**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

 

**FORM10-QSB**

 

 

**(Mark One)**

 

| ý                                                                                                                                                                                                                                                                                                 | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                   |                                                                                   |
| **For the quarterly period ended September 30, 2002**                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                   |                                                                                   |
| **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)                                                    |
|                                                                                |   |   |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Statethe number of shares outstanding of each of the issuer’s classes of common equity,as of the latest practicabledate:          2,437,966 commonshares, no par value

 

TransitionalSmall Business Disclosure Format (Check one): Yes o  No ý

 

 

----

**PART I — FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

INDEX

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

 

 

GASEL TRANSPORTATION LINES,INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

 
|                                                    |   | **September  30,  2002** |       |
|---------------------------------------------------------|--------|--------------------------|------------|
|                                                    |   | **(Unaudited)**          |       |
| ASSETS                                                  |   |                     |       |
|                                                    |   |                     |       |
| Current Assets                                          |   |                     |       |
| Cash and Cash Equivalents                               |   | $                        | 22,208     |   |
| Accounts Receivable-Trade, Net of Allowance of  $40,000 |   | 1,941,037                |       |
| Inventory                                               |   | 202,873                  |       |
| Prepaid Expenses and Other Current Assets               |   | 304,814                  |       |
|                                                    |   |                     |       |
| Total Current Assets                                    |   | 2,470,932                |       |
|                                                    |   |                     |       |
| Property and Equipment                                  |   |                     |       |
| Land and Buildings                                      |   | 770,054                  |       |
| Tractors                                                |   | 12,325,060               |       |
| Trailers                                                |   | 5,165,074                |       |
| Shop Equipment                                          |   | 405,285                  |       |
| Office Equipment                                        |   | 218,820                  |       |
|                                                    |   | 18,884,293               |       |
| Less Accumulated Depreciation                           |   | 9,050,931                |       |
|                                                    |   |                     |       |
| Net Property and Equipment                              |   | 9,833,362                |       |
|                                                    |   |                     |       |
| Other Assets                                            |   |                     |       |
| Goodwill                                                |   | 353,438                  |       |
| Mortgage Receivable, Net of Current Portion             |   | 172,266                  |       |
| Other                                                   |   | 227,955                  |       |
|                                                    |   |                     |       |
| Total Other Assets                                      |   | 753,659                  |       |
|                                                    |   |                     |       |
| TOTAL ASSETS                                            |   | $                        | 13,057,953 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

1

----

 
|                                                                                                 |   | **September  30,  2002** |       |
|------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|
|                                                                                                 |   | **(Unaudited)**          |       |
|                                                                                                 |   |                     |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   |                     |       |
|                                                                                                 |   |                     |       |
| Current Liabilities                                                                                  |   |                     |       |
| Cash Overdraft                                                                                       |   | $                        | 97,294     |   |
| Notes Payable                                                                                        |   | 2,009,288                |       |
| Accounts Payable-Trade                                                                               |   | 620,404                  |       |
| Accrued Brokerage and Contract Labor, Interest and  Other Expenses                                   |   | 660,720                  |       |
| Current Portion of Long Term Debt                                                                    |   | 3,889,660                |       |
|                                                                                                 |   |                     |       |
| Total Current Liabilities                                                                            |   | 7,277,366                |       |
|                                                                                                 |   |                     |       |
| Long Term Debt, Net of Current Portion                                                               |   | 5,889,146                |       |
|                                                                                                 |   |                     |       |
| Total Liabilities                                                                                    |   | 13,166,512               |       |
|                                                                                                 |   |                     |       |
| Redeemable Warrants                                                                                  |   | 50,000                   |       |
|                                                                                                 |   |                     |       |
| Stockholders’ Equity (Deficit)                                                                  |   |                     |       |
| Common Stock, no par value, 3,000,000 shares  authorized, 2,437,966 issued and 2,430,066 outstanding |   | 1,548,390                |       |
| Additional Paid in Capital                                                                           |   | 223,229                  |       |
| Accumulated (Deficit)                                                                                |   | (1,865,452               | )          |
| Less: Treasury Stock, at cost, 7,900 shares                                                          |   | (17,833                  | )          |
| Less: Notes Receivable                                                                               |   | (46,893                  | )          |
|                                                                                                 |   |                     |       |
| Total Stockholders’ Equity (Deficit)                                                            |   | (158,559                 | )          |
|                                                                                                 |   |                     |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)                                           |   | $                        | 13,057,953 |   |

 

See accompanying notes toconsolidated financial statements.

 

2

----

 

GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

 
|                                        |   | **Three  Months Ended** |       | **Nine  Months Ended** |       |
|---------------------------------------------|--------|-------------------------|------------|------------------------|------------|
|                                        |   | **Sept 30,  2002**      | ** ** | **Sept 30,  2001**     | ** ** | **Sept 30,  2002** | ** ** | **Sept 30,********2001** | ** ** |
|                                        |   | **(Unaudited)**         |       | **(Unaudited)**        |       | **(Unaudited)** |   | **(Unaudited)** |   |
|                                        |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| Revenues                                    |   |                    |       |                   |       |   |   |   |   |
| Freight Income                              |   | $                       | 3,407,037  |                   | $          | 3,922,529 |   | $ | 10,879,264 |   | $ | 13,860,106 |   |
| Training School Revenue                     |   | 115,026                 |       | 244,986                |       | 378,221 |   | 695,775 |   |
|                                        |   | 3,522,063               |       | 4,167,515              |       | 11,257,485 |   | 14,555,881 |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Cost of Revenue                             |   | 3,131,111               |       | 3,816,873              |       | 9,623,415 |   | 12,509,788 |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Gross Profit                                |   | 390,952                 |       | 350,642                |       | 1,634,070 |   | 2,046,093 |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Operating Expenses                          |   |                    |       |                   |       |   |   |   |   |
| Garage Expenses                             |   | 86,047                  |       | 75,818                 |       | 239,513 |   | 223,434 |   |
| General and Administrative Expenses         |   | 493,266                 |       | 511,838                |       | 1,391,829 |   | 1,576,209 |   |
|                                        |   | 579,313                 |       | 587,656                |       | 1,631,342 |   | 1,799,643 |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Operating Income (Loss)                     |   | (188,361                | )          | (237,014               | )          | 2,728 |   | 246,450 |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Other Income (Expense)                      |   |                    |       |                   |       |   |   |   |   |
| Interest Income                             |   | 4,493                   |       | 833                    |       | 5,168 |   | 2,422 |   |
| Other Income                                |   | 7,147                   |       | 19,438                 |       | 90,550 |   | 98,404 |   |
| Gain on Sale of Assets                      |   | —                  |       | —                 |       | 12,075 |   | — |   |
| Interest Expense                            |   | (235,000                | )          | (321,832               | )          | (788,688 | ) | (929,210 | ) |
|                                        |   | (223,360                | )          | (301,561               | )          | (680,895 | ) | (828,384 | ) |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Income (Loss) Before Tax Provision          |   | (411,721                | )          | (538,575               | )          | (678,167 | ) | (581,934 | ) |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Provision for Income Taxes                  |   | —                  |       | —                 |       | — |   | — |   |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Net Income (Loss)                           |   | $                       | (411,721   | )                      | $          | (538,575 | ) | $ | (678,167 | ) | $ | (581,934 | ) |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Basic (Loss) Per Share                      |   | $                       | (.170      | )                      | $          | (.224 | ) | $ | (.281 | ) | $ | (.242 | ) |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Diluted (Loss) Per Share                    |   | $                       | (.170      | )                      | $          | (.224 | ) | $ | (.281 | ) | $ | (.242 | ) |
|                                        |   |                    |       |                   |       |   |   |   |   |
| Weighted Average Common Shares Outstanding: |   |                    |       |                   |       |   |   |   |   |
| Basic                                       |   | 2,420,555               |       | 2,405,066              |       | 2,410,286 |   | 2,405,066 |   |
| Diluted                                     |   | 2,420,555               |       | 2,405,066              |       | 2,410,286 |   | 2,405,066 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

----

 

GASEL TRANSPORTATION LINES,INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CONSOLIDATEDCASH FLOWS

 
|                                                                           |   | **Nine  Months Ended** |       |
|--------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                           |   | **Sept 30,  2002**     | ** ** | **Sept 30,  2001** | ** ** |
|                                                                           |   | **(Unaudited)**        |       | **(Unaudited)** |   |
|                                                                           |   |                   | ** ** |   | ** ** |
| Cash Flows From Operating Activities                                           |   |                   |       |   |   |
| Net Income (Loss)                                                              |   | $                      | (678,167   | ) | $ | (581,934 | ) |
| Adjustments to reconcile net income to cash  provided by operating activities: |   |                   |       |   |   |
| Depreciation and Amortization                                                  |   | 1,657,509              |       | 1,777,525 |   |
| Gain on Sale of Assets                                                         |   | (12,075                | )          |   |   |
| (Increase) Decrease in:                                                        |   |                   |       |   |   |
| Accounts Receivable-Trade                                                      |   | 132,684                |       | (791,358 | ) |
| Inventory                                                                      |   | (127                   | )          | (11,575 | ) |
| Prepaid Expenses and Other Assets                                              |   | 31,791                 |       | (75,429 | ) |
| Increase (Decrease) in:                                                        |   |                   |       |   |   |
| Accounts Payable and Accrued Expenses                                          |   | 304,979                |       | 778,421 |   |
| Net Cash Provided by Operating Activities                                      |   | 1,436,594              |       | 1,095,650 |   |
|                                                                           |   |                   |       |   |   |
| Cash Flows From Investing Activities                                           |   |                   |       |   |   |
| Proceeds from Sale of Assets                                                   |   | 104,357                |       | — |   |
| Purchases of Property and Equipment                                            |   | (376,003               | )          | (240,456 | ) |
| Net Cash (Used) by Investing Activities                                        |   | (271,646               | )          | (240,456 | ) |
|                                                                           |   |                   |       |   |   |
| Cash Flows  From Financing Activities                                          |   |                   |       |   |   |
| Line of Credit (Net)                                                           |   | 395,518                |       | 301,187 |   |
| Proceeds from Long Term Borrowing                                              |   | —                 |       | 655,789 |   |
| Repayment of Notes Receivable                                                  |   | 1,308                  |       | 9,377 |   |
| Proceeds from Capital Lease Obligations                                        |   | —                 |       | 142,136 |   |
| Payments on Notes Payable-Related Parties                                      |   | (112,646               | )          | — |   |
| Principal Payments on Long Term Borrowing                                      |   | (930,552               | )          | (1,126,701 | ) |
| Principal Payments Under Capital Lease Agreements                              |   | (208,976               | )          | (300,469 | ) |
| Proceeds from Issuance of Common Stock                                         |   | 8,750                  |       | — |   |
| Net Cash (Used) by Financing Activities                                        |   | (846,598               | )          | (318,681 | ) |
|                                                                           |   |                   |       |   |   |
| Net Increase (Decrease) in Cash                                                |   | 318,350                |       | 536,513 |   |
|                                                                           |   |                   |       |   |   |
| Cash & Cash Equivalents - (Overdraft)  Beginning of Period                 |   | (393,436               | )          | (735,135 | ) |
|                                                                           |   |                   |       |   |   |
| Cash & Cash Equivalents - (Overdraft) End of  Period                       |   | $                      | (75,086    | ) | $ | (198,622 | ) |

 

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

 
| Cash and Cash Equivalents                                                                    |   | $       | 22,208  |     | $      | 20,432    |   |
|----------------------------------------------------------------------------------------------|--------|---------|---------|----------|--------|-----------|--------|
| Cash Overdraft                                                                               |   | (97,294 | )       | (219,054 | )      |
|                                                                                         |   |    |    |     |   |
| Net Cash and Cash Equivalents (Overdraft)                                                    |   | $       | (75,086 | )        | $      | (198,622  | )      |
|                                                                                         |   |    |    |     |   |
| Supplemental Disclosures:                                                                    |   |    |    |     |   |
|                                                                                         |   |    |    |     |   |
| Interest Paid                                                                                |   | $       | 745,165 |     | $      | 794,783   |   |
|                                                                                         |   |    |    |     |   |
| Non-Cash Investing and Financing Activities:                                                 |   |    |    |     |   |
|                                                                                         |   |    |    |     |   |
| Increase in Mortgage Receivable with Proceeds from  Sale of Land and Building                |   | $       | 179,142 |     | $      | —    |   |
|                                                                                         |   |    |    |     |   |
| Payoff Notes and Mortgage Payable with Proceeds  from New Financing and Sale of Fixed Assets |   | $       | 79,836  |     | $      | 4,224,110 |   |
|                                                                                         |   |    |    |     |   |
| Purchases of Property and Equipment with Proceeds  of Notes Payable                          |   | $       | —  |     | $      | 1,244,530 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

4

----

 

GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

(Unaudited)

 

# **NOTE 1 – BASIS OFPRESENTATION**

# ** **

Theaccompanying unaudited consolidated financial statements of GaselTransportation Lines, Inc. and its subsidiary (the “Company”) have beenprepared in accordance with accounting principles generally accepted in theUnited States 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 nine month periodended September 30, 2002 are not necessarily indicative of the results that maybe expected 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 goingconcern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business.  The Company earned approximately $100,796 in1999, and sustained losses of $1,045,402 and $870,583 in 2000 and 2001,respectively, as well as a loss of $678,167 during the nine months endedSeptember 30, 2002.  At September 30,2002, current liabilities exceed current assets by approximately$4,806,434.  The Company had anaccumulated deficit of approximately $1,187,285 at December 31, 2001, and$1,865,452 at September 30, 2002.  Thesefactors raise substantial doubt about the ability of the Company to continue asa going concern for a reasonable period of time.

 

The Company continues to develop and implement corrective actions togenerate positive earnings and cash flows from its operations.  Significant among these actions is that theCompany completed the acquisition of a freight brokerage operation in December,2000, that established a market presence in the greater Columbus, Ohio areawhich the Company is working to increase its freight volume and rates via alarger customer base.

 

In addition, late in the second quarter, the Company set in motion aplan to change its sales mix to increase the freight volume, rates and marginsvia the addition of large national shippers that the Company expects to realizethrough its enhanced sales force.

 

Management believes it has the capability to obtain additionalcapitalization through a combination of debt and equity to appropriately fundthe Company.  Additionally, in an effortto mitigate certain external conditions that could adversely affect theCompany’s financial performance (e.g., diesel fuel prices, insurance and thegeneral economy,) management believes the Company is instituting adequatecontingencies.

 

5

----

 

The financial 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.

 

### **NOTE3 – NOTES PAYABLE**

 

Priorto September 11, 2002, the Company had a line of credit agreement withCitiCapital Business Credit, expiring in May, 2003.  The agreement allowed the Company to borrow up to $2,000,000,subject to borrowing base restrictions. Interest was due monthly at 1% over prime.  The outstanding balance was secured by accounts receivable.

 

During2002, the Company received advances in excess of the amount available under itsborrowing base.  CitiCapital notifiedthe Company of its default under the line of credit agreement and indicated itsright to terminate the relationship.  OnSeptember 11, 2002, the Company entered into a Forbearance Agreement withCitiCapital which established terms for the issuance of a new line of creditagreement.  The terms included theassignment of accounts receivable and establishment of a collection agreement.

 

Underthe collection agreement, CitiCapital collects and processes the assignedaccounts receivable for a fee of .7% of invoiced amounts.  The funds collected are used to makepayments on the CitiCapital over advance. The Company receives a weekly allowance for budgeted and necessary itemsas approved by Citicapital as described in the Forbearance Agreement.

 

Thenew line of credit agreement expires in September, 2003.  The agreement allows the Company to borrowup to $2,000,000, subject to borrowing base restrictions.  Interest is due monthly at 2% overprime.  The outstanding balance of$1,869,036 at September 30, 2002, is secured by accounts receivable and allfixed assets.

 

No dividends may be paid, either in cash or in kind, on the Company’scommon stock without the prior written consent of CitiCapital.  No dividends were paid during the ninemonths ended September 30, 2002.

 

6

----

 

### **NOTE4 – WARRANTS**

### ** **

OnJuly 25, 2002, the Company issued warrants to purchase 100,000 shares of commonstock to CitiCapital Commercial Corporation for valuable consideration.  The exercise price of the warrants is $.001per share.  The consideration was anagreement by CitiCapital to defer late payments on equipment loans and twoadditional payments owed by the Company to the end of the loan terms.  The warrants may not be exercised for aperiod of three years after date of issuance and expire five years after issuedate; the warrants are to be adjusted for share dividends or stock splits.  CitiCapital also has the right to requirethe Company to buy back the warrants at a price of $.50 per warrant anytimebetween the 32nd month after issue date and the end of the warrantterm.

 

7

----

 

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

 

Overview.

 

The following discussion should be read in conjunction with theFinancial Statements, including footnotes, contained herein.  Thediscussion is qualified in its entirety by the foregoing.  Historicalresults of operations and the percentage relationships among any amounts in theFinancial Statements, and any trends that may appear to be inferable therefrom,should not be taken as necessarily indicative of trends of operations orresults of operations for any future periods.

 

The discussion contains forward-looking statements.  Theseforward-looking statements involve risks and uncertainties, and the cautionarystatements set forth below identify important factors that could cause actualresults to differ materially from those predicted in the forward-lookingstatements.  These factors include, but are not limited to, adversechanges in general economic conditions, including adverse conditions to thecompanies that are the Company’s core of shippers, fuel prices, driver costs,the ability to have enough drivers to utilize the Company equipment, theability to finance equipment, interest rates, the ability to borrow workingcapital, and other factors.

 

The interim financial information for the quarters and nine monthsperiods ended September 30, 2002, and September 30, 2001, are unaudited. The statements included reflect all adjustments that the Company considersnecessary for a fair presentation of the results of operations for the interimperiods covered and of the financial condition of the Company at the date ofthe interim balance sheet.  The results of the interim periods are notnecessarily indicative of the results for the entire year.

 

Three Months Ended September 30, 2002.

 

Freight revenues for the three months ended September 30, 2002, were$3,407,037, a decrease of $515,492 (13.1%) from the $3,922,529 in revenues forthe third quarter of 2001.  The decrease in freight revenues from theprior year was basically attributable to operating with sixteen (16) less powerunits, including company owned trucks and leased owner operators (an adjustmentto the persisting reduction in freight demand being

 

8

----

 

experienced in the industry), increase in the number of idle trucks dueto driver shortages, which was a result of an elevated driver turnover, anddiscontinuance of the Company’s freight brokerage operation in September 2001.

 

Training school revenues for the third quarter of 2002 were $115,026, a53.0% decrease from the third quarter 2001 revenues of $244,986.  Training school revenue decreases were due to closing of the Lima, Ohio driverschool in late 2001, leaving the Company operating in 2002 with two facilitiescompared to three in the 3rd quarter of 2001.  In addition, enrollment was significantlydown in 2002 as a result of the scarcity of federal aid that is used to fundstudent tuition.

 

Cost of revenue, formerly referred to as equipment operating expenses,decreased in the third quarter of 2002 to $3,131,111 from $3,816,873 for thethird quarter of 2001, which was expected since these costs are in directrelationship to revenue levels and the amount of equipment required to generaterevenue, and the revenues were down from the prior year.  The decrease incost of revenues totals 18.0 %, which was greater than the percentage decreasein revenues (13.1 %), which indicated a better efficiency in operations andbecause fuel prices were much lower than for the prior year period.  Operating expenses were down to $579,313 forthe third quarter of 2002 compared to $587,656 for the like period of 2001, adecrease of $8,343 (1.4%), which was less than the percentage decreases in costof revenue and freight revenues, and is indicative of the general andadministrative expenses being relatively fixed from year to year.  The Company also decreased its number ofpersonnel and associated costs as a compensating measure to declining revenues;this was partially offset by the costs related to the installation of asatellite communication system in each truck.

 

Operating income for the third quarter of 2002 was a loss of($188,361), an improvement of $48,653 from the loss of ($237,014) for the sameperiod of 2001.  Operating income as a percentage of total revenuesimproved from a negative 5.7% in the quarterly period ended September 30, 2001,to a negative 5.3% for the same period in 2001.  Contributing factors tothe improvement were primarily the decrease in fuel prices, further reducedcosts of diesel fuel resulting from various cost control measures that providefuel discounts, decrease in depreciation expense associated with the revenueequipment reduction, and increased revenue per tractor, which were offset bygeneral and administrative costs remaining at approximately the same level.

 

The net results were that the Company had a net loss after provisionfor income taxes for the third quarter of 2002 of ($411,721) compared to a netloss of ($538,575) for the third quarter of 2001, which is a reduction in theloss of $126,854 (23.6%) from the prior year.

 

9

----

 

In summary, the results for the three month period ending September 30,2002, were primarily due to a significant decrease in revenue without aproportionate decrease in general and administrative costs.

 

Nine months Ended September 30, 2002.

 

Freight revenues for the nine months ended September 30, 2002,decreased $2,980,842 (21.5%) to $10,879,264 from $13,860,106 at the end of thenine months period ending September 30, 2001.  Training school revenuesfor the nine months ended September 30, 2002, decreased $317,554 to $378,221(45.6%) from $695,775 for the nine months period ended September 30,2001.  The decrease in freight revenues was, as stated for the quarterlyresults, basically attributable to the reduction in the number of power unitsand increase in the number of empty trucks resulting from a higher driverturnover.

 

Training school revenue decreases were due to a heavy fall off instudent enrollment related to seasonal unavailability of government funding fortuition and operating with one less school compared to the prior year period.

 

Cost of revenue, formerly referred to as equipment operating expenses,decreased in the nine months period ended September 30, 2002, by $2,886,373(23.1%) to $ 9,623,415 from $12,509,788 for the same period in 2001.  Thedecrease in expenses was basically proportional to the decrease in revenues,which as stated for the 3rd quarter results, was primarily due to the decreasein the amount of equipment being operated, and scaled-down operations with itsattendant costs, offset in part by lower fuel costs.

 

Operating expenses decreased $168,301 (9.4%) to $1,631,342 for the ninemonths ended September 30, 2001, compared to $1,799,643 for the same period of2001.  The decrease was entirely attributable to a decrease in the generaland administrative costs, because, despite having lower revenues, garagepersonnel costs increased from the prior year, which was related to a delay inthe equipment trade cycles (and higher repair costs) due to severely depressedequipment trade-in values.

 

Operating income for the nine months ended September 30, 2002, was$2,728, a decrease of $243,722 (98.8%) from $246,450 for the same period in2001.  Operating income as a percentage of total revenues went down from1.7% for the nine months ending September 30, 2001, to .02% for the same periodin 2002.  The factors for the decrease for this period were basically dueto a significant decrease in revenue without a proportional decrease in generaland administrative costs.

 

The net results were that the Company had a net loss after provisionfor income taxes for the nine months period ended September 30, 2002, of($678,167) compared to a net loss of ($581,934) for the same period of 2001,which is an increase of $96,233 (16.5%) from the prior year’s loss.  The net loss, as well as the increase in netloss from the prior year is

 

10

----

 

basically attributable to a significant drop in revenue with generaland administrative expenses remaining relatively fixed in dollar amount.

 

Capital and Liquidity.

 

Although improved from the end of last year, the Company continues tocarry a negative working capital position. Further, the net losses in the third quarter of 2002 have caused theCompany to be insolvent in that its liabilities now exceed its assets.  This issue is trying to be rectified by theCompany continuing its efforts to generate equity through the sale or placementof its equity securities and its efforts to operate profitably.

 

In its efforts to offset the deficit working capital position resultingfrom the current and prior years losses, the Company obtained working capitalfrom new borrowings, negotiated a decrease in its monthly equipment payments toits major equipment lenders and instituted measures to operate more profitably.

 

Corrective actions to generate positive earnings include thedevelopment and implementation of a new sales/marketing program designed to addnew large national customers designed to increase outbound and inbound ratesand equipment productivity.

 

In addition the Company continues to improve its fuel costs by refiningits on-the-road fuel stop program, and decreasing general and administrativeexpenses, with the expectation to improve the Company’s cash flow from theseactions in the first quarter of 2003. The Company is also considering adding ten (10) to twenty (20) powerunits in early 2003 to bring its revenue generating capability in line with itsoperating staff and overhead costs.

 

The Company continues efforts to seek permanent working capital in theform of equity to recapitalize its existing operations and fund future growthplans.  Recently, the Company engaged the services of an investmentbanking firm experienced in transportation transactions to assist in thiseffort.  Further, the Company continues its efforts to seek means ofproviding permanent working capital, including private placement of securitiesto investors, seeking additional acquisitions or growth strategies, and consideringother strategic alternatives.

 

11

----

 

**PART II — OTHER INFORMATION**

 

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

 

(A) Exhibits

 

99.1Certification of Michael J. Post

 

99.2Certification of S. Gene Thompson

 

(B)Reports on Form 8-K

 

There were no reports filedon Form 8-K during the quarter ending September 30, 2002.

 

**SIGNATURES**

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                      | Gasel  Transportation Lines, Inc                                           |
|---------------------------|----------------------------------------------------------------------------|
|                      | (Registrant)                                                               |
| Date:  November 27 , 2002 | /s/  Michael J. Post                                                       |   |
|                      |                                                                       |
| Date:  November 27, 2002  | (Signature)*Michael  J. Post, President                                    |
|                      |                                                                       |
|                      |                                                                       |
| Date:  November 27, 2002  | (Signature)*S.  Gene Thompson, Vice President and  Chief Financial Officer |

 

12

----

 

 

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350 ASADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

                Inconnection with the Quarterly Report of Gasel Transportation Lines, Inc. onForm 10-QSB for the period ended September 30, 2002, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), each ofthe undersigned, in the capacities and on the dates indicated below, herebycertifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

1.    TheReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and

2.    Theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operation of the Company.

 
|   |                                        |
|--------|---------------------------------------------|
|   | /s/ Michael J. Post                         |
|   | Michael J. Post, President  & CEO       |
|   | November 27, 2002                           |
|   |                                        |
|   | /s/ S. Gene Thompson                        |
|   | S. Gene Thompson, Vice  President & CFO |
|   | November 27, 2002                           |
|   |                                        |

 

 

 

13

----