| ** ****UNITED STATES**             |   | OMB APPROVAL              |
|-----------------------------------------|--------|---------------------------|
| **SECURITIES  AND EXCHANGE COMMISSION** |   | OMB Number: 3235-0416     |
| **Washington,  D.C. 20549**             |   | Expires: April 30, 2003   |
|                                    |   | Estimated average burden  |
|                                    |   | hours per response: 32.00 |
| **FORM  10-QSB**                        |   |                      |

 

**(Mark One)**

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

**For the quarterly period ended June 30, 2002**

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

**For thetransition period from                   to                   **

**Commission filenumber: 0-30185**

** **

**GaselTransportation Lines, Inc.**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **Ohio**                                                                            |   | **31-1239328**                     |
|-------------------------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                     |   | (IRS Employer  Identification No.) |
|                                                                                |   |                               |
| **County  Road 10, Route 4, Box 181A, Marietta, OH**                                |   | **45750**                          |
| (Address of principal  executive offices)                                           |   | (zip code)                         |
|                                                                                |   |                               |
| **(740)  373-6479**(Issuer’s telephone  number)                                |
|                                                                                |   |                               |
| (Former name, former  address and former fiscal year, if changed since last report) |

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

State the number of shares outstanding of each ofthe issuer’s classes of common equity, as of the latest practicable date:  2,437,966 common shares, no par value

Transitional Small BusinessDisclosure Format (Check one): Yes o No ý

 

 

**PART I —FINANCIAL INFORMATION**

**Item 1. Financial Statements.**

INDEX

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 
| Consolidated Balance Sheet  at June 30, 2002 (Unaudited)     |   |
|--------------------------------------------------------------|--------|
|                                                         |   |
| Statements of  Consolidated Operations for the Three         |   |
| Months Ended June  30, 2002 and 2001 (Unaudited) and         |   |
| for the Six  Months Ended June 30, 2002 and 2001 (Unaudited) |   |
|                                                         |   |
| Statements of  Consolidated Cash Flows for the Six Months    |   |
| Ended June 30,  2002 and 2001 (Unaudited)                    |   |
|                                                         |   |
| Notes to  Consolidated Financial Statements                  |   |

 

 

----

 

**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**CONSOLIDATEDBALANCE SHEET**

 

 
|                                                    |   | **June 30,**    |       |
|---------------------------------------------------------|--------|-----------------|------------|
|                                                    |   | **2002**        |       |
|                                                    |   | **(Unaudited)** |       |
| ASSETS                                                  |   |            |       |
|                                                    |   |            |       |
| Current Assets                                          |   |            |       |
| Cash and Cash  Equivalents                              |   | $               | 60,298     |   |
| Accounts  Receivable-Trade, Net of Allowance of $40,000 |   | 2,552,890       |       |
| Inventory                                               |   | 202,873         |       |
| Prepaid Expenses  and Other Current Assets              |   | 361,636         |       |
|                                                    |   |            |       |
| Total Current  Assets                                   |   | 3,177,697       |       |
|                                                    |   |            |       |
| Property and  Equipment                                 |   |            |       |
| Land and  Buildings                                     |   | 768,054         |       |
| Tractors                                                |   | 12,165,927      |       |
| Trailers                                                |   | 5,142,074       |       |
| Shop Equipment                                          |   | 405,285         |       |
| Office Equipment                                        |   | 217,610         |       |
|                                                    |   | 18,698,950      |       |
| Less Accumulated  Depreciation                          |   | 8,489,487       |       |
|                                                    |   |            |       |
| Net Property and  Equipment                             |   | 10,209,463      |       |
|                                                    |   |            |       |
| Other Assets                                            |   |            |       |
| Goodwill                                                |   | 353,438         |       |
| Mortgage  Receivable, Net of Current Portion            |   | 173,711         |       |
| Other                                                   |   | 94,249          |       |
|                                                    |   |            |       |
| Total Other  Assets                                     |   | 621,398         |       |
|                                                    |   |            |       |
| TOTAL ASSETS                                            |   | $               | 14,008,558 |   |

 

See accompanyingnotes to consolidated financial statements.

 

 

1

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**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**CONSOLIDATED BALANCE SHEET**

 

 
|                                                                                                 |   | **June 30,**    |       |
|------------------------------------------------------------------------------------------------------|--------|-----------------|------------|
|                                                                                                 |   | **2002**        |       |
|                                                                                                 |   | **(Unaudited)** |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                           |   |            |       |
|                                                                                                 |   |            |       |
| Current  Liabilities                                                                                 |   |            |       |
| Cash Overdraft                                                                                       |   | $               | 835,918    |   |
| Notes Payable                                                                                        |   | 1,956,983       |       |
| Accounts  Payable-Trade                                                                              |   | 419,001         |       |
| Accrued Brokerage  and Contract Labor,Interest and Other Expenses                                    |   | 757,821         |       |
| Current Portion  of Long Term Debt                                                                   |   | 4,088,398       |       |
|                                                                                                 |   |            |       |
| Total Current  Liabilities                                                                           |   | 8,058,121       |       |
|                                                                                                 |   |            |       |
| Long Term Debt, Net of Current Portion                                                               |   | 5,706,025       |       |
|                                                                                                 |   |            |       |
| Total  Liabilities                                                                                   |   | 13,764,146      |       |
|                                                                                                 |   |            |       |
| Stockholders’  Equity                                                                           |   |            |       |
| Common Stock, no  par value, 3,000,000shares authorized, 2,412,966 issued and 2,405,066  outstanding |   | 1,539,640       |       |
| Additional Paid  in Capital                                                                          |   | 223,229         |       |
| Accumulated  (Deficit)                                                                               |   | (1,453,731      | )          |
| Less: Treasury  Stock, at cost, 7,900 shares                                                         |   | (17,833         | )          |
| Less: Notes  Receivable                                                                              |   | (46,893         | )          |
|                                                                                                 |   |            |       |
| Total  Stockholders’ Equity                                                                     |   | 244,412         |       |
|                                                                                                 |   |            |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                     |   | $               | 14,008,558 |   |

 

See accompanyingnotes to consolidated financial statements.

 

 

2

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** **

**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**STATEMENTSOF CONSOLIDATED OPERATIONS**

 

 
|                                              |   | **Three Months Ended** |                        | **Six Months  Ended** |   |
|---------------------------------------------------|--------|------------------------|-----------------------------|-----------------------|--------|
|                                              |   | **June 30,**           |                        | **June 30,**          |   | **June 30,** |   | **June 30,** |   |
|                                              |   | **2002**               |                        | **2001**              |   | **2002** |   | **2001** |   |
|                                              |   | **(Unaudited)**        |                        | **(Unaudited)**       |   | **(Unaudited)** |   | **(Unaudited)** |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Revenues                                          |   |                   |                        |                  |   |   |   |   |   |
| Freight Income                                    |   | $                      | 3,781,703    |                  | $      | 4,989,226 |   | $ | 7,472,227  |   | $ | 9,937,577 |   |
| Training School  Revenue                          |   | 122,873                |                        | 223,581               |   | 263,195 |   | 450,789 |   |
|                                              |   | 3,904,576              |                        | 5,212,807             |   | 7,735,422 |   | 10,388,366 |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Cost of Revenue                                   |   | 3,258,857              |                        | 4,407,978             |   | 6,492,304 |   | 8,692,915 |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Gross Profit                                      |   | 645,719                |                        | 804,829               |   | 1,243,118 |   | 1,695,451 |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Operating  Expenses                               |   |                   |                        |                  |   |   |   |   |   |
| Garage Expenses                                   |   | 81,724                 |                        | 74,643                |   | 153,466 |   | 147,616 |   |
| General andAdministrative Expenses                |   | 461,726                |                        | 530,220               |   | 898,563 |   | 1,064,371 |   |
|                                              |   | 543,450                |                        | 604,863               |   | 1,052,029 |   | 1,211,987 |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Operating Income                                  |   | 102,269                |                        | 199,966               |   | 191,089 |   | 483,464 |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Other Income  (Expense)                           |   |                   |                        |                  |   |   |   |   |   |
| Interest Income                                   |   | 675                    |                        | 1,517                 |   | 675 |   | 1,589 |   |
| Other Income                                      |   | 9,612                  |                        | 20,529                |   | 83,405 |   | 78,966 |   |
| Gain on Sale of  Assets                           |   | 12,075                 |                        | —                |   | 12,075 |   | — |   |
| Interest Expense                                  |   | (255,790               | )                           | (334,426              | )      | (553,690 | ) | (607,378 | ) |
|                                              |   | (233,428               | )                           | (312,380              | )      | (457,535 | ) | (526,823 | ) |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Income (Loss)  BeforeTax  Provision               |   | (131,159               | )                           | (112,414              | )      | (266,446 | ) | (43,359 | ) |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Provision for  Income Taxes                       |   | —                 |                        | (23,000               | )      | — |   | — |   |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Net Income  (Loss)                                |   | $                      | (131,159               | )                     | $      | (89,414 | ) | $ | (266,446  | )  | $ | (43,359 | )  |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Basic (Loss) Per  Share                           |   | $                      | (.055                  | )                     | $      | (.037 | ) | $ | (.111  | )  | $ | (.018 | )  |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Diluted (Loss)  Per Share                         |   | $                      | (.055                  | )                     | $      | (.037 | ) | $ | (.111  | )  | $ | (.018 | )  |
|                                              |   |                   |                        |                  |   |   |   |   |   |
| Weighted Average  CommonShares  Outstanding:Basic |   | 2,405,066              |                        | 2,405,066             |   | 2,405,066 |   | 2,405,066 |   |
| Diluted                                           |   | 2,405,066              |                        | 2,405,066             |   | 2,405,066 |   | 2,405,066 |   |

 

See accompanyingnotes to consolidated financial statements.

 

 

 

3

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** **

**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**STATEMENTSOF CONSOLIDATED CASH FLOWS**

 
|                                                                                                            |   | **Six Months  Ended** |           |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------|----------------|
|                                                                                                            |   | **June 30,**          |           | **June 30,** |   |
|                                                                                                            |   | **2002  (Unaudited)** |           | **2001   (Unaudited) ** |   |
|                                                                                                            |   |                  |           |   |   |
| Cash Flows From  Operating Activities                                                                           |   |                  |           |   |   |
| Net Income  (Loss)                                                                                              |   | $                     | (266,446  | ) | $ | (43,359 | )  |
| Adjustments to  reconcile netincome to cash provided by

operating  activities:

Depreciation and  Amortization |   | 1,096,065             |           | 1,174,114 |   |
| Gain on Sale of  Assets                                                                                         |   | (12,075               | )              |   |   |
| (Increase)  Decrease in:Accounts  Receivable-Trade                                                              |   | (479,169              | )              | (992,335 | ) |
| Inventory                                                                                                       |   | (127                  | )              | (15,625 | ) |
| Prepaid Expenses  and Other Assets                                                                              |   | (55,121               | )              | (51,351 | ) |
| Increase  (Decrease) in:                                                                                        |   |                  |           |   |   |
| Accounts Payable  and Accrued Expenses                                                                          |   | 173,604               |           | 640,341 |   |
| Net Cash  Providedby  Operating Activities                                                                      |   | 456,731               |           | 711,785 |   |
|                                                                                                            |   |                  |           |   |   |
| Cash Flows From  Investing Activities                                                                           |   |                  |           |   |   |
| Proceeds from  Sale of Assets                                                                                   |   | 104,357               |           | — |   |
| Purchases of  Property and Equipment                                                                            |   | (190,660              | )              | (162,866 | ) |
| Net Cash (Used)by Investing Activities                                                                          |   | (86,303               | )              | (162,866 | ) |
|                                                                                                            |   |                  |           |   |   |
| Cash Flows From  Financing Activities                                                                           |   |                  |           |   |   |
| Line of Credit  (Net)                                                                                           |   | 256,212               |           | 362,298 |   |
| Proceeds from  Long Term Borrowing                                                                              |   | —                |           | 655,789 |   |
| Repayment of  Notes Receivable                                                                                  |   | —                |           | 9,377 |   |
| Proceeds from  Capital Lease Obligations                                                                        |   | —                |           | 142,136 |   |
| Payments on  Notes Payable-Related Parties                                                                      |   | (25,646               | )              | — |   |
| Principal  Payments on LongTerm Borrowing                                                                       |   | (808,260              | )              | (839,375 | ) |
| Principal  Payments UnderCapital Lease Agreements                                                               |   | (174,918              | )              | (189,779 | ) |
| Net Cash (Used)  byFinancing  Activities                                                                        |   | (752,612              | )              | 140,446 |   |
|                                                                                                            |   |                  |           |   |   |
| Net Increase  (Decrease) in Cash                                                                                |   | (382,184              | )              | 689,365 |   |
|                                                                                                                 |        |                       |                |  |  |  |  |

 

 

See accompanyingnotes to consolidated financial statements.

 

 

 

4

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**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**STATEMENTSOF CONSOLIDATED CASH FLOWS**

**(continued)**

 

 
|                                                           |   | **Six Months  Ended** |           |
|----------------------------------------------------------------|--------|-----------------------|----------------|
|                                                           |   | **June 30,**          |           | **June 30,** |   |
|                                                           |   | **2002**              |           | **2001** |   |
|                                                           |   | **(Unaudited)**       |           | **(Unaudited)** |   |
| Net Increase  (Decrease)in Cash                                |   | $                     | (382,184       | ) | $ | 689,365 |   |
|                                                           |   |                  |           |   |   |
| Cash  & Cash Equivalents-

(Overdraft) Beginning of Period |   | (393,436              | )              | (735,135 | ) |
|                                                           |   |                  |           |   |   |
| Cash & Cash  Equivalents-                                  |   |                  |           |   |   |
| (Overdraft) End  of Period                                     |   | $                     | (775,620  | ) | $ | (45,770 | )  |

 

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

 
| Cash and Cash  Equivalents                                                                   |   | $        | 60,298         |    | $      | 34,193    |    |
|----------------------------------------------------------------------------------------------|--------|----------|----------------|---------|--------|-----------|---------|
| Cash Overdraft                                                                               |   | (835,918 | )              | (79,963 | )      |
|                                                                                         |   |     |           |    |   |
| Net Cash and  Cash Equivalents (Overdraft)                                                   |   | $        | (775,620  | )       | $      | (45,770   | )  |
|                                                                                         |   |     |           |    |   |
| Supplemental  Disclosures:                                                                   |   |     |           |    |   |
|                                                                                         |   |     |           |    |   |
| Interest Paid                                                                                |   | $        | 545,004        |    | $      | 512,817   |    |
|                                                                                         |   |     |           |    |   |
| Non-Cash  Investingand  Financing Activities:                                                |   |     |           |    |   |
|                                                                                         |   |     |           |    |   |
| Increase in  Mortgage Receivablewith Proceeds from Sale

of Land and  Building               |   | $        | 179,142        |    | $      | —    |    |
|                                                                                         |   |     |           |    |   |
| Payoff Notes and  Mortgage Payablewith Proceeds from New Financing and Sale of Fixed  Assets |   | $        | 79,836         |    | $      | 2,565,632 |    |
|                                                                                         |   |     |           |    |   |
| Purchases of  Property and Equipmentwith Proceeds of Notes Payable                           |   | $        | 0              |    | $      | 1,244,530 |    |

 

See accompanyingnotes to consolidated financial statements.

 

5

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**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

# **NOTE 1 - BASISOF PRESENTATION**

 

The accompanying unaudited consolidated financial statements of GaselTransportation Lines, Inc. and its subsidiary (the “Company”) have beenprepared in accordance with accounting principles generally accepted in theUnited State of America and with the instructions to Form 10-QSB.  Accordingly, they do not include all theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments considered necessary for a fairpresentation (consisting of normal recurring accruals) have been included.  Operating results for the six month periodended June 30, 2002 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2002.  For further information, refer to the consolidated financialstatements and footnotes thereto included in the Company’s Report on Form10-KSB for the year ended December 31, 2001.

 

**NOTE 2** - **GOING CONCERN**

 

The accompanying financial statements have been prepared on a going concernbasis, which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Company earned approximately $100,796 in 1999, and sustained lossesof $1,045,402 and $870,583 in 2000 and 2001, respectively, as well as a loss of$266,446 during the six months ended June 30, 2002.  At June 30, 2002, current liabilities exceed current assets byapproximately $4,880,424.  Currentliabilities include revenue equipment obligations due in the next 12 months of$4,088,398 that the Company expects to meet via future cash flows from normaloperations.  The Company had anaccumulated deficit of approximately $1,187,285 at December 31, 2001, and$1,453,731 at June 30, 2002.  Thesefactors raise substantial doubt about the ability of the Company to continue asa going concern for a reasonable period of time.

 

TheCompany continues to develop and implement corrective actions to generatepositive earnings and cash flows from its operations.  Significant among these actions is that the Company completed theacquisition of a freight brokerage operation in December, 2000, thatestablished a market presence in the greater Columbus, Ohio area which theCompany is working to increase its freight volume and rates via a larger customerbase.

 

Inaddition, late in the second quarter, the Company set in motion a plan tochange its sales mix to increase the freight volume, rates and margins via theaddition of large national shippers that the Company expects to realize throughits enhanced sales force.

 

Managementbelieves it has the capability to obtain additional capitalization through acombination of debt and equity to appropriately fund the Company.  Additionally, in an effort to mitigatecertain external conditions that could adversely effect the Company’s financialperformance (e.g., diesel fuel prices, insurance and the general economy,)management believes the Company is instituting adequate contingencies.

 

6

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**GASELTRANSPORTATION LINES, INC.**

**ANDITS SUBSIDIARY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

# **NOTE 2 - GOINGCONCERN**

 

Thefinancial statements do not include any adjustments relating to therecoverability and classification of recorded asset amounts or the amounts andclassifications of liabilities that might be necessary should the Company beunable 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 sales level.  No assurance can be given that the Companywill be successful in these efforts.

** **

**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

Overview.

The following discussion should be read inconjunction with the Financial Statements, including footnotes, containedherein.  The discussion is qualified in its entirety by theforegoing.  Historical results of operations and the percentagerelationships among any amounts in the Financial Statements, and any trendsthat may appear to be inferable therefrom, should not be taken as necessarilyindicative of trends of operations or results of operations for any futureperiods.

7

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The discussion contains forward-lookingstatements.  These forward-looking statements involve risks anduncertainties, and the cautionary statements set forth below identify importantfactors that could cause actual results to differ materially from thosepredicted in the forward-looking statements.  These factors include, butare not limited to, adverse changes in general economic conditions, includingadverse conditions to the companies that are the Company’s core of shippers,fuel prices, driver costs, the ability to have enough drivers to utilize theCompany equipment, the ability to finance equipment, interest rates, theability to borrow working capital, and other factors.

The interim financial information for the quartersand six months periods ended June 30, 2002, and June 30, 2001, areunaudited.  The statements included reflect all adjustments that theCompany considers necessary for a fair presentation of the results ofoperations for the interim periods covered and of the financial condition ofthe Company at the date of the interim balance sheet.  The results of theinterim periods are not necessarily indicative of the results for the entireyear.

Three Months Ended June 30, 2002.

Freight revenues for the three months ended June 30,2002, were $3,781,703, a decrease of $1,207,523 (24.2%) from the $4,989,226 inrevenues for the second quarter of 2001.  The decrease in freight revenueswas basically attributable to the Company having ceased the brokerage businessthat it had acquired from Eagle Transportation Services, Inc. (“Eagle”)effective January 2001, and from a decrease in the amount of operatingequipment, both owner/operator and Company owned.

Training school revenues for the second quarter of2002 were $122,873, a $100,708 (45%) decrease from the second quarter 2001revenues of $223,581.  Training school revenue decreases were primarilydue to having closed the driver training school in Lima, Ohio that wasoperating in the same period last year, and school enrollment in the schoolswas down from the prior year.

Equipment operating expenses decreased in the secondquarter of 2002 to $3,258,857 from $4,407,978 for the second quarter of2001.  This was a decrease of $1,149,121 (26.1%) from the prioryear.  The decrease in expenses was primarily due to the decrease in theamount of equipment being operated and the costs related to the discontinuedfreight brokerage business.  Operating expenses were also down, going to$543,450 for the second quarter of 2002 compared to $604,863 for the likeperiod of 2001, which is a decrease of $61,413 (10.2%).

Operating income for the second quarter of 2002 was$102,269, a decrease of $97,697 (48.9%) from the $199,966 for the secondquarter of 2001.  Operating income as a percentage of total revenues wentdown to 2.6% in the quarterly period ended June 30, 2002, from 3.8% forthe same period in 2001.  Contributing factors to the decrease wereprimarily a change in the sales mix and freight rates that resulted in anoverall decrease in the average freight rate and revenue decreases withoutcommensurate decreases in the general and administrative expenses.

The net results were that the Company had a net lossafter provision for income taxes for the second quarter of 2002 of ($131,159)compared to a net loss of ($89,414) for the second quarter of 2001, which is anincrease in the loss of $41,745 (46.7%) from the prior year.

Six months Ended June 30, 2002.

Freight revenues for the six months ended June 30,2002, decreased $2,465,350 (24.8%) to $7,472,227 from $9,937,577 at the end ofthe six months period ending June 30, 2001.  Training school revenues forthe six months ended June 30, 2002, decreased $187,594 to $263,195 (41.6%) from$450,789 for the six months period ended June 30, 2001.  The decrease infreight revenues were, as stated for the quarterly results, basicallyattributable to the discontinuance of the brokerage freight operation acquiredin the Eagle acquisition, the decrease in available operating equipment, andrate decreases from the change in the sales mix of the Company.

Training school revenue decreases were due primarilyto discontinuance of one of the three schools and decreased numbers ofstudents.

Equipment operating expenses decreased in the sixmonths period ended June 30, 2002, by $2,200,611 (25.3%) to $6,492,304 from$8,692,915 for the same period in 2001.  The decrease in expenses wasbasically proportional to the decrease in revenues, which as stated for the 2ndquarter results, was primarily due to the discontinuance of the brokeragefreight business.  Operating expensesdecreased $159,958 (13.2%) to $1,052,029 for the six months ended June 30,2002, compared to $1,211,987 for the same period of 2001.  The decreasewas attributable to a decrease in the general and administrative expenses fromreducing the number of terminals and the attendant decrease in the number of personneland expenses of operating the terminals, and a reduction in administrativepersonnel because of the discontinued freight brokerage business and fromdownsizing of the Company.

Operating income for the six months ended June 30,2002, was $191,966, a decrease of $292,375 (60.5%) from $483,464 for the sameperiod in 2001.  Operating income as a percentage of total revenues wentdown from 4.7% for the six months ending June 30, 2001, to 2.5% for the sameperiod in 2002.  The factors for the decrease for this period werebasically the same as for the three month quarterly period, being changes inthe sales mix and decreased freight rates. The net results were that theCompany had a net loss after provision for income taxes for the six monthsperiod ended June 30, 2002, of ($266,446) compared to a net loss of ($43,359)for the same period of 2001, which is an increased loss of $223,087 from theprior year.

Capital and Liquidity.

The deficit earnings for the years 2000 and 2001have caused the Company to be in a severe need ofworking capital throughout last year and continuing onin 2002.  Cash at the end of 2001 was$7,736, but there was also an overdraft of $742,871,which left the

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Company with a deficit of $735,135.  This deficit increased slightly to ($ 775,620)at the end of the second quarter of 2002, but is stilla matter of great concern, and one that management is working on diligently torectify.   Measures taken by the Company to solve the cash deficit problemhave been slow to be completed, although the Companydid receive additional cash in 2001 from some additionallong term borrowings and the refinancing of equipment.  However, cash flowfrom operating activities still were not sufficient tocover principal and interest  paymentson the long term debt and capital lease obligations. During the second quarterof 2002, the Company successfully completed modifications to its revenueequipment notes and Leases where principal and interest payments in arrears (3to 5 months) were extended to the end of the obligations with its majorlenders. These modifications resulted in bringing the obligations current andsignificantly increasing cash flow through the second quarter and in somecases, a portion of the third quarter.

Strong corrective actions were installed in 2000 and2001 to generate positive cash flows to try to solvethe cash flow deficit problem.  Theseactions were primarily designed to increase revenuesthrough rate increases and decrease costs through equipment productivity improvements and operating cost reductions.  Results were seen from these actions through the first quarter of 2001 as the Company showed amodest profit for that period.  The earnings turnaround was not sustainedthrough the balance of 2001, largely due to a pricedecrease from its largest customer on certain routes.  Although the Company took correctiveactions by re-instituting an offsetting price increase onthese routes, this was not completed until near year end.  This price decrease, plusa sharp plunge in freight demand, related to the nation’s economic downturn and the second consecutive year of substantial industryhikes in insurance costs, overcame the Company’searlier profit recovery during 2001.

The Company incurred a loss of ($135,287) for thefirst quarter of 2002, which was slightly better thanits projections for that period and significantly better than the profit performance of the third and fourth quarters of2001.   Although management forecasted amodest profit for the second quarter of 2002, the Company’s performance for thequarter was approximately the same as the first quarter of 2002, showing a lossof ($131,159).  Major factorscontributing to the shortfall in projected earnings were mostly revenue-relatedand included, but not limited to, operating with one less (2 vs. 3) drivertraining schools, delay in re-starting freight brokerage operations tocomplement the company-owned equipment operations, and the loss of some highermargin intrastate freight movements related to the country’s continuing manufacturingactivity slump.

The Company has adjusted its operating correctiveactions to offset these adverse factors by opening an additional (third) drivertraining school in the late second quarter and changing its sales mix toincrease its inbound and outbound freight volume and margins via the additionof an increasing number of large national shippers through an enhanced salesforce and focusing on its revenue improvement plan.  During the second quarter of 2002, the Company enhanced itsexisting on-the-road fuel stop program by converting to a paperless receipt atthe pump. This action together with an in progress refinement of its approvedfuel stops for lowest base prices is expected to improve the equipment 

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productivity and generate a significant savingsduring the third quarter and on into the future.

The second quarter operatingloss for 2002 is indicative of continued slow freight demand caused by the economy’s slow recovery from the recession in the secondhalf of 2001, and from operating one less driver training school than in theprevious year.  Management continues toconstantly adjust its corrective actions to bring profits and cash flow positive as the need continues.  The Company continues its strong push to improve gross revenuesand rates by seeking additional Columbus, Ohio-basedoutbound freight customers and by replacing discounted inbound brokered freight with direct freight business as aderivative of its expanded national customer base.   On the cost side, additional and significantcuts in the administrative head count and salaries continued.  Further decreasesare also planned for administrative expenses through better cost controls.

The Company is also in the process of replacing itsolder and shorter (48 foot) trailers with new late model 53 foot trailers thatare required in order for it to continue to add the larger nationalaccounts.  The Company is continuing toattempt to improve its equipment productivity by reducing empty miles traveledthrough better geographic freight selection. Equipment productivityimprovements are also expected from the Company’sstrategic shift of the majority of its revenue equipment fromits Marietta home base to Columbus, where there are significantly more freight opportunities.    Management believes that, if fuel prices do not go up significantly,coupled with its establishment of new, additionalcustomers providing increased outbound and inboundfreight rates, its personnel cuts and continuing control on general and administrative expenses, and an expected improving economy,the Company can be expected to progressively return topositive earnings in the remainder of 2002.  Further, Management believes it has adequate contingency plansinstituted to offset certain external conditions, suchas diesel fuel price increases, increased insurance costs,and a slowdown in the general economy that could adversely affect the Company’sfinancial performance and condition.

Management is also working with industry specific professional firms to facilitate raising a sufficient amountof equity capital to properly capitalize the Companyin order to eliminate its working capital deficit and fundits growth plans.

 

**PART II —OTHER INFORMATION**

**Item 5. Other Information**

On August 5, 2002, theCompany issued to Michael J. Post, President, an option to purchase 100,000common shares, no par value, at an exercise price of $0.35 per share.  This grant was made pursuant to theCompany’s Stock Option Plan and the terms and conditions thereof.  The option is exercisable at any time withinten (10) years of the date 

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of its issuance, may beexercised in parts, and adjusts for any stock divisions or combinations or forstock dividends.

The Company and S. GeneThompson memorialized on August 5, 2002, the terms of his employment as VicePresident and Chief Financial Officer in a writing between the parties.  In accordance with the terms of theagreement, Mr. Thompson was given 25,000 common shares, no par value, of theCompany, warrants to purchase an additional 25,000 common shares, no par value,of the Company at an exercise price of $0.35 per share, and will receiveadditional warrants to purchase 50,000 common shares in the future at themarket 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 ten (10) year period after the date oftheir issuance.  In the event that theCompany shall terminate Mr. Thompson’s employment prior to the end of the threeyear term, or the Company shall enter into a merger or other combination withanother company, then the grant date of the future warrants shall beaccelerated to the date of such merger or combination.  Further, in the event that his employment isterminated by reason of a merger or combination, he shall be entitled to oneyear’s salary in a lump sum payment.

On July 25, 2002, theCompany sold warrants to purchase 100,000 common shares of the Company toCitiCapital Commercial Corporation for valuable consideration.  The exercise price of the warrants is $0.001per share.  The consideration was anagreement by CitiCapital Commercial Corporation to defer already late paymentson equipment loans owed by the Company and an additional two (2) payments tothe end of the terms of the loans without penalty or rewrite fees.  The warrants may not be exercised for aperiod of 3 years after the date of issuance and expire 5 years after the issuedate and adjust for share dividends or stock splits.  CitiCapital Commercial Corporation has the right to require theCompany to purchase the warrants at a price of $0.50 per warrant at any timebetween the 32nd month after the issue date and the end of thewarrant term.

**Item 6. Exhibits and Reports onForm 8-K**

(B) Reports on Form 8-K

 

                Therewere no reports filed on Form 8-K during the quarter ending June 30, 2002.

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**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|   |                 | Gasel Transportation  Lines, Inc.                                          |
|--------|----------------------|----------------------------------------------------------------------------|
|   |                 | (Registrant)                                                               |
|   | Date August 19, 2002 | /s/ Michael J. Post                                                        |
|   |                 | (Signature)*Michael J.  Post, President                                    |
|   |                 |                                                                       |
|   | Date August 19, 2002 | /s/ S. Gene Thompson                                                       |
|   |                 | (Signature)* S. Gene  Thompson, Vice President and Chief Financial Officer |
|   |                 |                                                                       |
|   |                 |                                                                       |

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