**UNITED STATES****SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

**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 March 31, 2004**                                                                                                    |
|                                                                                                                                                 |
| **o**                                                                                                                                                |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE   EXCHANGE ACT** |
|                                                                                                                                                 |
| **For the transition period from             to         ** |
|                                                                                                                                                 |
| **Commission file number: 0-30185**                                                                                                                  |

 
| **Gasel  Transportation Lines, Inc.**                             |
|-------------------------------------------------------------------|
| (Exact name of small business 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)                                  |

 

Check whether the issuer (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No o.

 

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date: as of May 17, 2004, there were 9,877,966 common shares, no parvalue issued and outstanding, with 7,900 of them held in the treasury.

 

Transitional Small BusinessDisclosure Format (Check one): Yes oNo ý

 

 

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**PART I - FINANCIALINFORMATION**

 

**Item 1. Financial Statements.**

 

TABLE OF CONTENTS

 

CONSOLIDATED FINANCIAL STATEMENTS

 
| Consolidated Balance Sheet At March 31, 2004 (Unaudited)                                               |   |
|--------------------------------------------------------------------------------------------------------|--------|
|                                                                                                   |   |
| Statements of Consolidated Operations for  the  Three Months Ended March 31, 2004 and 2003 (Unaudited) |   |
|                                                                                                   |   |
| Statements of Consolidated Cash Flows for  the  Three Months Ended March 31, 2004 and 2003 (Unaudited) |   |
|                                                                                                   |   |
| Notes to Consolidated Financial Statements                                                             |   |

 

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GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATEDBALANCE SHEET

 
| **ASSETS**                                                                                           |   | **March 31,  2004** |      |
|------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|
|                                                                                                 |   | **(Unaudited)**     |      |
|                                                                                                 |   |                |      |
| Current Assets                                                                                       |   |                |      |
| Cash & Cash Equivalents                                                                          |   | $                   | 52,951    |   |
| Accounts Receivable-Trade, Net of amounts  Sold With Recourse of $1,127,552 and Allowance of $50,000 |   | 528,261             |      |
| Inventory                                                                                            |   | 102,177             |      |
| Prepaid Expenses and Other Current Assets                                                            |   | 156,037             |      |
|                                                                                                 |   |                |      |
| Total Current Assets                                                                                 |   | 839,426             |      |
|                                                                                                 |   |                |      |
| Property and Equipment                                                                               |   |                |      |
| Land and Buildings                                                                                   |   | 770,054             |      |
| Tractors                                                                                             |   | 11,601,671          |      |
| Trailers                                                                                             |   | 2,944,977           |      |
| Shop Equipment                                                                                       |   | 408,962             |      |
| Office Equipment                                                                                     |   | 228,105             |      |
|                                                                                                 |   | 15,953,769          |      |
| Less Accumulated Depreciation                                                                        |   | 10,896,921          |      |
|                                                                                                 |   |                |      |
| Net Property and Equipment                                                                           |   | 5,056,848           |      |
|                                                                                                 |   |                |      |
|                                                                                                 |   |                |      |
| Other Assets                                                                                         |   |                |      |
| Other                                                                                                |   | 7,683               |      |
|                                                                                                 |   |                |      |
| Total Other Assets                                                                                   |   | 7,683               |      |
|                                                                                                 |   |                |      |
| TOTAL ASSETS                                                                                         |   | $                   | 5,903,957 |   |

 

See accompanying notes to consolidated financial statements.

 

1

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GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

 
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                               |   | **March 31,  2004** |      |
|-------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|
|                                                                                                  |   | **(Unaudited)**     |      |
|                                                                                                  |   |                |      |
| Current Liabilities                                                                                   |   |                |      |
| Cash Overdraft                                                                                        |   | $                   | 134,423   |   |
| Accounts Payable-Trade                                                                                |   | 275,821             |      |
| Accrued Contract Labor and Other Expenses                                                             |   | 276,579             |      |
|                                                                                                  |   |                |      |
| Total Current Liabilities                                                                             |   | 686,823             |      |
|                                                                                                  |   |                |      |
| Liabilities Subject to Compromise                                                                     |   | 8,310,103           |      |
|                                                                                                  |   |                |      |
| Total Liabilities                                                                                     |   | 8,996,926           |      |
|                                                                                                  |   |                |      |
| Redeemable Warrants                                                                                   |   | 50,000              |      |
|                                                                                                  |   |                |      |
| Stockholders’ Equity (Deficit)                                                                   |   |                |      |
| Common Stock, no par value, 10,000,000  shares authorized, 9,877,966 issued and 9,870,066 outstanding |   | 2,543,481           |      |
| Additional Paid in Capital                                                                            |   | 102,786             |      |
| Accumulated Deficit                                                                                   |   | (5,771,403          | )         |
| Less: Treasury Stock, at cost, 7,900 shares                                                           |   | (17,833             | )         |
| Total Stockholders’ Equity (Deficit)                                                             |   | (3,142,969          | )         |
|                                                                                                  |   |                |      |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)                                            |   | $                   | 5,903,957 |   |

 

See accompanying notes to consolidated financial statements.

 

2

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GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

 
|                                                                         |   | **Three  Months Ended March 31,** |      |
|------------------------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                                         |   | **2004**                          |      | **2003** |   |
|                                                                         |   | **(Unaudited)**                   |      | **(Unaudited)** |   |
| Revenues                                                                     |   |                              |      |   |   |
| Freight Income                                                               |   | $                                 | 3,605,729 |   | $ | 3,494,125 |   |
| Training School Revenue                                                      |   | 163,067                           |      | 140,371 |   |
|                                                                         |   | 3,768,796                         |      | 3,634,496 |   |
| Cost of Revenue                                                              |   | 3,525,646                         |      | 3,342,117 |   |
| Gross Profit                                                                 |   | 243,150                           |      | 292,379 |   |
|                                                                         |   |                              |      |   |   |
| Operating  Expenses                                                          |   |                              |      |   |   |
| Impairment Losses                                                            |   | —                            |      | 81,145 |   |
| Garage Expenses                                                              |   | 109,167                           |      | 79,394 |   |
| General and Administrative Expenses                                          |   | 416,308                           |      | 510,430 |   |
|                                                                         |   | 525,475                           |      | 670,969 |   |
|                                                                         |   |                              |      |   |   |
| Operating Income (Loss)                                                      |   | (282,325                          | )         | (378,590 | ) |
| Other Income (Expense)                                                       |   |                              |      |   |   |
| Other Income                                                                 |   | 6,963                             |      | 6,586 |   |
| Interest Income                                                              |   | 17                                |      | 5,876 |   |
| Interest Expense, Net                                                        |   |                              |      |   |   |
| (Contractual Interest of $166,920 for the  three months ended March 31, 2004 |   | (18,167                           | )         | (310,045 | ) |
| Loss on Asset Disposals                                                      |   | —                            |      | (42,957 | ) |
|                                                                         |   | (11,187                           | )         | (340,540 | ) |
| (Loss) from Operations                                                       |   |                              |      |   |   |
| Before Reorganization                                                        |   |                              |      |   |   |
| Items and Tax Provision                                                      |   | (293,512                          | )         | (719,130 | ) |
|                                                                         |   |                              |      |   |   |
| Reorganization Items-                                                        |   |                              |      |   |   |
| Professional and Bankruptcy Fees                                             |   | 8,000                             |      | — |   |
| Extinguishment of Debt                                                       |   | (351,529                          | )         |   |   |
|                                                                         |   | (343,529                          | )         | — |   |
| Income (Loss) Before Income Taxes                                            |   | 50,017                            |      | (719,130 | ) |
| Provision for Income Taxes                                                   |   | —                            |      | — |   |
|                                                                         |   |                              |      |   |   |
| Net Income (Loss)                                                            |   | $                                 | 50,017    |   | $ | (719,130 | ) |
|                                                                         |   |                              |      |   |   |
| Basic Income (Loss) Per Share                                                |   | $                                 | .005      |   | $ | (.096 | ) |
| Diluted (Loss) Per Share                                                     |   | $                                 | .005      |   | $ | (.096 | ) |
|                                                                         |   |                              |      |   |   |
| Weighted Average Common Shares Outstanding:                                  |   |                              |      |   |   |
| Basic                                                                        |   | 9,870,066                         |      | 7,456,356 |   |
| Diluted                                                                      |   | 10,008,782                        |      | 7,456,356 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

3

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GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARY

STATEMENTS OF CONSOLIDATED CASH FLOWS

 
|                                                                                                       |   | **Three  Months Ended March 31,** |    |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                                       |   | **2004**                          |    | **2003** |   |
|                                                                                                       |   | **(Unaudited)**                   |    | **(Unaudited)** |   |
|                                                                                                       |   |                              |    |   |   |
| Cash Flows From Operating Activities                                                                       |   |                              |    |   |   |
| Net Income(Loss)                                                                                           |   | $                                 | 50,017  |   | $ | (719,130 | ) |
| Adjustments to reconcile net (loss) to cash  provided by operating activities:                             |   |                              |    |   |   |
| Reorganization Items                                                                                       |   | 8,000                             |    | — |   |
| Extinquishment of Debt                                                                                     |   | (351,529                          | )       | — |   |
| Depreciation and Amortization                                                                              |   | 425,524                           |    | 510,802 |   |
| Loss on Disposal of Equipment-Pre-Petition                                                                 |   | —                            |    | 42,957 |   |
| Impairment Loss                                                                                            |   | —                            |    | 81,145 |   |
| Bad Debt                                                                                                   |   | 9,445                             |    |   |   |
| (Increase) Decrease in:                                                                                    |   |                              |    |   |   |
| Accounts Receivable-Trade                                                                                  |   | (99,464                           | )       | 231,156 |   |
| Inventory                                                                                                  |   | —                            |    | — |   |
| Prepaid Expenses and Other Assets                                                                          |   | 104,154                           |    | 148,234 |   |
| Increase (Decrease) in:                                                                                    |   |                              |    |   |   |
| Accounts Payable and Accrued Expenses                                                                      |   | 195,234                           |    | 27,011 |   |
| Net Cash Provided (Used) by Operating                                                                      |   |                              |    |   |   |
| Activities Before Reorganization Items                                                                     |   | 341,381                           |    | 322,175 |   |
|                                                                                                       |   |                              |    |   |   |
| Operating Cash Flows Used in Reorganization  Items:                                                        |   |                              |    |   |   |
| Professional Fees Paid in Connection                                                                       |   |                              |    |   |   |
| With Chapter 11 Proceedings                                                                                |   | (8,000                            | )       | — |   |
| Net Cash Used in Reorganization Items                                                                      |   | (8,000                            | )       | — |   |
|                                                                                                       |   |                              |    |   |   |
| Net Cash Provided by Operating Activities                                                                  |   | 333,381                           |    | 322,175 |   |
| Cash Flows From Investing Activities                                                                       |   |                              |    |   |   |
| Purchases of Property and Equipment                                                                        |   | (91,385                           | )       | — |   |
| Net Cash Used by                                                                                           |   |                              |    |   |   |
| Investing Activities                                                                                       |   | (91,385                           | )       | — |   |
|                                                                                                       |   |                              |    |   |   |
| Cash Flows From Financing Activities                                                                       |   |                              |    |   |   |
| Line of Credit, Net                                                                                        |   | —                            |    | (501,707 | ) |
| Repayment of Mortgage Receivable                                                                           |   | —                            |    | 1,839 |   |
| Payment on Notes Payable-Related Party                                                                     |   | (19,748                           | )       | (13,558 | ) |
| Proceeds from Borrowings-Related Party                                                                     |   | 27,045                            |    | — |   |
| Principal Payments on Long Term Borrowing                                                                  |   | (105,766                          | )       | (292,719 | ) |
| Principal Payments Under Capital Lease  Agreements                                                         |   | —                            |    | (135,206 | ) |
| Proceeds from Issuance of Common Stock                                                                     |   | —                            |    | _611,194 |   |
| Net Cash Used by Financing Activities                                                                      |   | (98,469                           | )       | (330,157 | ) |
|                                                                                                       |   |                              |    |   |   |
| Net Increase (Decrease) in Cash                                                                            |   | 143,527                           |    | (7,982 | ) |
|                                                                                                       |   |                              |    |   |   |
| Net Cash & Cash Equivalents  (Overdraft)-January 1                                                     |   | (224,999                          | )       | (94,525 | ) |
|                                                                                                       |   |                              |    |   |   |
| Net Cash & Cash Equivalents  (Overdraft)-March 31                                                      |   | $                                 | (81,472 | ) | $ | (102,507 | ) |
|                                                                                                       |   |                              |    |   |   |
| The net cash  and cash equivalents (overdraft) are presented in the balance sheet as  follows at March 31: |
|                                                                                                       |   |                              |    |   |   |
| Cash and Cash Equivalents                                                                                  |   | $                                 | 52,951  |   | $ | 44,768 |   |
| Cash Overdraft                                                                                             |   | (134,423                          | )       | (147,275 | ) |
|                                                                                                       |   |                              |    |   |   |
| Net Cash & Cash Equivalents  (Overdraft)-March 31                                                      |   | $                                 | (81,472 | ) | $ | (102,507 | ) |
|                                                                                                       |   |                              |    |   |   |
| Supplemental Disclosures:                                                                                  |   |                              |    |   |   |
|                                                                                                       |   |                              |    |   |   |
| Interest Paid                                                                                              |   | $                                 | 18,167  |   | $ | 370,708 |   |
|                                                                                                       |   |                              |    |   |   |
| Non-Cash Investing and Financing Activities                                                                |   |                              |    |   |   |
|                                                                                                       |   |                              |    |   |   |
| Purchases of Property and Equipment with  Direct Financing                                                 |   | $                                 | —  |   | $ | 451,500 |   |

 

See accompanying notes to consolidated financial statements.

 

4

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GASEL TRANSPORTATION LINES, INC.

(Debtor in Possession)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

 

**NOTE 1 – BASIS OF PRESENTATION**

 

The accompanying unauditedconsolidated financial statements of Gasel Transportation Lines, Inc., and itssubsidiaries (the “Company”) have been prepared in accordance with accountingprinciples generally accepted in the United States of America and with theinstructions to form 10-QSB. Accordingly, they do not include all the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation(consisting of normal recurring accruals) have been included.  Operating results for the three month periodended March 31, 2004 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2004.  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, 2003.

 

**NOTE2 – LIABILITIES SUBJECT TO COMPROMISE**

 

Petition Date Liabilities thatare expected to be settled as part of a plan of reorganization are separatelyclassified in the consolidated balance sheet and include the following (all ora portion of which may be disputed by the Debtor):

 
|                                 |   | **March  31,2004** |      |
|--------------------------------------|--------|--------------------|-----------|
|                                 |   |               |      |
| Demand Notes Payable                 |   | $                  | 188,164   |   |
| Accounts Payable-Trade               |   | 607,913            |      |
| Accrued Interest                     |   | 214,428            |      |
| Accrued Brokerage And Contract Labor |   | 169,946            |      |
| Accrued Payroll Taxes                |   | 315,740            |      |
| Mortgages Payable                    |   | 866,604            |      |
| Notes Payable                        |   | 5,905,655          |      |
| Capital Lease Obligations            |   | 41,653             |      |
|                                 |   |               |      |
|                                 |   | $                  | 8,310,103 |   |

 

**NOTE3 – EXTINGUISHMENT OF DEBT**

 

During the quarter ended March31, 2004, the Company returned certain trailers held under operating leaseswith two secured creditors, negotiated the reduction of an operating lease withanother secured creditor, and reduced the related accounts payable obligationsin the amount of $351,529.

 

5

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**NOTE 4 – RECLASSIFICATIONS**

 

Certain reclassifications ofprior period amounts have been made to conform to the current periodpresentation.

 

**NOTE5 – SUBSEQUENT EVENTS**

 

In April 2004, the Companyentered into an agreement to lease 21 trailers under an operating lease for aperiod of 42 months.  Monthly paymentstotal $10,920 beginning in April 2004.

 

In April 2004, the Companyremoved 36 power units from its fleet and returned them to a securedcreditor.  The net book value of these tractorsat March 31, 2004 was $ 605,267.  Debtassociated with this equipment was $ 1,263,399, all of which was included inLiabilities Subject to Compromise at March 31, 2004.

 

6

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**Item 2. Management’s Discussion and Analysisor Plan of Operation.**

 

Overview.

 

The following discussion shouldbe read in conjunction with the Financial Statements, including footnotes,contained herein.  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.  Further, the Company has been operating as a Debtor inPossession since filing Chapter 11 proceedings for re-organization under theUnited States Bankruptcy Code on May 19, 2003, and the effects from filing andoperating as a Debtor in Possession have altered, and will continue to alter,how the Company operates and is expected to change the financial structure andstatements for the Company in the future.

 

Except for certain historicalinformation contained herein, the following discussion contains forward-lookingstatements that involve risks, assumptions and uncertainties which aredifficult to predict. All statements, other than statements of historical fact,are statements that could be deemed forward-looking statements, including anyprojections of earnings, revenues, or other financial items, any statement ofplans, strategies, and objectives of management for future operations; anystatements concerning proposed new services or developments; any statementsregarding future economic conditions or performance; and any statements ofbelief and any statement of assumptions underlying any of the foregoing. Words such as “believe,” “may,” “could,” “expects,” “hopes,” “anticipates,” and“likely,” and variations of these words, or similar expressions, are intendedto identify such forward-looking statements.  The Company’s actual resultscould differ materially from those discussed here. Factors that could cause orcontribute to such differences include, but are not limited to, adverse changesin general economic conditions, including adverse conditions to the companiesthat are the Company’s core of shippers, fuel prices, driver costs, the abilityto finance equipment, interest rates, the ability to borrow working capital,the amount of freight available for hauling, particularly in the areas wherethe Company terminal is located and in the areas where the Company is lookingfor backhauls, and other factors.  The Company does not assume, andspecifically disclaims, any obligation to update any forward-looking statementcontained in this discussion.

 

Also, as Debtor in Possession,the Company must have any transactions outside its normal business operationsapproved by the Bankruptcy Court, and the outcome of any such proposedtransactions is unknown.

 

The interim financialinformation for the quarters ended March 31, 2004, and March 31, 2003, areunaudited.  The statements included reflect all adjustments that theCompany considers necessary for a fair presentation of the results of operationsfor the interim periods covered and of the financial condition of the Companyat the date of the interim balance sheet.  The results of the interimperiods are not necessarily indicative of the results for the entire year.

 

Three MonthsEnded March 31, 2004.

 

Freight revenues for the three months endedMarch 31, 2004, were $3,605,729, an increase of $111,604 (3.2%) from the$3,494,125 for the first quarter of 2003. Training school revenues for thefirst quarter of 2004 were $163,067, an increase of $22,696 from the $140,371in revenues for the same period in 2003.  The increase in freight revenueswas primarily attributable to an increased freight demand, higher freightrates, which was partially the result of fuel surcharges and largely due to thechange in the customer mix to higher margin accounts, and the use ofowner/operators that contributed to the increase from the previous year in thenumber of available power units in service for hauling freight.

 

Training school revenue increased slightlyand basically returned to the level of 2002. The increase was primarily attributable to an increase in the number ofstudents, which was probably the result of economic

 

7

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conditions. The Company did not make any changes in operations that would otherwiseaccount for the improvement.

 

Equipment operating expenses increased in thefirst quarter of 2004 to $3,525,626 from $3,342,117 for the same quarter of2003.  This was an increase of $183,529 (5.5%) from the prior year, someof which could be expected to correspond to the fact that revenues increased3.2% from the prior year; the balance of the increase is attributable to theincreased costs associated with operating older equipment that causedsignificant maintenance and repair costs to be incurred at locations other thanthe Company shop, and increased fuel prices at the pump.

 

Operating expenses decreased $64,349 (10.9%)to $525,475 for the first quarter of 2003 compared to $589,824 for the likeperiod of 2003. The decrease in operating costs was entirely due to a decreaseof $94,122 in the general and administrative expenses that resulted fromreductions in staff, some of which occurred from the consolidation ofoperations to a single terminal in Marietta, Ohio; the decrease in the generaland administrative expense was partially offset by an increase in the garageexpenses of $29,773, which was the result of operating the older equipment thatrequired more maintenance and repair expense.

 

Operating income for the first quarter of2003 was a loss of  ($282,325) compared to an operating loss, includingimpairment losses of ($81,145), of ($378,590) for the first quarter of 2003, areduction in the amount of loss of $96,265 (25.4%). The percentage of operatingincome to total revenues improved to minus (7.5%) for the first quarter of 2004from a minus (10.4%) in the quarter ended March 31, 2003, primarily due to costcutting and consolidation of operations that reduced the general andadministrative costs.

 

Other income and expense showed a significantdifference from the first quarter of 2003 as interest expense went down to$18,167 from $310,045, a decrease of $291,878 (94.1%) and the loss on assetdisposals went from $42,957 in 2003 to $0 in 2004.  Overall, total other income and expense items for 2004 decreased$329,353 to a net ($11,187) from the 2003 net of ($340,540), a decrease of96.7%.

 

Reorganization items for the period for 2004resulting from the extinguishment of debt, less professional and bankruptcy fees,provided net additional income of $343,529. There was no corresponding item in the period for 2003.

 

The results were that the Company had incomeafter provision for income taxes for the first quarter of 2004 of $50,017compared to a net loss of ($719,130) for the first quarter of 2003, which is animprovement of $769,147 (107%) from the prior year.

 

In summary, the improvement in results fromthe prior year was primarily due to the Company making operating improvementsand to the Company being in Chapter 11 Reorganization that provided thereduction in interest expense and the income from the extinguishment ofdebt.  These latter two itemssignificantly contributed to the Company’s positive earnings.

 

Capital and Liquidity

 

Management believes that once the Companycompletes its reorganization and gets a Plan of Reorganization approved by itscreditors and the Bankruptcy Court that the Company’s operating expenses willbe in line with operating revenues so that the Company will be able to manageits cash flow and, hopefully, with the other changes being implemented, reverseits loss trend and get back to operating profitably.  However, until theCompany completes arrangements in the Bankruptcy Court with its securedlenders, there can be no assurances that it will be able to operate profitablyor be able to remain in business.  TheCompany is under a Bankruptcy Court Order to submit a Plan of Reorganization byMay 24, 2004, and the Company plans to comply with the Order.

 

Management continues to adjust its correctiveactions to bring profits and cash flow positive.  Currently, there is astrong push to improve gross revenues and rates with additional Ohio Valleyoutbound customers, and replacing discounted inbound brokered freight withdirect freight business.

 

8

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There is also a focus to keep the Company’sfull fleet of equipment operable.  TheCompany recently agreed to turn in 36 power units to one of its creditors, sokeeping the balance of the fleet operable is more critical.   It has been costly for the Company tomaintain its equipment as it reaches the mid to upper portion of its lifecycle, and while it has gotten rid of the equipment that was most costly tomaintain, it will experience increased costs as the retained equipmentages.  Also, the Company has beenfocusing its efforts to add owner/operators to provide incremental revenues andmargins without the cash outlay and long-term debt obligations associated withadding company-owned equipment.

 

Management started in the autumn of 2003changing the Company’s sales mix to increase its revenue and reduce its emptymiles simultaneously by limiting its freight volume with its top twentycustomers and one major customer in particular.  This plan was alsodesigned to improve equipment productivity and reduce driver turnover (throughbetter driver pay) and as part of an aggressive and detailed recovery plan thatmanagement expects to show continued and measurable improved financialperformance.  First quarter results for2004 started to show that such measures are resulting in an improvement.

 

Management continued in late 2003 to cut itsadministrative costs by closing its Columbus terminal and centralizing itsoperations (dispatch) at Company headquarters in Marietta, Ohio, resulting inreduced staff, decreased lease costs, and better operational control.

 

Efforts to reduce the Company’s equipmentmaintenance costs to a normal cost curve were significantly increased. The Company upgraded and added to the maintenance crew with the goal ofeliminating costly outside services and returning all equipment back intoservice, and transitioning back to a “preventive” maintenance profile (from anexcessively costly “demand” maintenance condition).  While Management believes that this improved the situation, itnevertheless was not able to successfully continue to keep the equipmentoperating at a reasonable cost. Management recently concluded to return the 36 least cost effective,from a maintenance standpoint, tractors to the secured lender in the hope thatthe remaining fleet can more cost effectively be maintained.   This return of equipment has been ongoingduring the first quarter of 2004, and was recently completed.

 

Initially after filing for Chapter 11 Reorganization,the Company retained its insurance coverage at existing premium rates, whichmet the risk requirements necessary to operate under judicial protection. On October 1, 2003, the Company renewed its annual equipment insurance with asix-month extension of its liability coverage with the existing insurancecarrier, Clarendon National Insurance Company, and a twelve-month renewal ofits physical damage, cargo, and general liability through other major nationalinsurance carriers.  The premiums were increased a modest amount comparedto industry standards, increasing by 9 % for the current coverage year (2003 /2004) in contrast to the prior policy period.

 

The Company renewed its auto liabilityinsurance for a period of twelve months, effective April 1, 2004 with a newinsurance carrier, Lincoln General Insurance Company, replacing the defunctClarendon National Insurance program. Premiums on the new policy coverage were slightly reduced compared tothe prior year and the related premium financing is being provided by BaytreeFinance Company.

 

In addition, during the mid part of 2003, theCompany implemented an enhanced driver and owner/operator recruiting effort ledby one of its senior managers.  It was designed to staff all trucks andreduce the turnover to below industry standards.  Likewise, the operationsdepartment was reorganized to a central dispatch format supported by customerservice personnel to improve service performance levels back to above industrynorm (98+ %) and push equipment/driver productivity to profitable levels.  Staffing was still a problem in the firstquarter of 2004 as the Company continued to have equipment idle because of alack of drivers.  With the decrease inthe amount of Company owned equipment resulting from the turn back of the 36tractors, it is hopeful that it can retain what appears to be a core base ofdrivers that is adequate to keep the reduced number of owned tractors fullymanned.

 

In early May 2003, the Company entered into anew receivables-based line of credit agreement with Systran Financial Services,a division of Textron Financial Corporation, which significantly increased itscash flow through higher advance rates with lower financing costs, and expandedits available credit to $2.5

 

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million.   This credit facility continued after the filing of the Chapter 11petition with only a slight increase in the rate paid by the Company, and withthe Company retaining the additional credit capacity.  This credit facility remains in place, and the Company expectsthat the arrangement will continue.

 

In April 2003, the Company returned to thecost advantages of outsourcing its payroll and related tax processing. This employee leasing plan continued after the Company filed for creditorprotection under Chapter 11.  Thisservice facility also continues in place and the Company expects to continuethe arrangement.

 

Management hopes that the Company will beable to emerge from the Chapter 11 Reorganization in the 3rd quarter of 2004with a stronger balance sheet, increased liquidity, and a scale of operationsthat will foster sustained earnings and growth.  The next step is for theCompany to develop and file a formal business plan (the Plan of Reorganization)and seek its approval with the creditors and the Bankruptcy Court.  Atthis time, the Company expects to submit its Plan of Reorganization in May,2004.

 

Although being in Chapter 11 has aided theCompany in reducing its capital needs, operating losses while in Chapter 11have left the Company with a shortage of cash and working capital.  The Company continues to seek means ofsolving such shortage, including outside equity and quasi-equity funding.  There can be no assurances that the Companywill be able to solve the problem from such outside sources.

 

**Item 3. Controls and Procedures.**

 

At the end of the periodcovered by this report, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theCompany’s disclosure controls and procedures pursuant to Exchange Act Rule13a-15(e).  Based upon that evaluation, the Chief Executive Officer andChief Financial Officer concluded that the Company’s disclosure controls andprocedures are effective. During the first quarter of 2004, there were nochanges in the Company’s internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**PART II - OTHERINFORMATION**

 

**Item 6. Exhibits and Reports on Form 8-K.**

 

(a) Exhibits:

31.1 - Rule13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company.

31.2 - Rule13a-15(a)/15d-14(a) Certification of Chief Financial Officer of the Company.

32.1 - Section1350 Certification by Chief Executive Officer of the Company.

32.2 - Section1350 Certification by Chief Financial Officer of the Company.

 

(b) Reports on Form 8-K.

(1) On January 12, 2004, the Company filed a Form 8-K with anattachment of a press release disclosing that a new accounting firm had beenhired.  Subsequently, amendments to suchform 8-K were filed on January 21, 2004, and January 28, 2004, providingadditional information regarding the hiring of its new accounting firm and thereason therefore, and a statement from the former accounting firm agreeing withthe disclosure.

 

**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

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|               | Gasel  Transportation Lines, Inc.                                                 |
|--------------------|-----------------------------------------------------------------------------------|
|               |                                                                              |
|               | (Registrant)                                                                      |
| Date May 19,  2004 |                                                                              | /s/   Michael  J. Post |   |
|               | (Signature)*Michael  J. Post, President                                           |
|               |                                                                              |
| Date May 19,  2004 |                                                                              | /s/   S.  Gene Thompson |   |
|               | (Signature)*  S. Gene Thompson, Vice  President and  Chief Financial Officer |

 

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