40.4%) for the twelve monthsperiod ended December 31, 2002. The decrease in freight revenues was basicallybecause the Company had 25 fewer power units in service from the prior yearbecause of reducing the number of owner/operators being leased by the Company,turning back some older equipment to the lenders, and generally having someequipment inoperable because of accidents or because of breakdowns resultingfrom extending the trade cycle. Training school revenue decreases were due primarily to a reduction inaverage enrollment per facility resulting from a lack of funding agencies tofinance student enrollments and because of operating one less school for mostof the year.

 

Operating loss for the twelve months ended December 31, 2002, was($524,430), which was a decrease of $750,865 (331.6%) from a profit of $226,435for the same period in 2001.  The grossprofit margin decreased from 13.9% in 2001 to 12.9% in 2002.  Primary factors for the gross margindecrease were an increase in fuel prices, an increase in fuel consumption ratesdue to equipment age and prolonged cold weather, an increase in insurancepremiums, and loss of freight opportunities due to an insufficient trailer pooland unmanned power units**.** Profitability was further adversely effected by an increase of$80,498 in the general and administrative expenses from $2,041,797 in 2001 to$2,093,268 in 2002 in part due to an increase in bad debts, increased garageexpenses of $29,027, and losses from the disposal of assets of ($ 253,800) anincrease of $231,101 from losses in 2001 of ($22,699); these effects werepartially offset by decreased interest expense of $172,869 from $1,276,012 in2001 to $1,103,143 in 2002.

 

The results were that the Company incurred a net loss after provisionfor income taxes for the twelve months period ended December 31, 2002 of($1,761,555) compared to a net loss of ($870,583) for the same period in 2001,an increase of $890,872 (102.37%) from the prior years loss.

 

CAPITAL AND LIQUIDITY

 

Although the Company’s earnings had historically been positive, itsustained substantial operating losses in both 2000 and 2001, and again in2002.  Although the loss had decreasedin 2001 from the prior year, and the Company was projecting better results for2002 than for 2001, this did not prove to be true.  The Company sustained a bigger loss during 2002 than in either ofthe previous years.  This has resultedin the Company having its liabilities exceed it assets, which is one of thetests for bankruptcy, and in having a significant and continuing need forworking capital.  During 2002, theCompany was able to satisfy some of its working capital needs by negotiating adeferral of monthly installment payments with its secured equipment lenders,and partially through a Regulation S offering that the Company commenced inOctober 2002.  However, the amount ofcapital that it has been able to raise has not been sufficient to offset thelosses sustained during 2002 and that are continuing during the first quarterof 2003, so that there continues a need for additional working capital.

 

At December 31, 2002, the Company’s current liabilities exceeded itscurrent assets by approximately $5.5 million. A large portion of this deficit relates to the current portion of longterm debt, which management expects the Company to pay from its normaloperational cash flow.

 

Management is working diligently to obtain additional capitalizationfor the Company in the form of debt and/or equity to appropriately capitalizethe Company in its current position and to provide a solution to this need forworking capital.

 

To that end, in late 2002 the Company undertook the sale of 7,000,000of its common shares, without par value, under a Regulation S offering to a nonU.S. Person, as that term is defined in the Regulation S promulgated under TheSecurities Act of 1933, as amended. Some of the sale was completed in December 2002 and the balance is beingcompleted in the first quarter of 2003. Unfortunately, stock market conditions and past financial needs of the

 

7

----

 

Company, as well as the economic conditions, have caused the proceedsfrom the sales of shares to be expended without the Company obtaining all of thebenefits that it had envisioned when it undertook to sell the shares.  Management has had for the past year what itdeemed adequate contingency plans instituted to offset certain externalconditions, such as diesel fuel price increases, increased insurance costs anda slowdown in the general economy that could adversely affect the Company’sfinancial performance and condition, but these plans were not able to fullymeet them.  Management is continuing tolook at means for solving its capital needs during 2003.

 

One of these means would be to increase the amount of equipment beingowned and/or operated by the Company. The Company has been examining the potential to acquire the assets ofanother mid-west based truckload transportation company that operatescompatible routes and that has the potential to increase rates in its trafficlanes and to reduce costs through an asset acquisition by the Company.  Such an acquisition is believed to benecessary by management in order to increase productivity to a level that willsupport the Company overhead and enable it to operate with a positive cashflow.

 

Another means could be to contract with owner/operators to lease theirequipment and have them transport freight for the Company.  Still another would be to raise additionalcapital through a securities offering, be it debt or equity.

 

Although management is examining these various means of solving theseproblems, there can be no assurance that any of them will be available to theCompany, or if available, that they will solve the problems.

 

Strong corrective actions were installed in 2000 and early in 2001 togenerate positive cash flows for the Company. These actions were mainly designed to increase revenues through rateincreases and decrease costs through equipment productivity improvements andoperating cost reductions.  The Companywas seeing the results of these actions through the first quarter of 2001 as itshowed a modest profit for that period. The earnings turnaround was not sustained through the last 3 quarters of2001, largely due to a price decrease from its largest customer on certainroutes.  Although, the Company tookcorrective action by instituting a price increase on these routes, this was notdone until near year end.

 

This price decrease, plus a sharp plunge in freight demand related tothe nation’s economic downturn and the second consecutive year of substantialindustry hikes in insurance costs, overcame the Company’s earlier profitrecovery.

 

In 2002, soft freight demand, unmanned trucks, a deficient trailerpool, and rising fuel and insurance costs combined to keep the Company’sequipment productivity and margins below a profitable level.  In addition, high General and Administrativeexpenses, in part caused by abnormally steep bad debts, coupled with losses onthe disposal of equipment, mostly due to market conditions, drove the Company’slosses up compared to the prior two years.

 

Management believes that, if fuel prices decrease to more normallevels, coupled with its establishment of new, additional customers providingincreased outbound and inbound freight rates, replacing its 48’ trailers with53’ trailers, increasing its trailer pool to meet customer loading conditions,adding an owner/operator fleet and freight brokerage operation, continuingcontrol on general and administrative expenses, and an improving economy, theCompany can be expected to progressively return to positive earnings in 2003.

 

As stated above, management is actively working with industry specificprofessional firms to facilitate raising a sufficient amount of equity capitalto properly capitalize the Company in order to fund its working capital deficitand to fund its growth plans.

 

8

----

 

**Item 7.Financial Statements.**

 

TABLE OF CONTENTS

 
| CONSOLIDATED FINANCIAL STATEMENTS                                                                               |
|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                            |
| Independent Auditor’s  Report                                                                              |
|                                                                                                            |
| Consolidated Balance Sheet  At December 31, 2002                                                                |
|                                                                                                            |
| Statements of  Consolidated Operations for the Years Ended December 31, 2002 and 2001                           |
|                                                                                                            |
| Statements  of Consolidated Stockholders’ Equity (Deficit) for the Years Ended December  31, 2002 and 2001 |
|                                                                                                            |
| Statements of  Consolidated Cash Flows for the Years Ended December 31, 2002 and 2001                           |
|                                                                                                            |
| Notes to  Consolidated Financial Statements                                                                     |

 

9

----

 

 

VAN KREVEL & COMPANYCertified Public AccountantsP. O. Box 1432Dublin, Ohio 43017-6432614/761-3743

 

To the Board of Directorsand StockholdersGasel Transportation Lines, Inc.Marietta, Ohio

 

INDEPENDENT AUDITOR’S REPORT

 

We have audited the accompanying consolidated balance sheet of GaselTransportation Lines, Inc., and its subsidiaries, as of December 31, 2002, andthe related statements of consolidated operations, stockholders’ equity(deficit) and cash flows for the years ended December 31, 2002 and 2001.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of GaselTransportation Lines, Inc., and its subsidiaries, as of December 31, 2002, andthe results of their operations and their cash flows for the years endedDecember 31, 2002 and 2001, in conformity with accounting principles generallyaccepted in the United States of America.

 

The accompanying financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company hassuffered recurring losses from operations and has a net capital deficiency,which raise substantial doubt about its ability to continue as a goingconcern.  Management’s plans regardingthose matters also are described in Note 1. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

 
| /s/ VAN KREVEL & COMPANY |   |
|------------------------------|--------|
|                         |
| Dublin, Ohio                 |
| February 28, 2003            |

 

10

----

 

GASELTRANSPORTATION LINES, INC.AND ITS SUBSIDIARIESCONSOLIDATED BALANCE SHEETDecember 31, 2002

 

ASSETS

 
| Current Assets                                          |   |       |       |
|---------------------------------------------------------|--------|------------|------------|
| Cash & Cash  Equivalents                            |   | $          | 44,205     |   |
| Accounts  Receivable-Trade, Net of Allowance of $74,000 |   | 1,946,265  |       |
| Inventory                                               |   | 166,402    |       |
| Prepaid Expenses  and Other Current Assets              |   | 438,545    |       |
|                                                    |   |       |       |
| Total Current  Assets                                   |   | 2,595,417  |       |
|                                                    |   |       |       |
| Property and  Equipment                                 |   |       |       |
| Land and  Buildings                                     |   | 770,054    |       |
| Tractors                                                |   | 12,000,724 |       |
| Trailers                                                |   | 4,681,313  |       |
| Shop Equipment                                          |   | 405,285    |       |
| Office Equipment                                        |   | 218,820    |       |
|                                                    |   | 18,076,196 |       |
| Less Accumulated  Depreciation                          |   | 9,140,983  |       |
|                                                    |   |       |       |
| Net Property and  Equipment                             |   | 8,935,213  |       |
|                                                    |   |       |       |
| Other Assets                                            |   |       |       |
| Goodwill                                                |   | 353,438    |       |
| Mortgage  Receivable, Net of Current Portion            |   | 170,785    |       |
| Other                                                   |   | 135,642    |       |
|                                                    |   |       |       |
| Total Other  Assets                                     |   | 659,865    |       |
|                                                    |   |       |       |
| TOTAL ASSETS                                            |   | $          | 12,190,495 |   |

 

See accompanying notes toconsolidated financial statements.

 

11

----

 

GASEL TRANSPORTATIONLINES, INC.AND ITS SUBSIDIARIESCONSOLIDATED BALANCE SHEETDecember 31, 2002

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 
| Current  Liabilities                                                                                   |   |       |       |
|--------------------------------------------------------------------------------------------------------|--------|------------|------------|
| Cash Overdraft                                                                                         |   | $          | 138,730    |   |
| Notes Payable                                                                                          |   | 1,903,167  |       |
| Accounts  Payable-Trade                                                                                |   | 754,570    |       |
| Accrued  Brokerage, Contract Labor, Interest and Other Expenses                                        |   | 515,040    |       |
| Accrued Payroll  and Payroll Taxes                                                                     |   | 390,126    |       |
| Current Portion  of Long Term Debt                                                                     |   | 4,327,079  |       |
|                                                                                                   |   |       |       |
| Total Current  Liabilities                                                                             |   | 8,028,712  |       |
|                                                                                                   |   |       |       |
| Long Term Debt,  Net of Current Portion                                                                |   | 5,107,696  |       |
|                                                                                                   |   |       |       |
| Total  Liabilities                                                                                     |   | 13,136,408 |       |
|                                                                                                   |   |       |       |
| Redeemable  Warrants                                                                                   |   | 50,000     |       |
|                                                                                                   |   |       |       |
| Stockholders’  Equity (Deficit)                                                                   |   |       |       |
| Common Stock, no  par value, 10,000,000 shares authorized, 5,086,365 issued and 5,078,465  outstanding |   | 1,839,974  |       |
| Additional Paid  in Capital                                                                            |   | 130,786    |       |
| Accumulated  Deficit                                                                                   |   | (2,948,840 | )          |
| Less: Treasury  Stock, at cost, 7,900 shares                                                           |   | (17,833    | )          |
| Total  Stockholders’ Equity (Deficit)                                                             |   | (995,913   | )          |
|                                                                                                   |   |       |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                             |   | $          | 12,190,495 |   |

 

See accompanying notes toconsolidated financial statements.

 

12

----

 

GASELTRANSPORTATION LINES, INC.AND ITS SUBSIDIARIESSTATEMENTS OF CONSOLIDATEDOPERATIONSYears Ended December 31, 2002 and 2001

 
|                                         |   | **2002**   |       | **2001**   |   |
|----------------------------------------------|--------|------------|------------|------------|--------|
|                                         |   |       |       |       |   |
| Revenues                                     |   |       |       |       |   |
| Freight Income                               |   | $          | 14,162,996 |       | $      | 17,574,593 |   |
| Training School  Revenue                     |   | 479,802    |       | 805,563    |   |
|                                         |   | 14,642,798 |       | 18,380,156 |   |
|                                         |   |       |       |       |   |
| Cost of Revenue                              |   | 12,754,005 |       | 15,820,996 |   |
|                                         |   |       |       |       |   |
| Gross Profit                                 |   | 1,888,793  |       | 2,559,160  |   |
|                                         |   |       |       |       |   |
| Operating  Expenses                          |   |       |       |       |   |
| Garage Expenses                              |   | 319,955    |       | 290,928    |   |
| General and  Administrative Expenses         |   | 2,093,268  |       | 2,041,797  |   |
|                                         |   | 2,413,223  |       | 2,332,725  |   |
|                                         |   |       |       |       |   |
| Operating Income  (Loss)                     |   | (524,430   | )          | 226,435    |   |
|                                         |   |       |       |       |   |
| Other Income  (Expense)                      |   |       |       |       |   |
| Other Income                                 |   | 110,177    |       | 187,984    |   |
| Interest Income                              |   | 9,641      |       | 13,709     |   |
| Interest Expense                             |   | (1,103,143 | )          | (1,276,012 | )      |
| (Loss) on Asset  Disposals                   |   | (253,800   | )          | (22,699    | )      |
|                                         |   | (1,237,125 | )          | (1,097,018 | )      |
| (Loss) Before  Tax Provision                 |   | (1,761,555 | )          | (870,583   | )      |
|                                         |   |       |       |       |   |
| Provision for  Income Taxes                  |   | —     |       | —     |   |
|                                         |   |       |       |       |   |
| Net (Loss)                                   |   | $          | (1,761,555 | )          | $      | (870,583 | ) |
|                                         |   |       |       |       |   |
| Basic (Loss) Per  Share                      |   | $          | (.685      | )          | $      | (.362 | ) |
|                                         |   |       |       |       |   |
| Diluted (Loss)  Per Share                    |   | $          | (.685      | )          | $      | (.362 | ) |
|                                         |   |       |       |       |   |
| Weighted Average  Common Shares Outstanding: |   |       |       |       |   |
|                                         |   |       |       |       |   |
| Basic                                        |   | 2,569,976  |       | 2,405,066  |   |
| Diluted                                      |   | 2,569,976  |       | 2,405,066  |   |

 

See accompanying notes toconsolidated financial statements.

 

13

----

 

GASELTRANSPORTATION LINES, INC.AND ITS SUBSIDIARIESSTATEMENTS OF CONSOLIDATEDSTOCKHOLDERS’ EQUITY (DEFICIT)Years Ended December 31, 2002 and 2001

 
|                                   |   |             |   | **Additional  Paid in  Capital** |      | **Accumulated  (Deficit)** |   | **Treasury  Stock** |   | **Notes  Receivable  Stock  Issuance** |       |
|----------------------------------------|--------|------------------|--------|----------------------------------|-----------|----------------------------|--------|---------------------|--------|----------------------------------------|------------|
|                                   |   |             |   |                             |      |                       |   |
|                                   |   | **Common Stock** |   |                             |      |                       |   |
|                                   |   | **Shares**       |   | **Amount**                       |      |                       |   |                |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Balances,  December 31, 2000           |   | 2,412,966        |   | $                                | 1,539,640 |                       | $      | 223,229             |   | $                                      | (316,702   | ) | $ | (17,833 | ) | $ | (64,919 | ) |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Net (Loss)                             |   |             |   |                             |      |                       |   | (870,583            | )      |                                   |       |   |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Payment received                       |   |             |   |                             |      |                       |   |                |   |                                   |       | 18,026 |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Balances at  December 31, 2001         |   | 2,412,966        |   | 1,539,640                        |      | 223,229                    |   | (1,187,285          | )      | (17,833                                | )          | (46,983 | ) |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Net (Loss)                             |   |             |   |                             |      |                       |   | (1,761,555          | )      |                                   |       |   |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Cost of Increase  in Authorized Shares |   |             |   |                             |      | (17,550                    | )      |                |   |                                   |       |   |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Issuance of  Common Stock Shares       |   | 2,673,399        |   | 300,334                          |      | (28,000                    | )      |                |   |                                   |       |   |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Write-off  Receivable Stock Issuance   |   |             |   |                             |      | (46,893                    | )      |                |   |                                   |       | 46,893 |   |
|                                   |   |             |   |                             |      |                       |   |                |   |                                   |       |   |   |
| Balances at  December 31, 2002         |   | 5,086,365        |   | $                                | 1,839,974 |                       | $      | 130,786             |   | $                                      | (2,948,840 | ) | $ | (17,833 | ) | $ | 0 |   |

 

See accompanying notes toconsolidated financial statements.

 

14

----

 

GASELTRANSPORTATION LINES, INC.AND ITS SUBSIDIARYSTATEMENTS OF CONSOLIDATED CASH FLOWSYears Ended December 31, 2002 and 2001

 
|                                                                           |   | **2002**   |       | **2001**   |   |
|--------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                           |   |       |       |       |   |
| Cash Flows From  Operating Activities                                          |   |       |       |       |   |
| Net (Loss)                                                                     |   | $          | (1,761,555 | )          | $      | (870,583 | ) |
| Adjustments to  reconcile net (loss) to cash provided by operating activities: |   |       |       |       |   |
| Depreciation and  Amortization                                                 |   | 2,199,172  |       | 2,332,991  |   |
| Loss on Sale of  Equipment                                                     |   | 253,800    |       | 22,699     |   |
| Common Stock  Issued as Compensation                                           |   | 12,950     |       | —     |   |
| Provision for  Doubtful Accounts                                               |   | 259,160    |       | 18,765     |   |
| (Increase)  Decrease in:                                                       |   |       |       |       |   |
| Accounts  Receivable-Trade                                                     |   | (131,704   | )          | (611,846   | )      |
| Inventory                                                                      |   | 36,471     |       | (33,111    | )      |
| Prepaid Expenses  and Other Assets                                             |   | (25,307    | )          | (163,773   | )      |
| Increase  (Decrease) in:                                                       |   |       |       |       |   |
| Accounts Payable  and Accrued Expenses                                         |   | 656,518    |       | 583,720    |   |
| Net Cash  Provided by Operating Activities                                     |   | 1,499,505  |       | 1,278,862  |   |
|                                                                           |   |       |       |       |   |
| Cash Flows From  Investing Activities                                          |   |       |       |       |   |
| Purchases of  Property and Equipment                                           |   | (400,074   | )          | (300,456   | )      |
| Proceeds from  Sale of Assets                                                  |   | 276,429    |       | 252,002    |   |
| Net Cash Used By  Investing Activities                                         |   | (123,645   | )          | (48,454    | )      |
|                                                                           |   |       |       |       |   |
| Cash Flows From  Financing Activities                                          |   |       |       |       |   |
| Line of Credit,  Net                                                           |   | 219,895    |       | 212,921    |   |
| Repayment of  Note and Mortgage Receivables                                    |   | 2,649      |       | 18,026     |   |
| Proceeds from  Short Term Borrowing-Related Party                              |   | —     |       | 100,000    |   |
| Payment on Notes  Payable Related Party                                        |   | (43,146    | )          | (78,796    | )      |
| Proceeds from  Long Term Borrowing                                             |   | 89,763     |       | 715,789    |   |
| Proceeds from  Capital Lease Obligations                                       |   | 50,970     |       | 142,136    |   |
| Principal  Payments on Long Term Borrowing                                     |   | (1,219,107 | )          | (1,537,803 | )      |
| Principal  Payments Under Capital Lease Agreements                             |   | (321,841   | )          | (460,982   | )      |
| Proceeds from  Issuance of Common Stock                                        |   | 161,418    |       | —     |   |
| Decrease in  Additional Paid in Capital                                        |   | (17,550    | )          | —     |   |
|                                                                           |   |       |       |       |   |
| Net Cash Used by  Financing Activities                                         |   | (1,076,949 | )          | (888,709   | )      |
|                                                                           |   |       |       |       |   |
| Net Increase  (Decrease) in Cash                                               |   | 298,911    |       | 341,699    |   |
| Net Cash &  Cash Equivalents   (Overdraft)-January 1                       |   | (393,436   | )          | (735,135   | )      |
|                                                                           |   |       |       |       |   |
| Net Cash &  Cash Equivalents   (Overdraft)-December 31                     |   | $          | (94,525    | )          | $      | (393,436 | ) |

 

See accompanying notes toconsolidated financial statements.

 

15

----

 

GASEL TRANSPORTATIONLINES, INC.AND ITS SUBSIDIARIESSTATEMENTS OF CONSOLIDATED CASH FLOWS (continued)Years Ended December 31, 2002 and 2001

 

The net cash and cash equivalents (overdraft) are presented in thebalance sheet as follows at December 31:

 
|                                                            |   | **2002** |    | **2001** |   |
|-----------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                            |   |     |    |     |   |
| Cash and Cash  Equivalents                                      |   | $        | 44,205  |     | $      | 20,529 |   |
| Cash Overdraft                                                  |   | (138,730 | )       | (413,965 | )      |
| Net Cash &  Cash Equivalents (Overdraft)-December 31        |   | $        | (94,525 | )        | $      | (393,436 | ) |
|                                                            |   |     |    |     |   |
| Supplemental  Disclosures:                                      |   |     |    |     |   |
|                                                            |   |     |    |     |   |
| Interest Paid                                                   |   | $        | 984,030 |     | $      | 1,141,475 |   |
|                                                            |   |     |    |     |   |
| Non-Cash Investing  and Financing Activities                    |   |     |    |     |   |
|                                                            |   |     |    |     |   |
| Increase in  Mortgage Receivable Upon Sale of Land and Building |   | $        | 179,142 |     | $      | — |   |
|                                                            |   |     |    |     |   |
| Notes Payable  Reduction Upon Sale of Fixed Assets              |   | $        | 271,378 |     | $      | — |   |
|                                                            |   |     |    |     |   |
| Purchases of  Property and Equipment with Direct Financing      |   | $        | 248,930 |     | $      | 1,244,530 |   |

 

See accompanying notes toconsolidated financial statements.

 

16

----

 

GASELTRANSPORTATION LINES, INC.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALSTATEMENTSYears Ended December 31, 2002 and 2001

 

**NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

This summary of significant accounting policies of Gasel TransportationLines, Inc., and its subsidiaries, Gasel Driver Training Schools, Inc., and GTLLogistics, Inc., is presented to assist in understanding the Company’sfinancial statements. The financial statements and notes are representations ofthe Company’s management who is responsible for their integrity andobjectivity.  These accounting policies conformto generally accepted accounting principles and have been consistently appliedin the preparation of the financial statements.

 

Nature of Operations

 

The Company is engaged in the interstate trucking industry.  Gasel holds federal authority as a motorfreight common carrier, contract carrier, and freight broker.  Its authority includes the continentalUnited States and Canada.  Principaloffices of the Company are located in Marietta, Ohio.  In addition, the Company has motor terminal and maintenancefacilities in Marietta, Ohio, and a terminal/sales office in Columbus,Ohio.  One of Gasel’s subsidiaries is astate-licensed Class A truck driver training school.

 

Going Concern

 

The accompanying financial statements have been prepared in conformitywith generally accepted accounting principles, which contemplate continuationof the Company as a going concern.  TheCompany sustained losses of $1,761,555 in 2002, $870,583 in 2001 and $1,045,402in 2000.  At December 31, 2002, currentliabilities exceeded current assets by approximately $5.5 million.  The Company had an accumulated deficit of$2,948,840 at December 31, 2002 and $1,187,285 at December 31, 2001.  These factors raise substantial doubt aboutthe ability of the Company to continue as a going concern for a reasonableperiod of time.

 

The Company continues to develop and implement corrective actionsdesigned to increase revenues and decrease costs to generate positive earningsand cash flows from its operations

 

In late second quarter 2002, management set in motion a plan to changeits sales mix to increase the freight volume, rates and margins via theaddition of large national shippers out of its Columbus, Ohio terminal andinbound from its primary traffic lane in the northeast U.S.

 

At year end 2002, the average revenues per mile were significantly upand management believes the higher rates and revenue levels will be sustainedand improved in 2003 and beyond from the efforts of its enhanced salesforce.  In addition, the Companyinstalled freight brokerage and owner operator programs late in 2002 and early2003.  These programs are expected toprovide incremental revenues and contributions to profits without additionalcash outlays.

 

17

----

 

To improve its equity deficit, the Company raised approximately$300,000 during 2002 and an additional $394,000 during January and February2003, in equity capital through the issuance of restricted stock andanticipates the total issuances to provide over $1.0 million at the end of thequarter ending March 31, 2003.

 

Management plans to obtain additional capitalization through acombination of debt and equity to appropriately fund the Company.  To facilitate this effort and add to itsearnings potential, and in addition to the Company’s internal correctiveactions, management continues to pursue an aggressivegrowth-through-acquisition strategy as the industry continues to lend itself toconsolidation.

 

In an effort to mitigate certain external conditions that could adverselyaffect the Company’s financial performance (e.g., diesel fuel prices, insurancecosts and the general economy), cost containment programs continue to beinstalled, particularly for major operating costs.

 

The financial statements do not include any adjustments relating to therecoverability and reclassification of recorded asset amounts or the amountsand classifications of liabilities that might be necessary should the Companybe unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon itsability to obtain additional funding and to increase its revenues and equipmentproductivity, while containing costs. No assurance can be given that the Company will be successful in theseefforts.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts andoperations of the Company and its wholly owned subsidiary.  All significant inter-company accounts andtransactions have been eliminated.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers allhighly liquid debt instruments purchased with a maturity of three months orless to be cash equivalents.

 

Revenue Recognition

 

The Company recognizes revenue and direct shipment costs upon shipmentof the related freight.  Direct shipmentcosts generally include the driver costs. These costs are recorded as an expense and as accrued payroll orcontract labor upon shipment of the related freight.  Driver training school revenues and rental income are recognizedwhen earned.

 

18

----

 

Accounts Receivable-Trade

 

Trade receivables are carried at original invoice amount less anestimate made for doubtful receivables based on a review of all outstandingamounts on a monthly basis.  Managementdetermines the allowance for doubtful accounts by regularly evaluatingindividual customer receivables and considering a customer’s financialcondition, credit history, and current economic conditions.  Trade receivables are written off whendeemed uncollectible.  Recoveries oftrade receivables previously written off are recorded when received.  The Company does not charge interest ontrade receivables.

 

Credit Risk

 

The Company maintains cash in demand deposit accounts with federallyinsured banks.  At times, the balancesin the accounts may be in excess of federally insured limits.

 

Financial instruments that potentially subject the Company toconcentrations of credit risk consist principally of trade receivables.  Credit risk is generally diversified due tothe large number of entities comprising the Company’s customer base and theirdispersion across many different industries and geographic regions.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments include cash, cash equivalents, andlong term debt.  The carrying amounts ofthese financial instruments have been estimated by the Company to approximatefair value.

 

Inventory

 

Inventories consist primarily of maintenance supplies and fuel and arestated at the lower of cost (first-in, first-out) or market value.

 

Property and Equipment

 

Property and equipment are recorded at cost.  For financial reporting purposes, the cost of such property isdepreciated principally by the straight-line method over the estimated usefullives of 3-10 years for tractors and trailers, 40 years for buildings and 3-10years for shop and office equipment. Amortization of equipment purchased under capitalized lease obligationsis included in depreciation expense. For tax reporting purposes, accelerated depreciation or applicable costrecovery methods are used.  Gains andlosses are recognized in the year of disposal. Tires purchased with tractors and trailers are capitalized as a part ofthe cost of such equipment, with replacement tires being inventoried andexpensed when placed in service.

 

19

----

 

Goodwill

 

During 2000, the Company purchased an existing freight transport andfreight brokerage business in the Columbus, Ohio area.  Goodwill represents the excess of thepurchase price over the fair market value of the net assets acquired at thedate of acquisition.  The amount isshown net of accumulated amortization of $9,062 at December 31, 2002.

 

Prior to January 1, 2002, the Company’s effective date forimplementation of SFAS No. 142, *Goodwill and Other Intangible Assets*,goodwill was amortized using the straight line method over a forty yearperiod.  Amortization expense charged tooperations was $9,062 for the year ended December 31, 2001.

 

Under SFAS No. 142, *Goodwill and Other Intangible Assets*,goodwill is no longer amortized. Rather, goodwill is tested at least annually for impairment.  Impairment exists when the carrying amountof goodwill exceeds it implied fair value. If the carrying amount exceeds the implied fair value, an impairmentloss is recognized.  Subsequent reversalof previously recognized goodwill impairment loss is prohibited.

 

Advertising

 

All advertising costs are expensed as incurred.  Advertising expense was $44,531 and $50,873for the years ended December 31, 2002 and 2001, respectively.

 

Stock Options 

 

The Company has elected to account for the stock option plan underAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees” (APB 25) and related Interpretations in accounting.  The alternative fair value accountingprovided under FASB Statement No. 123, “Accounting for Stock-BasedCompensation,” (SFAS No. 123) requires use of option valuation models that werenot developed for use in valuing employee stock options.  Under APB 25, when the exercise price of theCompany’s stock options equals the market price of the underlying stock on thedate of grant, no compensation expense is recognized.

 

Use of Estimates in the Financial Statements

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differfrom those estimates.

 

20

----

 

Income Taxes

 

Deferred income taxes are reported using the liability method.  Deferred tax assets are recognized fordeductible temporary differences and deferred tax liabilities are recognizedfor taxable temporary differences. Temporary differences are the changes between the reported amounts ofassets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance, when in theopinion of management, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment.

 

**NOTE 2 -NOTES RECEIVABLE-STOCK ISSUANCE**

 
|                                                                                 |   | **2002** |   |
|--------------------------------------------------------------------------------------|--------|----------|--------|
| Notes receivable consists of:                                                        |   |     |   |
|                                                                                 |   |     |   |
| Unsecured note  receivable, dated June, 1999, Merchants Financial, 10% due on demand |   | $        | 17,815 |   |
|                                                                                 |   |     |   |
| Unsecured note  receivable, dated August, 1999, Corna Securities, 10% due on demand  |   | 29,078   |   |
|                                                                                 |   |     |   |
|                                                                                 |   | 46,893   |   |
| Receivable  write-off                                                                |   | (46,893  | )      |
|                                                                                 |   |     |   |
| (See Note 12.)                                                                       |   | $        | — |   |

 

Both notes had been deemed uncollectible and written off as of December31, 2002.

 

# **NOTE 3 - MORTGAGE RECEIVABLE**

 

The Company sold a facility located in Dade City, Florida, in June of2002, to an unrelated party.  A portionof the sales price was received in a promissory note at the property saleclosing.  At December 31, 2002, thebalance due on this mortgage receivable was $176,494.  Payments are to be received based on a ten year amortizationschedule.  The note bears interest at anannual rate of 8%.  The note is securedby a mortgage on the property sold.

 

The Company still retains a mortgage payable due against this propertyin the amount of $174,778 at December 31, 2002.  As payments are made on the mortgage receivable, the Company willpay down the mortgage payable.

 

21

----

 

**NOTE 4 -LONG TERM DEBT**

 

Long-term debt consists of the following:

 
|                       |   | **2002**  |      |
|----------------------------|--------|-----------|-----------|
| Mortgages  Payable         |   | $         | 1,053,942 |   |
| Notes Payable              |   | 6,881,666 |      |
| Capital Lease  Obligations |   | 1,499,167 |      |
|                       |   | 9,434,775 |      |
| Less Current  Maturities   |   | 4,327,079 |      |
|                       |   |      |      |
|                       |   | $         | 5,107,696 |   |

 

Notes payable and capitalized lease obligations are collateralized byproperty and equipment having a net book value of $8,042,667 at December 31,2002. The mortgages payable are collateralized by land and building, with a netbook value of $681,846 at December 31, 27002, as well as a first securityinterest in all shop and office equipment. One of the mortgages is personally guaranteed by an officer and majorstockholder, and by his wife.  Certainother notes are personally guaranteed by the stockholder and officer. (See Note14).  Interest rates range from 3.9%****to15.0% during 2002 for the notes.  Ratesfor the mortgages ranged from 8.25% to 9.0% for 2002.

 

Annual maturities on long term debt, excluding capital leaseobligations, for the five years ending after December 31, 2002, are as follows:

 

| 2003                |   | $         | 3,643,358 |   |
|---------------------|--------|-----------|-----------|--------|
| 2004                |   | 1,936,614 |      |
| 2005                |   | 1,740,068 |      |
| 2006                |   | 253,420   |      |
| 2007 and thereafter |   | 362,148   |      |
|                |   | $         | 7,935,608 |   |

 

**NOTE 5 -NOTES PAYABLE**

 

Prior to September 11, 2002, the Company had a line of credit agreementwith CitiCapital Business Credit, expiring in May, 2003.  The agreement allowed the company to borrowup to $2,000,000, subject to borrowing base restrictions.  Interest was due monthly at 1% overprime.  The outstanding balance wassecured by accounts receivable.

 

During 2002, the Company received advances in excess of the amountavailable under the borrowing base. CitiCapital notified the Company of its default under the line of creditagreement and indicated its right to terminate the relationship.  On September 11, 2002, the Company enteredinto a Forbearance Agreement with CitiCapital, which established terms for theissuance of a new line of credit agreement.  The terms included the assignment of accounts receivable andestablishment of a collection agreement.

 

22

----

 

Under the collection agreement, Citicapital collects and processes theassigned accounts receivable for a fee of .7% of the invoice amount.  The receivable collections are used toreduce the outstanding loan balance, including an over advance at December 31,2002.

 

The new line of credit agreement expires in September, 2003.  The agreement allows the Company to borrowup to $2,000,000, subject to borrowing base restrictions.  Interest is due at 2% over prime.  The outstanding balance of $1,692,873 atDecember 31, 2002, is secured by accounts receivable and all fixed assets.

 

No dividends may be paid, either in cash or in kind, on the Company’scommon stock without the prior written consent of CitiCapital CommercialCorporation.  No dividends were paid in2002 or 2001.

 

At December 31, 2002, the Company had a demand note (secured by stockof Gasel Driver Training School, Inc.) payable to a stockholder, in the amountof $69,500 (see Note 14).  In addition,notes payable include an unsecured note payable to a bank in the amount of $82,236and an unsecured related party note payable in the amount of $58,558.

 

**NOTE 6 -CAPITAL LEASE OBLIGATIONS**

 

The Company leases tractors and trailers under capital leases thatexpire from 2002 through 2007.  Theseassets are included in property and equipment as follows:

 
|                           |   | **2002**  |      |
|--------------------------------|--------|-----------|-----------|
|                           |   |      |      |
| Tractors                       |   | $         | 507,397   |   |
| Trailers                       |   | 1,429,308 |      |
|                           |   |      |      |
|                           |   | 1,936,705 |      |
| Less Accumulated  Depreciation |   | (408,184  | )         |
|                           |   |      |      |
|                           |   | $         | 1,528,521 |   |

 

23

----

 

Future minimum annual lease payments as of December 31, 2002, areas  follows:

 
| 2003                                         |   | $         | 919,450 |   |
|----------------------------------------------|--------|-----------|---------|--------|
| 2004                                         |   | 575,129   |    |
| 2005                                         |   | 208,614   |    |
| 2006                                         |   | 128,280   |    |
| 2007                                         |   | 21,380    |    |
|                                         |   | 1,852,853 |    |
| Less amount  representing interest           |   | (353,686  | )       |
|                                         |   |      |    |
| Present value of  net minimum lease payments |   | 1,499,167 |    |
| Less current  portion                        |   | (683,721  | )       |
| Long Term  Portion                           |   | $         | 815,446 |   |

 

**NOTE 7 -OPERATING LEASES**

 

During 2002, the Company leased a terminal and sales office in PlainCity, Ohio, from ETS, a company owned by a stockholder of Gasel. The Companypaid rent expense during the year ended December 31, 2002, of $9,715 to thisrelated party.

 

In addition, the Company leases a terminal and school facilities atthree separate locations in Ohio on a one year basis.  Rent expense paid during the year ended December 31, 2002, was$58,457.

 

The Company leased its employees under a one year employee leasingagreement with PeopLease Corporation, a South Carolina Corporation.  PeopLease provided the Company with all ofits drivers, mechanics and office workers. The Company paid $3,318,165 and $5,794,176 for its leased employees in2002 and 2001, respectively.  Accruedcontract labor to PeopLease at December 31, 2002, was $169,887.

 

As of August 31, 2002, the Company began paying these employees throughits own payroll system, including appropriate payroll taxes.

 

The Company leases trailers and other equipment under long-termoperating leases.  The Company incurred$258,581 and $124,976 for its operating leases in 2002 and 2001,respectively.  Future minimum rentalpayments required under operating leases that have noncancellable lease termsin excess of one year as of December 31, 2002, are:

 

| 2003   |   | $       | 283,032 |   |
|--------|--------|---------|---------|--------|
| 2004   |   | 283,032 |    |
| 2005   |   | 283,032 |    |
| 2006   |   | 140,436 |    |
|   |   | $       | 989,532 |   |

 

24

----

 

**NOTE 8 -INCOME TAXES**

 

Income tax expense (benefit) consists of:

 
|      |   | **December  31,** |   |
|-----------|--------|-------------------|--------|
|      |   | **2002**          |   | **2001** |   |
| Current:  |   |              |   |   |   |
| Federal   |   | $                 | — |   | $ | — |   |
| State     |   | —            |   | — |   |
|      |   |              |   |   |   |
|      |   | $                 | — |   | $ | — |   |
| Deferred: |   |              |   |   |   |
| Federal   |   | $                 | — |   | $ | — |   |
| State     |   | —            |   | — |   |
|      |   | $                 | — |   | $ | — |   |

 

A reconciliation of the total provision for income taxes with amountsdetermined by applying the statutory U.S. Federal income tax rates to incometax provisions is as follows:

 
|                                           |   | **December  31,** |     |
|------------------------------------------------|--------|-------------------|----------|
|                                           |   | **2002**          |     | **2001** |   |
|                                           |   |              |     |   |   |
| Income tax at  statutory rates                 |   | $                 | (599,000 | ) | $ | (296,000 | ) |
| Add:  Tax effect of permanent differences |   | —            |     | — |   |
| Increase in  valuation allowance               |   | 599,000           |     | 296,000 |   |
| Total income tax  provision                    |   | $                 | —   |   | $ | — |   |

 

The effects of temporary differences that give rise to significantportions of the deferred tax assets and deferred tax liabilities are presentedbelow:

 
|                                                                    |   | **December  31  2002** |      |
|-------------------------------------------------------------------------|--------|------------------------|-----------|
| Deferred tax  assets:                                                   |   |                   |      |
| Net operating  loss carryforward                                        |   | $                      | 1,984,000 |   |
| Contribution  carryover                                                 |   | 2,000                  |      |
| Deferred tax  asset valuation allowance                                 |   | (183,000               | )         |
| Total deferred  tax assets                                              |   | $                      | 1,803,000 |   |
|                                                                    |   |                   |      |
| Deferred tax  liabilities:                                              |   |                   |      |
| Property and  equipment, principally due to differences in depreciation |   | $                      | 1,803,000 |   |
|                                                                    |   |                   |      |
| Total deferred  tax liabilities                                         |   | $                      | 1,803,000 |   |

 

25

----

 

These amounts are presented in the accompanying consolidated balancesheet as follows:

 
| Noncurrent deferred tax assets     |   | $          | 1,803,000 |   |
|------------------------------------|--------|------------|-----------|--------|
| Noncurrent  deferred tax liability |   | (1,803,000 | )         |
| Net deferred tax  asset            |   | $          | —    |   |

 

At December 31, 2002, the Company has net operating loss carryforwardsof $5.8 million for income tax purposes that expire in years 2009 through 2022.

 

**NOTE 9 -EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE**

 

Earnings per common and common equivalent share were computed bydividing net (loss) by the weighted average number of shares of common stockoutstanding during the year.  AtDecember 31, 2002 and 2001, the number of common shares was increased by thenumber of shares issuable on the exercise of outstanding stock options andwarrants when the market price of the common stock exceeds the exercise priceof the options and warrants.  Thisincrease in the number of common shares was reduced by the number of commonshares that are assumed to have been purchased with the proceeds from theexercise of the options; those purchases were assumed to have been made at theaverage price of the common stock during that part of the year when the marketprice of the common stock exceeded the exercise price of the options.

 

The following data shows the amounts used in computing earnings pershare (EPS) and the effect on income and the weighted average number of sharesof dilutive potential common stock.

 
|                                                                                               |   | **December  31,** |       |
|----------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                               |   | **2002**          |       | **2001** |   |
| Income (loss)  available to common stockholders used in basic EPS and diluted EPS                  |   | $                 | (1,761,555 | ) | $ | (870,583 | ) |
|                                                                                               |   |              |       |   |   |
| Weighted average  number of common shares used in basic EPS                                        |   | 2,569,976         |       | 2,405,066 |   |
|                                                                                               |   |              |       |   |   |
| Effect of  dilutive securities: Stock options and warrants                                         |   | —            |       | — |   |
|                                                                                               |   |              |       |   |   |
| Weighted average  number of common shares and dilutive potential common stock used in diluted  EPS |   | 2,569,976         |       | 2,405,066 |   |
|                                                                                                    |        |                   |            |  |  |  |  |

 

26

----

 

At December 31, 2002 and 2001, options on 149,053 and 41,176 shares ofcommon stock, respectively, were not included in computing diluted EPS becausetheir effects were antidilutive.

 

# **NOTE 10 - COMMON STOCK - RESTRICTED SHARES**

 

In August, 2002, the Company contracted with 1st SBPartners, LTD, New York, NY, to provide financial planning to obtain fundingarrangements.  As part of this contract,the Company agreed to issue 400,000 shares of its restricted common stock to 1stSB Partners, in exchange for successfully executing a funding agreement onbehalf of the Company.  In October,2002, a funding arrangement with Starz Investment, Ltd., a Belize internationalbusiness company, was formalized.  Inaccordance with the Company’s agreement with 1st SB Partners, inDecember 2002, the Company issued them 200,000 shares of its restricted commonstock, and recorded an increase in common stock and a decrease in additionalpaid in capital in the amount of $28,000, (.35 of the current market value of$.40 times 200,000 shares.

 

In October, 2002, the Company entered into a Stock Purchase Agreementwith Starz Investment, Ltd., a Belize international business company, to acceptan irrevocable commitment to use its best efforts to purchase up to 7 millionshares of the Company’s common stock in an exempt transaction subject toRegulation S, at .35 times the closing bid price on the related purchasedates.  At December 31, 2002, 2,418,399shares were sold and issued for $259,384, net of issuance costs of$25,722.  During the two months endedFebruary 28, 2003, 3,030,676 shares were sold and issued for the sum of$393,737, net of issuance costs of $38,965.

 

In October, 2002, the agreement with 1st SB Partners, Ltd.was amended to include, as compensation for services, an increase of 2% for atotal of 9% cash fee compensation, payable ratably as funding occurs.  The Company paid 1st SB Partners$25,722 and $38,965 in 2002 and the two months ended February 28, 2003,respectively.

 

In December, 2002, the Company issued 30,000 shares of restrictedcommon stock to Market Pathways Financial Relations, Inc. for professionalservices rendered related to promotional campaigns designed to improveshareholder value.  The Company valuedthese shares at $4,200, (.35 of the current market value of $.40 times 30,000shares.

 

27

----

 

**NOTE 11- STOCK OPTIONS**

 

The Company has adopted a stock option plan, which provides for thegranting of options to certain officers, directors and key employees of theCompany. Currently, options for 410,000 shares of common stock have been issuedunder this plan.  The option price, numberof shares and grant date are determined at the discretion of the Company’sboard of directors. Grantees vest in the options at the date of the grant.  The exercise price of each option that hasbeen granted under the plan equals 100% of the market price of the Company’sstock on the date of the grant. Options under this plan vest on the grant dateand are exercisable for a period not to exceed 10 years from the option grantdate.  Options are non-transferable.

 

On August 2, 2002, the Company issued an option to purchase 100,000shares of common stock shares, no par value, at an exercise price of $.35 pershare to Michael J. Post, President. This grant was made pursuant to the Company’s Stock Option Plans and theterms and conditions thereof.  The optionis exercisable at any time within 10 years.

 

A summary of the status of the Company’s stock option plan as ofDecember 31, 2002 and 2001, and changes during the years then ended ispresented below:

 
|                                                            |   | **2002**                        |    | **2001**                        |   |
|-----------------------------------------------------------------|--------|---------------------------------|---------|---------------------------------|--------|
|                                                            |   | **Weighted  Average  Exercise** |    | **Weighted  Average  Exercise** |   |
|                                                            |   | **Options**                     |    | **Price**                       |   | **Options** |   | **Price** |   |
|                                                            |   |                            |    |                            |   |   |   |   |   |
| Outstanding at  beginning of year                               |   | 310,000                         |    | $                               | .81    |   | 310,000 |   | $ | .81 |   |
| Granted                                                         |   | 100,000                         |    | .35                             |   | — |   |   |   |
| Exercised                                                       |   | —                          |    |                            |   | — |   |   |   |
| Forfeited                                                       |   | —                          |    |                            |   | — |   |   |   |
|                                                            |   |                            |    |                            |   |   |   |   |   |
| Outstanding at  end of year                                     |   | 410,000                         |    | $                               | .70    |   | 310,000 |   | $ | .81 |   |
|                                                            |   |                            |    |                            |   |   |   |   |   |
| Exercisable at  end of year                                     |   | 410,000                         |    |                            |   | 310,000 |   |   |   |
|                                                            |   |                            |    |                            |   |   |   |   |   |
| Weighted average  fair value of options granted during the year |   | $                               | 100,000 |                            | $      | .35 |   | $ | — |   |   |   |
|                                                                 |        |                                 |         |                                 |        |  |  |  |  |  |  |  |  |

 

28

----

 

The following table summarizes information about stock optionsoutstanding at December 31, 2002.

 
| **Range  of  Exercise  Prices** |      | **Number  Outstanding  at  12/31/02** |    | **Weighted  Average  Remaining  Contractual  Life** |   | **Weighted  Average  Exercise  Price** |   | **Number  Exercisable  at  12/31/02** |   |
|---------------------------------|-----------|---------------------------------------|---------|-----------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                            |      |                                  |    |                                                |   |                                   |   |                                  |   |
| $                               |  .95 |                                  | 210,000 |                                                | 4.42   |                                   | $      | .95                                   |   | 210,000 |   |
| $                               |  .50 |                                  | 100,000 |                                                | 5.75   |                                   | $      | .50                                   |   | 100,000 |   |
| $                               |  .35 |                                  | 100,000 |                                                | 9.58   |                                   | $      | .35                                   |   | 100,000 |   |

 

The Black Scholes option valuation model was developed for use inestimating the fair value of traded options which have no vesting restrictionsand are fully transferable.  Inaddition, option valuation models require the input of highly subjectiveassumptions including the expected stock price volatility.  Because the Company’s stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions may materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its stockoptions.

 

Disclosures required by SFAS 123, *Accounting for Stock Based Compensation*,are as follows:

 
| Dividend Yield           |   | 0       | %      |
|--------------------------|--------|---------|--------|
| Risk Free  Interest Rate |   | 5.25    | %      |
| Expected Life            |   | 5 Years |   |
| Expected Volatility      |   | 245.43  | %      |

 

Had compensation cost been determined on the basis of fair valuepursuant to FASB No. 123, net loss and net loss per share would have beenrecorded as follows:

 
| Net Loss                          |   |   |       |
|-----------------------------------|--------|--------|------------|
| As Reported                       |   | $      | (1,761,555 | ) |
| Pro Forma                         |   | $      | (1,796,369 | ) |
|                              |   |   |       |
| Basic and  Diluted Loss Per Share |   |   |       |
| As Reported                       |   | $      | (.685      | ) |
| Pro Forma                         |   | $      | (.699      | ) |

 

29

----

 

**NOTE 12- WARRANTS**

 

As part of the July, 1996 securities offering, the underwriter wasgranted a warrant to purchase 30,870 shares of common stock at a purchase priceof $1.25 per share.  This warrant wasexercised in August, 1999, by executing a 10% cognovit note in the amount of$38,500, of which $29,078 was outstanding at December 31, 2001.  As of December 31, 2002, the balance hadbeen deemed uncollectible and written off to additional paid in capital.

 

As part of a consulting agreement dated October, 1998, MerchantsFinancial acquired 80,000 shares of the Company’s common stock at a purchaseprice of $1.38 per share by executing 10% cognovit demand notes totaling$110,000.  At December 31, 2001, $17,815of these cognovit notes was outstanding. As of December 31, 2002, the balance had been deemed uncollectible andwritten off to additional paid in capital.

 

As part of the December 2000 acquisition of the freight transport andfreight brokerage business of Eagle Transportation Services, Inc., and EagleTransport, Inc., the Sellers were granted warrants to purchase 100,000 sharesof common stock at $2.50 per share and 75,000 shares of common stock at $3.00per share, exercisable after one year and expiring in 10 years.

 

On July 25, 2002, the Company issued warrants to purchase 100,000shares of common stock to CitiCapital Commercial Corporation for valuableconsideration.  The exercise price ofthe warrants if $.001 per share.  Theconsideration was an agreement by CitiCapital to defer late payments onequipment loans and two additional payments owed by the Company to the end ofthe loan terms without penalty or rewrite fees.  The warrants may not be exercised for a period of three yearsafter date of issuance and expire five years after issue date; the warrants areto be adjusted for share dividends or stock splits.  CitiCapital also has the right to require the Company to buy backthe warrants at a price of $.50 per warrant anytime between the 32ndmonth after issue date and the end of the warrant term.

 

On August 5, 2002, the Company and S. Gene Thompson executed anEmployment Agreement outlining the terms and conditions of Mr. Thompson’semployment as Vice President and Chief Financial Officer.  In accordance with the terms of thisagreement, Mr. Thompson was given 25,000 shares of common stock, no par value,of the Company; warrants to purchase an additional 25,000 shares of commonstock, no par value, of the Company at an exercise price of $.35 per share; andwill receive additional warrants to purchase 50,000 shares of common stock inthe future at the market

 

30

----

 

price effective on the grant dates, which are to be given on January 1,2003 and January 1, 2004.  The warrantsmay be exercised at any time within a 10 year period after the date ofissuance.  In the event the Companyshall terminate Mr. Thompson’s employment prior to the end of the 3 year term,or should the Company enter into a merger or other combination with anothercompany, then the grant date of future warrants shall be accelerated to be dateof such merger, combination or termination.

 

A summary of the status of the Company’s warrants as of December 31,2002, and 2001, and changes during the years then ended is presented below:

 
|                              |   | **2002**                                |   | **2001**  |   |
|-----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
|                              |   | **Weighted  Average  Exercise  Shares** |   | **Price** |   | **Weighted  Average  Exercise  Shares** |   | **Price** |   |
| Outstanding at beginning  of year |   | 175,000                                 |   | $         | 2.71   |   | 175,000 |   | $ | 2.71 |   |
|                              |   |                                    |   |      |   |   |   |   |   |
| Granted                           |   | 125,000                                 |   | .07       |   | — |   |   |   |
| Exercised                         |   | —                                  |   |      |   | — |   |   |   |
| Expired                           |   | —                                  |   |      |   | — |   |   |   |
|                              |   |                                    |   |      |   |   |   |   |   |
| Outstanding at end of year        |   | 300,000                                 |   | $         | 1.61   |   | 175,000 |   | $ | 2.71 |   |
|                              |   |                                    |   |      |   |   |   |   |   |
| Warrants Exercisable At  Year End |   | 200,000                                 |   | $         | 2.42   |   | — |   |   |   |

 

**NOTE 13- RECLASSIFICATIONS**

 

Certain prior year amounts have been reclassified to conform to thecurrent presentation.

 

31

----

 

**NOTE 14- RELATED PARTY TRANSACTIONS**

 

The Company collateralized three loans from two local banks with  1,081,408 shares of Gasel’s common stockowned by a major stockholder.  Debtassociated with these loans at December 31, 2002 was $861,509.  At December 31, 2001, the Companycollateralized two loans from two local banks with 939,408 shares of Gasel’scommon stock, owned by a major stockholder. Debt associated with these loans at December 31, 2001 was$2,060,048.  Certain loans made by theCompany are personally guaranteed by a majority stockholder.  (See Notes 4 and 5.)

 

In October of 2002, the Company acquired 20 used trailers at a cost of$248,930 from a major stockholder.  Thestockholder financed the trailers personally, and the Company is making thescheduled payments on the obligation. At December 31, 2002, notes payable included an obligation to thisstockholder in the amount of $246,097 at an interest rate of 9.75%.

 

**NOTE 15- MAJOR CUSTOMERS**

 

During 2002, the Company had one major customer, sales to whichexceeded 10% of the Company’s total sales. Sales to this customer totaled $2,202,678 for the year ended December31, 2002.  Accounts receivableoutstanding relating to these sales at December 31, 2002, were $86,441, whichamounted to 4% of total trade receivables.

 

During 2001, the Company had one major customer, sales to whichexceeded 10% of the Company’s total sales. Sales to this customer totaled$4,893,642 for the year ended December 31, 2001.  Accounts receivable outstanding relating to these sales atDecember 31, 2001, were $360,479, which amounted to 17% of total tradereceivables.

 

**NOTE 16- FUEL AVAILABILITY AND COST**

 

The Company is dependent upon the availability of diesel fuel.Increases in the cost of fuel may, in the future, adversely affect theprofitability of the Company. There can be no assurance that diesel fuel priceswill not increase.  A significantportion of fuel prices above a certain pegged amount is regularly recovered inthe form of fuel surcharges from major customers with whom the Company hascontracts for its freight services.

 

The Company has in place by contract with its major customers a fuelsurcharge.  The fuel surcharge is anadditional charge to each customer by invoice for increases in fuel pricesabove a stipulated amount and is adjusted weekly to the national fuel costsaverage published by the U. S. Government Department of Energy.

 

32

----

 

**NOTE 17- DRIVERS**

 

The Company offers a driver training program through its subsidiary’soperations which offers incentives to attract and retain qualifieddrivers.  Although the Company hasexperienced no significant downtime due to inability to secure qualifieddrivers, no assurance can be given that a shortage will not adversely affectthe Company in the future.

 

**NOTE 18- CONTINGENCIES**

 

The Company is subject to various other claims, legal proceedings andinvestigations covering a wide range of matters that may arise in the ordinarycourse of business.  Management believesthe resolutions of claims and pending litigation will not have a materialeffect, individually or in the aggregate, to the financial position, results ofoperations and cash flows prior to contemplating potential insurance recoveriesor accruals.

 

33

----

 

**PART III**

 

**Item 9.Directors, Executive Officers, Promoters and Control Persons; Compliance WithSection 16(a) of the Exchange Act.**

 

The Officers and Directors of the Company are as follows:

 
| **Name**         |   | **Age** |   | **Position  With Company**                                   |   |
|------------------|--------|---------|--------|--------------------------------------------------------------|--------|
| Michael J. Post  |   | 56      |   | Chief Executive Officer, President, Treasurer, and  Director |   |
|             |   |    |   |                                                         |   |
| John Jackson     |   | 57      |   | Vice President-Operations Marietta Division, and  Secretary  |   |
|             |   |    |   |                                                         |   |
| S. Gene Thompson |   | 54      |   | Vice President and Chief Financial Officer                   |   |
|             |   |    |   |                                                         |   |
| Allan M. Blue    |   | 61      |   | Director and Assistant Secretary                             |   |
|             |   |    |   |                                                         |   |
| Ronald K. Bishop |   | 50      |   | Director                                                     |   |

 

Michael J. Post has been in all of such capacities from the formationof the Company in January 1988 to date. He also serves as a board member of Selby General Hospital, Marietta,Ohio.

 

John Jackson has been involved in various executive capacities with theCompany since its formation in 1988.

 

S. Gene Thompson has been Vice President and Chief Financial Officersince May, 2001.  From early in 2000until his election to office with the Company, he acted as a financialconsultant to the Company.  In the yearbefore that, he was a financial consultant to Sunland Distribution, atransportation company with its offices in Florida.  Before commencing his financial consulting positions, he spentthree years as General Manager at Holiday Island Resort, a 5,000 acre resortcommunity.  He has a MBA from theUniversity of Arkansas.

 

34

----

 

Allan M. Blue has been a director since 1995 and Assistant Secretarysince 1997.  Mr. Blue is a practicingattorney in the Columbus Ohio area where he has been engaged in private lawpractice since 1971.  In addition topracticing law, Mr. Blue is actively engaged in several businesses as owner,officer, and director.  These businessesinclude Alden’s Furniture Company, Held-Team Partnership, d/b/a Hold More SelfStorage, Capitol Stock Transfer Company, M. B. Liquidators, Inc., and TeamInvestors, Ltd.

 

Ronald K. Bishop, Director since 1994. From 1987 until 2002 he wasGeneral Manager of from 3 to 7 radio stations in the mid-Ohio Valley area forBennco Incorporated, and then for Clear Channel Communications. Presently, heis part-owner and General Manager of one FM radio station in the mid-OhioValley area, which encompasses the Marietta, Ohio and Parkersburg West Virginiaarea. He also serves as a board member of Selby General Hospital and of theMarietta Community Foundation, both in Marietta, Ohio.

 

The position of director is for a one year term and until a successoris elected.

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Based upon a review of Forms 3, 4, and 5 furnished to the Companyduring the 2002 fiscal year, S. Gene Thompson, Vice President, and Michael J.Post, President, Treasurer and Director each failed to timely file a reportrequired by Section 16(a) of the Exchange Act during 2002.

 

Mr. Thompson failed to file a Form 3 setting forth two transactions ora Form 5. Mr. Post failed to file a Form 4 setting forth one transaction and aForm 5 to account for the increase in ownership position for the year 2002.

 

**Item 10.Executive Compensation.**

 

SUMMARY COMPENSATIONTABLE

 
| **Name and Principal Position** |   | **Annual Compensation** |   | **Long Term  Compensation  Awards  Securities Underlying Options/SAR** |    |
|---------------------------------|--------|-------------------------|--------|------------------------------------------------------------------------|---------|
| **Year**                        |   | **Salary**              |
| Michael J. Post,  President     |   | 2000                    |   | $                                                                      | 64,995  | (1) |   |   |
|                            |   | 2001                    |   | $                                                                      | 125,440 | (2) |   |   |
|                            |   | 2002                    |   | $                                                                      | 96,400  | (3) | options to buy 100,000 common shares |   |

 

----

(1) In addition,the Company provided a 2001 Ford Expedition sport utility vehicle for use byMichael J. Post; because he used the vehicle primarily for Company business, novalue was assigned as compensation for use of the vehicle.

 

(2) Includes$10,200 paid by the Company for the 2001 Ford Expedition and $1,630 forinsurance premiums.

 

(3) In addition,the Company paid $10,200 for the 2001 Ford Expedition.

 

35

----

 

The Company pays its Directors’ a fee of $1,000 for each meetingattended.  The Company’s Code ofRegulations authorizes the Board of Directors to fix Directors’ compensationwithout shareholder approval.

 

**Item 11.Security Ownership of Certain Beneficial Owners and Management.**

 

(a).  The following is a tableof all persons known to the Company to be the beneficial owner of more than 5%of the Company’s voting securities on December 31, 2002.

 
| **Title of Class** |   | **Name and  Address of  Beneficial Owner** |   | **Amount and  Nature of  Beneficial  Owner** |   | **Percent of  Class** |   |
|--------------------|--------|--------------------------------------------|--------|----------------------------------------------|--------|-----------------------|--------|
| Common shares      |   | Michael J. Post                            |   | 1,585,794                                    | (1)    | 26.9                  |   |
|               |   | 118 Merryhill  Street                      |   |                                         |   |                  |   |
|               |   | Marietta, Ohio  43750                      |   |                                         |   |                  |   |
|               |   |                                       |   |                                         |   |                  |   |
| Common shares      |   | Ronald E. Flowers and                      |   | 350,000                                      | (2)    | 5.9                   |   |
|               |   | Cynthia K.  Flowers,                       |   |                                         |   |                  |   |
|               |   | husband and wife                           |   |                                         |   |                  |   |
|               |   | 5703 Southby Ct.                           |   |                                         |   |                  |   |
|               |   | Dublin, Ohio  43017                        |   |                                         |   |                  |   |
|               |   |                                       |   |                                         |   |                  |   |
| Common shares      |   | Sarah R. Speno, Trustee                    |   | 400,0000                                     | (3)    | 6.8                   |   |
|               |   | The SRS Trust                              |   |                                         |   |                  |   |
|               |   | c/o 1st SB Partners, Ltd.                  |   |                                         |   |                  |   |
|               |   | 1774 York Avenue, 24th Floor               |   |                                         |   |                  |   |
|               |   | New York, NY 10128                         |   |                                         |   |                  |   |

 

----

(1) Includes 4,100shares held by the Estate of Mrs. Lee Post, the mother of Michael J. Post,7,900 shares held by the Company that is treated as treasury stock foraccounting purposes, 35,250 shares held by his wife, Janet Post, and options toacquire 286,000.

 

(2) Includes175,000 shares held by Eagle Transportation Services, Inc. and options held byEagle Transportation Services, Inc to acquire an additional 175,000 shares.

 

(3) Includes200,000 shares owed by Company to 1st SB Partners, Ltd. pursuant to consultingcontract and for which 1st SB Partners, Ltd. had not requesteddelivery.  100,000 shares were deliveredin January 2003.

 

(b)  The following is a tablesetting forth for management the beneficial ownership of the voting securitiesof the Company as of December 31, 2002.

 

36

----

 
| **Title of Class** |   | **Name and  Address  of Beneficial  Owner** |   | **Amount and  Nature of  Beneficial Owner** |   | **Percent of  Class** |   |
|--------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|-----------------------|--------|
| Common shares      |   | Michael J. Post                             |   | 1,585,794                                   | (1)    | 26.9                  |   |
|               |   | 118 Merryhill  Street                       |   |                                        |   |                  |   |
|               |   | Marietta, Ohio                              |   |                                        |   |                  |   |
|               |   | 43750                                       |   |                                        |   |                  |   |
|               |   |                                        |   |                                        |   |                  |   |
| Common shares      |   | Allan M. Blue                               |   | 110,448                                     | (2)    | 1.9                   |   |
|               |   | 1130 Berlin  Station Rd.                    |   |                                        |   |                  |   |
|               |   | Delaware, Ohio                              |   |                                        |   |                  |   |
|               |   | 43015                                       |   |                                        |   |                  |   |
|               |   |                                        |   |                                        |   |                  |   |
| Common shares      |   | Ronald K. Bishop                            |   | 73,772                                      | (3)    | 1.3                   |   |
|               |   | 305 Ohio Street                             |   |                                        |   |                  |   |
|               |   | Marietta, Ohio                              |   |                                        |   |                  |   |
|               |   | 45750                                       |   |                                        |   |                  |   |
|               |   |                                        |   |                                        |   |                  |   |
| Common shares      |   | John Jackson                                |   | 45,780                                      |   | 0.8                   |   |
|               |   | Route 2, Box 344                            |   |                                        |   |                  |   |
|               |   | Belpre, Ohio  45714                         |   |                                        |   |                  |   |
|               |   |                                        |   |                                        |   |                  |   |
| Common shares      |   | S. Gene Thompson                            |   | 100,000                                     | (4)    | 1.7                   |   |
|               |   | 505 E Montgomery St.                        |   |                                        |   |                  |   |
|               |   | Apt 3                                       |   |                                        |   |                  |   |
|               |   | Marietta, OH 45750                          |   |                                        |   |                  |   |
|               |   |                                        |   |                                        |   |                  |   |
| Common shares      |   | Directors and                               |   | 1,915,794                                   | (5)    | 32.5                  |   |
|               |   | officers as a group                         |   |                                        |   |                  |   |

 

----

(1) Includes 4,100 sharesheld by the Estate of Mrs. Lee Post, the mother of Michael J. Post, 7,900shares held by the Company, 35,250 shares held by his wife, Janet Post, andoptions to acquire 286,000 shares.

 

(2) Includes 26,420shares held by Joyce M. Blue, wife of Allan M. Blue, and options to acquire62,000 shares.

 

(3) Includes options toacquire 62,000 shares.

 

(4) Includes Warrants toacquire 75,000 shares.

 

(5) Includes options toacquire 485,000 shares.

 

37

----

 

**Item 12.Certain Relationships and Related Transactions.**

 

Michael J. Post, Director, CEO, President, Treasurer, and majorityshareholder of the Company, made a loan of $100,000 during 2001 to Gasel DriverTraining Schools, Inc.  As security forrepayment of the loan, the Company pledged all of the stock in Gasel DriverTraining Schools, Inc. to Mr. Post. There is still a balance due on this loan of $69,500 as of December 31,2002.

 

Allan M. Blue, Director, also acts as legal counsel for theCompany.  Payment for his services is ata rate that he represents is a standard hourly rate for his services to hisclients.  Mr. Blue is a 50% shareholderin Capitol Stock Transfer Company which acts as stock transfer agent for theCompany.

 

**Item 13.Exhibits and Reports on Form 8-K.**

 

(a) Index to Exhibits.

 

21.           List of Subsidiary Corporations.

 

23.           Independent Accountants ConsentLetter

 

99.1         Certification of Principal ExecutiveOfficer Pursuant to 18 U.S.C. Section 1350

 

99.2         Certification of Principal FinancialOfficer Pursuant to 18 U.S.C. Section 1350

 

(b) The Company did notfile reports of Form 8-K during the last quarter of the year 2002.

 

**Item 14. Controls and Procedures**

 

Our Chief Executive Officer, President, and Chief Financial Officer(the “Certifying Officers”) are responsible for establishing and maintainingdisclosure controls and procedures for the Company. The Certifying Officershave designed such disclosure controls and procedures to ensure that materialinformation is made known to them, particularly during the period in which thisreport was prepared. The Certifying Officers have evaluated the effectivenessof the Company’s disclosure controls and procedures within 90 days of the dateof this report and believe that the Company’s disclosure controls andprocedures are effective based on the required evaluation. There have been nosignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

38

----

 

**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
| Gasel Transportation Lines, Inc.  (Registrant)             |
|------------------------------------------------------------|
|                                                       |
|                                                       |
| By                                                         | /s/ Michael J. Post |   |
| (Signature and Title) President, Treasurer, and  Director* |
| Date March 27, 2003                                        |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 

 
| By                                                                         | /s/ Michael J. Post                                                              |              |
|----------------------------------------------------------------------------|----------------------------------------------------------------------------------|-------------------|
| (Signature and Title) Michael J. Post, President,  Treasurer, and Director |
|                                                                       | Date March 27, 2003                                                              |              |
|                                                                       |                                                                             |              |
|                                                                       |                                                                             |              |
|                                                                       | By                                                                               | /s/               | Allan M. Blue |   |   |   |
|                                                                       | (Signature and Title)Allan M. Blue, Director and  Assistant Secretary*           |              |
|                                                                       | Date  March  27,  2003                                                 |              |   |   |
|                                                                       |                                                                             |              |   |   |
|                                                                       |                                                                             |              |   |   |
|                                                                       | By                                                                               | /s/ Gene Thompson |   |   |
|                                                                       | (Signature and Title)Gene Thompson, Vice President  and Chief Financial Officer* |              |
|                                                                       | Date March 27, 2003                                                              |              |   |   |
|                                                                            |                                                                                  |                   |  |  |  |  |  |  |  |  |

 

39

----

 

CERTIFICATION OFPRESIDENTPURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,RULES 13a-14 AND 15d-14AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of GaselTransportation Lines, Inc. (the “Company”) on Form 10-KSB for the period endingDecember 31, 2002 as filed with the Securities and Exchange Commission on thedate hereof (the “Report”), I, Michael J. Post, President and Treasurer of theCompany, certify, pursuant to Rules 13a-14 and 15-d14 of the SecuritiesExchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of2002, that:

 

(1) I have reviewed the Report;

 

(2) Based upon myknowledge, the Report does not contain any untrue statement of a material factor omit to state a material fact necessary in order to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading;

 

(3) Based upon myknowledge, the financial statements, and other financial information includedin the Report, fairly present in all material respects the financial conditionand results of operations of the Company, as of, and for, the periods presentedin the Report;

 

(4) I and the othercertifying officers of the Company:

 

a. are responsible forestablishing and maintaining disclosure controls and procedures for theCompany;

 

b. have designed suchdisclosure controls and procedures to ensure that material information is madeknown to us, particularly during the period in which the Report is beingprepared;

 

c. have evaluated theeffectiveness of the Company’s disclosure controls and procedures within 90days of the date of the Report; and

 

d. have presented in theReport our conclusions about the effectiveness of the disclosure controls andprocedures based on the required evaluation.

 

(5) I and the othercertifying officers have disclosed to the Company’s auditors and to the auditcommittee of the board of directors (or persons fulfilling the equivalentfunction):

 

a. all significantdeficiencies in the design or operation of internal controls (a pre-existingterm relating to internal controls regarding financial reporting) which couldadversely affect the Company’s ability to record, process, summarize and reportfinancial data and have identified for the Company’s auditors any materialweaknesses in internal controls; and

 

b. any fraud, whether ornot material, that involves management or other employees who have asignificant role in the Company’s internal controls.

 

c. have evaluated the effectiveness of the Company’sdisclosure controls and procedures within 90 days of the date of the Report;and

 

d. have presented in theReport our conclusions about the effectiveness of the disclosure controls andprocedures based on the required evaluation.

 

(6) I and the othercertifying officers have indicated in the Report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| /s/ Michael J. Post                      |   |
|------------------------------------------|--------|
| Michael J. Post, President and Treasurer |
|                                     |
| March 27, 2003                           |

 

40

----

 

CERTIFICATION OFCHIEF FINANCIAL OFFICERPURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,RULES 13a-14 AND 15d-14AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with theAnnual Report of Gasel Transportation Lines, Inc. (the “Company”) on Form10-KSB for the period ending December 31, 2002 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, S. Gene Thompson,Vice President and Chief Financial Officer of the Company, certify, pursuant toRules 13a-14 and 15-d14 of the Securities Exchange Act of 1934, as adoptedpursuant to §302 of the Sarbanes-Oxley Act of 2002, that:

 

(1) I have reviewed theReport;

 

(2) Based upon myknowledge, the Report does not contain any untrue statement of a material factor omit to state a material fact necessary in order to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading;

 

(3) Based upon myknowledge, the financial statements, and other financial information includedin the Report, fairly present in all material respects the financial conditionand results of operations of the Company, as of, and for, the periods presentedin the Report;

 

(4) I and the othercertifying officers of the Company:

 

a. areresponsible for establishing and maintaining disclosure controls and proceduresfor the Company;

 

b. have designed suchdisclosure controls and procedures to ensure that material information is madeknown to us, particularly during the period in which the Report is beingprepared;

 

c. have evaluated theeffectiveness of the Company’s disclosure controls and procedures within 90days of the date of the Report; and

 

d. have presented in theReport our conclusions about the effectiveness of the disclosure controls andprocedures based on the required evaluation.

 

(5) I and the othercertifying officers have disclosed to the Company’s auditors and to the auditcommittee of the board of directors (or persons fulfilling the equivalentfunction):

 

a. all significantdeficiencies in the design or operation of internal controls (a pre-existingterm relating to internal controls regarding financial reporting) which couldadversely affect the Company’s ability to record, process, summarize and reportfinancial data and have identified for the Company’s auditors any materialweaknesses in internal controls; and

 

b. any fraud, whether ornot material, that involves management or other employees who have asignificant role in the Company’s internal controls.

 

(6) I and the othercertifying officers have indicated in the Report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| /s/ S. Gene Thompson                                          |   |
|---------------------------------------------------------------|--------|
| S. Gene Thompson, Vice President and Chief Financial  Officer |
|                                                          |
| March 27, 2003                                                |

 

41

----