**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 September 30, 2003**                                                                                                |
|                                                                                                                                                  |   |   |
| **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 whetherthe issuer (1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No o.

 

State thenumber of shares outstanding of each of the issuer’s classes of common equity,as of the latest practicable date: as of November 10, 2003, there were9,877,966 common shares, no par value issued and outstanding, with 7,900 ofthem held in the treasury.

 

TransitionalSmall Business Disclosure Format (Check one): Yes oNo ý

 

 

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**PART I****- FINANCIALINFORMATION**

 

**Item 1****. FinancialStatements.**

 

GASEL TRANSPORTATION LINES, INC.AND ITS SUBSIDIARIESCONSOLIDATED BALANCE SHEET

 
|                                                                                                 |   | **September  30,  2003** |      |
|------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------|
|                                                                                                 |   | **(Unaudited)**          |      |
| ASSETS                                                                                               |   |                     |      |
|                                                                                                 |   |                     |      |
| Current Assets                                                                                       |   |                     |      |
| Cash and Cash Equivalents                                                                            |   | $                        | 24,371    |   |
| Accounts Receivable-Trade, Net of Amounts Sold With Recourse of  $1,096,053 and Allowance of $50,000 |   | 431,985                  |      |
| Inventory                                                                                            |   | 166,402                  |      |
| Prepaid Expenses and Other Current Assets                                                            |   | 153,219                  |      |
|                                                                                                 |   |                     |      |
| Total Current Assets                                                                                 |   | 775,977                  |      |
|                                                                                                 |   |                     |      |
| Property and Equipment                                                                               |   |                     |      |
| Land and Buildings                                                                                   |   | 770,054                  |      |
| Tractors                                                                                             |   | 11,659,621               |      |
| Trailers                                                                                             |   | 2,979,005                |      |
| Shop Equipment                                                                                       |   | 408,285                  |      |
| Office Equipment                                                                                     |   | 218,820                  |      |
|                                                                                                 |   | 16,035,785               |      |
| Less Accumulated Depreciation                                                                        |   | 10,172,391               |      |
|                                                                                                 |   |                     |      |
| Net Property and Equipment                                                                           |   | 5,863,394                |      |
|                                                                                                 |   |                     |      |
| Revenue Equipment Held for Sale                                                                      |   | 1,163,253                |      |
|                                                                                                 |   |                     |      |
| Other Assets                                                                                         |   |                     |      |
| Other                                                                                                |   | 7,683                    |      |
|                                                                                                 |   |                     |      |
| Total Other Assets                                                                                   |   | 7,683                    |      |
|                                                                                                 |   |                     |      |
| TOTAL ASSETS                                                                                         |   | $                        | 7,810,307 |   |

 

See accompanying notes to consolidated financial statements.

 

1

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|                                                                                                  |   | **September  30,  2003** |      |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------|
|                                                                                                  |   | **(Unaudited)**          |      |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                             |   |                     |      |
|                                                                                                  |   |                     |      |
| Current Liabilities                                                                                   |   |                     |      |
| Cash Overdraft                                                                                        |   | $                        | 88,935    |   |
| Accounts Payable-Trade                                                                                |   | 333,672                  |      |
| Accrued Contract Labor and Other Expenses                                                             |   | 187,687                  |      |
|                                                                                                  |   |                     |      |
| Total Current Liabilities Not Subject to Compromise                                                   |   | 610,294                  |      |
|                                                                                                  |   |                     |      |
| Liabilities Subject to Compromise                                                                     |   | 9,716,498                |      |
|                                                                                                  |   |                     |      |
| Total Liabilities                                                                                     |   | 10,326,792               |      |
|                                                                                                  |   |                     |      |
| 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)                                                                                 |   | (5,194,919               | )         |
| Less: Treasury Stock, at cost, 7,900 shares                                                           |   | (17,833                  | )         |
|                                                                                                  |   |                     |      |
| Total Stockholders’ Equity (Deficit)                                                             |   | (2,566,485               | )         |
|                                                                                                  |   |                     |      |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                             |   | $                        | 7,810,307 |   |

 

See accompanying notes to consolidated financial statements.

 

2

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GASEL TRANSPORTATION LINES,INC.AND ITS SUBSIDIARIESSTATEMENTS OF CONSOLIDATED OPERATIONS

 
|                                                                                                                                        |   | **Three  Months Ended** |      | **Nine  Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|------------------------|--------|
|                                                                                                                                        |   | **Sept 30,  2003**      |      | **Sept 30,  2002**     |   | **Sept 30,  2003** |   | **Sept 30,  2002** |   |
|                                                                                                                                        |   | **(Unaudited)**         |      | **(Unaudited)**        |   | **(Unaudited)** |   | **(Unaudited)** |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Revenues                                                                                                                                    |   |                    |      |                   |   |   |   |   |   |
| Freight Income                                                                                                                              |   | $                       | 3,303,539 |                   | $      | 3,407,037 |   | $ | 10,098,847 |   | $ | 10,879,264 |   |
| Training School Revenue                                                                                                                     |   | 109,750                 |      | 115,026                |   | 354,997 |   | 378,221 |   |
|                                                                                                                                        |   | 3,413,289               |      | 3,522,063              |   | 10,453,844 |   | 11,257,485 |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Cost of Revenue                                                                                                                             |   | 3,206,320               |      | 3,131,111              |   | 10,061,482 |   | 9,623,415 |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Gross Profit                                                                                                                                |   | 206,969                 |      | 390,952                |   | 392,362 |   | 1,634,070 |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Operating Expenses                                                                                                                          |   |                    |      |                   |   |   |   |   |   |
| Garage Expenses                                                                                                                             |   | 104,462                 |      | 86,047                 |   | 270,915 |   | 239,513 |   |
| General and Administrative Expenses                                                                                                         |   | 358,272                 |      | 493,266                |   | 1,304,606 |   | 1,391,829 |   |
| Impairment Loss                                                                                                                             |   | —                  |      | —                 |   | 434,583 |   | — |   |
|                                                                                                                                        |   | 462,734                 |      | 579,313                |   | 2,010,104 |   | 1,631,342 |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Operating Income (Loss)                                                                                                                     |   | (255,765                | )         | (188,361               | )      | (1,617,742 | ) | 2,728 |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Other Income (Expense)                                                                                                                      |   |                    |      |                   |   |   |   |   |   |
| Interest Income                                                                                                                             |   | 17                      |      | 4,493                  |   | 8,814 |   | 5,168 |   |
| Other Income                                                                                                                                |   | 13,421                  |      | 7,147                  |   | 31,454 |   | 90,550 |   |
| Gain (Loss) on Disposition  Of Assets-Pre-Petition                                                                                          |   | —                  |      | —                 |   | (42,957 | ) | 12,075 |   |
| Interest Expense, Net (Contractual Interest of $266,481 and $878,103  for the three and nine months ended September 30, 2003, respectively) |   | (18,988                 | )         | (235,000               | )      | (525,014 | ) | (788,688 | ) |
|                                                                                                                                        |   | (5,550                  | )         | (223,360               | )      | (527,703 | ) | (680,895 | ) |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| (Loss) from Operations Before Reorganization Items and Tax Provision                                                                        |   | (261,315                | )         | (411,721               | )      | (2,145,445 | ) | (678,167 | ) |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Reorganization Items-                                                                                                                       |   |                    |      |                   |   |   |   |   |   |
| Professional and Bankruptcy Fees                                                                                                            |   | 42,000                  |      | —                 |   | 73,330 |   | — |   |
| Loss on Disposition Of Assets-Post-Petition                                                                                                 |   | 27,304                  |      | —                 |   | 27,304 |   | — |   |
|                                                                                                                                        |   | 69,304                  |      | —                 |   | 100,634 |   | — |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| (Loss) Before Tax Provision                                                                                                                 |   | (330,619                | )         | (411,721               | )      | (2,246,079 | ) | (678,167 | ) |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Provision for Income Taxes                                                                                                                  |   | —                  |      | —                 |   | — |   | — |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Net Income (Loss)                                                                                                                           |   | $                       | (330,619  | )                      | $      | (411,721 | ) | $ | (2,246,079 | ) | $ | (678,167 | ) |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Basic (Loss) Per Share                                                                                                                      |   | $                       | (.033     | )                      | $      | (.170 | ) | $ | (.248 | ) | $ | (.281 | ) |
| Diluted (Loss) Per Share                                                                                                                    |   | $                       | (.033     | )                      | $      | (.170 | ) | $ | (.248 | ) | $ | (.281 | ) |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Weighted Average Common Shares Outstanding:                                                                                                 |   |                    |      |                   |   |   |   |   |   |
|                                                                                                                                        |   |                    |      |                   |   |   |   |   |   |
| Basic                                                                                                                                       |   | 9,870,066               |      | 2,420,555              |   | 9,071,455 |   | 2,410,286 |   |
| Diluted                                                                                                                                     |   | 9,870,066               |      | 2,420,555              |   | 9,071,455 |   | 2,410,286 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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GASEL TRANSPORTATION LINES, INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

 
|                                                             |   | **Nine  Months Ended** |       |
|------------------------------------------------------------------|--------|------------------------|------------|
|                                                             |   | **Sept 30,  2003**     |       | **Sept 30,  2002** |   |
|                                                             |   | **(Unaudited)**        |       | **(Unaudited)** |   |
|                                                             |   |                   |       |   |   |
| Cash Flows From Operating Activities                             |   |                   |       |   |   |
| Net (Loss)                                                       |   | $                      | (2,246,079 | ) | $ | (678,167 | ) |
| Adjustments to Reconcile Net (Loss) to Cash Provided by          |   |                   |       |   |   |
| Operating Activities:                                            |   |                   |       |   |   |
| Reorganization Items                                             |   | 73,330                 |       | — |   |
| Depreciation and Amortization                                    |   | 1,435,788              |       | 1,657,509 |   |
| (Gain) Loss on Disposition of Assets-Pre-Petition                |   | 42,957                 |       | (12,075 | ) |
| Loss on Disposition of Assets-Post-Petition                      |   | 27,304                 |       |   |   |
| Impairment Loss                                                  |   | 434,583                |       | — |   |
| Bad Debt                                                         |   | 56,896                 |       | — |   |
| (Increase) Decrease in: Accounts Receivable-Trade                |   | 1,475,386              |       | 132,684 |   |
| Inventory                                                        |   | —                 |       | (127 | ) |
| Prepaid Expenses and Other Assets                                |   | 236,680                |       | 31,791 |   |
| Increase (Decrease) in:                                          |   |                   |       |   |   |
| Accounts Payable and Accrued Expenses                            |   | 105,170                |       | 304,979 |   |
| Net Cash Provided by Operating Activities                        |   |                   |       |   |   |
| Before Reorganization Items                                      |   | 1,624,005              |       | 1,436,594 |   |
|                                                             |   |                   |       |   |   |
| Operating  Cash Flows Used In Reorganization Items:              |   |                   |       |   |   |
| Professional Fees Paid in Connection with Chapter 11 Proceedings |   | (65,830                | )          | — |   |
| Net Cash Used in Reorganization Items                            |   | (65,830                | )          | — |   |
|                                                             |   |                   |       |   |   |
| Net Cash Provided by Operating Activities                        |   | 1,558,175              |       | 1,436,594 |   |
|                                                             |   |                   |       |   |   |
| Cash Flows From Investing Activities                             |   |                   |       |   |   |
| Proceeds from Sale of Assets                                     |   | —                 |       | 104,357 |   |
| Purchases of Property and Equipment                              |   | (49,712                | )          | (376,003 | ) |
| Net Cash (Used) by Investing Activities                          |   | (49,712                | )          | (271,646 | ) |
|                                                             |   |                   |       |   |   |
| Cash Flows  From Financing Activities                            |   |                   |       |   |   |
| Line of Credit (Net)                                             |   | (1,692,873             | )          | 395,518 |   |
| Repayment of Mortgage Receivable                                 |   | 2,782                  |       | — |   |
| Repayment of Notes Receivable                                    |   | —                 |       | 1,308 |   |
| Proceeds from Capital Lease Obligations                          |   | —                 |       | — |   |
| Payments on Notes Payable-Related Parties                        |   | (81,627                | )          | (112,646 | ) |
| Proceeds from Borrowings-Related Parties                         |   | 62,700                 |       | — |   |
| Principal Payments on Long Term Borrowing                        |   | (333,614               | )          | (930,552 | ) |
| Principal Payments Under Capital Lease Agreements                |   | (111,377               | )          | (208,976 | ) |
| Proceeds from Issuance of Common Stock                           |   | 675,507                |       | 8,750 |   |
| Net Cash (Used) by Financing Activities                          |   | (1,478,502             | )          | (846,598 | ) |
| Net Increase (Decrease) in Cash                                  |   | 29,961                 |       | 318,350 |   |
|                                                                  |        |                        |            |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

 

4

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|                                                         |   | **Nine  Months Ended** |    |
|--------------------------------------------------------------|--------|------------------------|---------|
|                                                         |   | **Sept 30,  2003**     |    | **Sept 30,  2002** |   |
|                                                         |   | **(Unaudited)**        |    | **(Unaudited)** |   |
| Net Increase (Decrease) in Cash                              |   | $                      | 29,961  |   | $ | 318,350 |   |
|                                                         |   |                   |    |   |   |
| Cash & Cash Equivalents- (Overdraft) Beginning of Period |   | (94,525                | )       | (393,436 | ) |
|                                                         |   |                   |    |   |   |
| Cash & Cash Equivalents- (Overdraft) End of Period       |   | $                      | (64,564 | ) | $ | (75,086 | ) |

 

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

 
| Cash and Cash Equivalents                                                                              |   | $       | 24,371  |    | $      | 22,208  |   |
|--------------------------------------------------------------------------------------------------------|--------|---------|---------|---------|--------|---------|--------|
| Cash Overdraft                                                                                         |   | (88,935 | )       | (97,294 | )      |
|                                                                                                   |   |    |    |    |   |
| Net Cash and Cash Equivalents (Overdraft)                                                              |   | $       | (64,564 | )       | $      | (75,086 | )      |
|                                                                                                   |   |    |    |    |   |
| Supplemental Disclosures:                                                                              |   |    |    |    |   |
|                                                                                                   |   |    |    |    |   |
| Interest Paid                                                                                          |   | $       | 541,362 |    | $      | 745,165 |   |
|                                                                                                   |   |    |    |    |   |
| 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  |   |
|                                                                                                   |   |    |    |    |   |
| Payoff of Mortgage Receivable by Mortgagee and Payoff of Related  Mortgage Payable                     |   | $       | 173,711 |    | $      | —  |   |
|                                                                                                   |   |    |    |    |   |
| Cancellation of Property and Equipment With Direct Financing -  Rewritten as Operating Lease Agreement |   | $       | —  |    | $      | —  |   |

 

See accompanying notes to consolidated financial statements.

 

5

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GASEL TRANSPORTATION LINES, INC.(Debtorin Possession)ANDITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Unaudited)

 

**NOTE 1 - PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE**

 

On May 19,2003 (“Petition Date”), Gasel Transportation Lines, Inc., filed a voluntarypetition for reorganization under Chapter 11 of the Federal bankruptcy laws(“Bankruptcy Code”) in the United States Bankruptcy Court for the SouthernDistrict of Ohio (“Bankruptcy Court”). Since 2000, the Company has experienced a decline in profitability andliquidity as a result of a general economic downturn, historically high fuelprices, and sharp declines in overall freight shipment tonnage.  The accumulated losses have strained theCompany’s ability to meet some of its long term equipment loanobligations.  Although the Company wascontinuing to work with the majority of its lenders to rectify the situation, afew equipment lenders recently issued loan defaults to the Company.  The defaults, plus a significant lump sumpayment demanded by one particular lender, precipitated the need to seekprotection under Chapter 11 in order to retain the use of revenue generating equipmentand to reorganize the Company.

 

Includedin the Consolidated Financial Statements are subsidiaries (Gasel DriverTraining Schools, Inc. and GTL Logistics, Inc.) that have not commenced Chapter11 cases or other similar proceedings, and are not debtors.  The assets and liabilities of the non-filingsubsidiaries are not considered material to the Consolidated FinancialStatements.

 

As aDebtor-in-Possession, Gasel is authorized to continue to operate as an ongoingbusiness but may not engage in transactions outside the ordinary course of businesswithout the approval of the Court, after notice and an opportunity for ahearing.  Under the Bankruptcy Code,actions to collect pre-petition indebtedness, as well as most other pendinglitigation, are stayed and other contractual obligations against the Companymay not be enforced.  In addition, underthe Bankruptcy Code, the Company may assume or reject executory contracts,including lease obligations.  Partiesaffected by these rejections may file claims with the Court, in accordance withthe reorganization process.  Absent anorder of the Court, substantially all pre-petition liabilities are subject tosettlement under a plan of reorganization to be voted upon by creditors andequity holders and approved by the Court.

 

6

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Followingthe filing, the Company obtained, and received Court approval of the SystranFinancial Services Corporation (“Systran”, a subsidiary of Textron FinancialCorporation) receivable-based post-petition factoring agreement increasing thefinancing of accounts receivable by $1.5 million to $3.5 million and improvingthe terms and costs compared to the replaced receivable financing arrangementand approval of an advance from Systran and Company related parties in theamount of $147,000 to fund the Company’s annual license fees due in May,2003.  Additionally, as of October 15,2003, the Company settled the adequate protection payments and terms with allequipment lenders, giving Gasel a full complement of revenue generatingequipment (tractors and trailers). Adequate protection payments are designed to fairly compensate thelender for any loss of value in its collateral for its continued use and to fitthe Company’s cash flow projections until the plan of reorganization is filedand accepted.

 

TheCompany has retained its insurance coverage at existing premium rates, whichmeet the insurance requirements necessary to operate under the Chapter 11proceedings.  As of October 1, 2003, theCompany renewed its annual equipment insurance with a six month extension ofits liability coverage through the existing insurance carrier, ClarendonNational Insurance Company, and a twelve month renewal of its physical damage,cargo, and general liability through other major national insurance companies.

 

Thepremiums were increased a modest amount compared by industry standards,increasing by 9% to approximately $682,000 for the current coverage year(2003/2004) compared to the last policy year. The liability premium is due in four equal payments of $65,000,beginning in October, 2003.  The otherpremiums were financed with a 40% downpayment and seven installments ofapproximately $14,000 beginning in November, 2003.

 

Uponemergence from bankruptcy, the amounts reported in subsequent financial statementsmay materially change due to the restructuring of the Company’s assets andliabilities as a result of the Plan of Reorganization and the application ofthe provisions of Statement of Position 90-7, “Financial Reporting by Entitiesin Reorganization under the Bankruptcy Code,” (SOP 90-7), with respect toreporting upon emergence from Chapter 11 (“Fresh-Start” accounting).  Changes in accounting principles requiredunder generally accepted accounting principles within 12 months of emergingfrom bankruptcy are required to be adopted at the date of emergence.  Additionally, the Company may choose to makechanges in accounting practices and policies at that time. For all of thesereasons, financial statements for periods subsequent to emergence from Chapter11 may not be comparable with those of prior periods.

 

Theaccompanying Consolidated Financial Statements have been prepared on a goingconcern basis, which assumes continuity of operations and realization of assetsand satisfaction of liabilities in the ordinary course of business, and inaccordance with SOP-7.  Accordingly, allpre-petition liabilities subject to compromise have been segregated in theConsolidated Balance Sheet and classified as Liabilities subject to Compromise,at the estimated amount of allowable claims. Liabilities not subject to compromise are separately classified ascurrent and non-current.  Revenues,expenses, realized gains and losses, and provisions for losses resulting fromthe reorganization are reported separately as Reorganization Items.  Cash used for reorganization items isdisclosed separately in the Consolidated Statements of Cash Flows.

 

7

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Theability of the Company to continue as a going concern is predicated uponnumerous issues, including its ability to achieve the following:

 

•      havingthe Plan of Reorganization confirmed by the Court in a timely manner;

 

•      beingable to successfully implement its business plans;

 

•      beingable to obtain additional equity funding and to increase its revenue andequipment productivity, while containing costs.

 

**NOTE 2 – BASIS OFPRESENTATION**

 

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 nine month periodended September 30, 2003, are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2003.  For further information, refer to theconsolidated financial statements and footnotes thereto included in theCompany’s Report on Form 10-KSB for the year ended December 31, 2002.

 

BankruptcyAccounting

 

As discussed in Note 1, forfinancial reporting purposes, the consolidated financial statements have beenprepared on a going concern basis.  Inaddition, the Debtor has applied the provisions of the American Institute ofCertified Public Accountants Statement of Position 90-7, “Financial Reportingby Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”).  Accordingly, all pre-petition liabilitiessubject to compromise have been segregated in the Balance Sheet and classifiedas Liabilities Subject to Compromise, at the estimated amount of allowableclaims.  Liabilities not subject tosettlement are classified as current and non-current.  Revenues, expenses, realized gains and losses, and provisions forlosses resulting from the reorganization are reported separately asReorganization Items.  Cash used forreorganization items is disclosed separately in the Statements of ConsolidatedCash Flows.

 

8

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The Company discontinued accruinginterest on their pre-petition debt obligations as of May 19, 2003.  The ultimate adequacy of security for anycollateralized pre-petition debt obligations cannot be determined until a Planof Reorganization is confirmed.

 

Propertyand Equipment

 

Propertyand equipment are recorded at cost.  Forfinancial reporting purposes, the cost of such property is depreciatedprincipally by the straight-line method over the estimated useful lives of 3-10years for tractors and trailers, 40 years for buildings and 3-10 years for shopand office equipment.  Amortization ofequipment purchased under capitalized lease obligations is included indepreciation expense.  For tax reportingpurposes, accelerated depreciation or applicable cost recovery methods areused.  Gains and losses are recognizedin the year of disposal.  Tirespurchased with tractors and trailers are capitalized as a part of the cost ofsuch equipment, with replacement tires being inventoried and expensed when placedin service.

 

TheCompany reviews long-lived assets to assess recoverability using undiscountedcash flows.  When necessary, charges forimpairments of long-lived assets are recorded for the amount by which thepresent value of future cash flows is less than the carrying value of theseassets.

 

Impairmentof property and equipment was $81,145 for the nine months ended September 30,2003.

 

Goodwill

 

During2000, the Company purchased an existing freight transport and freight brokeragebusiness in the Columbus, Ohio area. Goodwill represents the excess of the purchase price over the fairmarket value of the net assets acquired at the date of acquisition.

 

Prior toJanuary 1, 2002, the Company’s effective date for implementation of SFAS No.142, *Goodwill and Other Intangible Assets*,goodwill was amortized using the straight line method over a forty year period.

 

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

 

9

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At June 30, 2003, the Companyrecorded an impairment of goodwill in the amount of $353,438 due to the effectof increased operating losses on the Company’s intangible valuation model and thelack of retention of the acquired customer base, including a major customer.

 

ReorganizationItems

 

Includedin Reorganization Items are professional fees and other expenses directlyrelated to Bankruptcy Proceedings.

 

Reclassifications

 

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

 

**NOTE3 - LIABILITIES SUBJECT TO COMPROMISE**

 

Pursuant to Section 362 of theBankruptcy Code, the commencement of the Chapter 11 Case imposed an automaticstay, applicable generally to creditors and other parties of interest, of: (1)the commencement or continuation of a judicial, administrative or other actionor proceeding against the Debtor that was or could have been commenced prior tocommencement of the Chapter 11 Case or to recover for a claim that arose priorto commencement of the Chapter 11 Case; (2) the enforcement against the Debtoror its property of any judgments obtained prior to commencement of the Chapter11 Case; (3) the taking of any action to obtain possession of property of theDebtor or to exercise control over property of the Debtor; (4) the creation,perfection or enforcement of any lien against the property of the Debtor’sbankruptcy estate; (5) any act to create, perfect or enforce against propertyof the Debtor any lien that secures a claim that arose prior to thecommencement of the Chapter 11 Case; (6) the taking of any action tocollection, assess or recover claims against the Debtor that arose beforecommencement of the Chapter 11 Case; (7) the offset of any debt owing to theDebtor that arose prior to commencement of the Chapter 11 Case against anyclaim against the Debtor; or (8) the commencement or continuation of aproceeding before the United States Tax Court concerning the Debtor.  Any entity may apply to the BankruptcyCourt, upon an appropriate showing of cause, for relief from the automatic stayto exercise the foregoing remedies.  Asof October 14, 2003, all equipment lenders have been relieved of the automaticstay and “adequate protection payments” have been negotiated between the Debtorand each lender and approved by the Court for the continued use of theCompany’s revenue generating equipment (tractors and trailers) at significantlyreduced monthly payments compared to the full contractual debt service.  Enforcement of judgments entered on theseclaims, if any, is expressly prohibited without further Bankruptcy Courtapproval.

 

10

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Under Section 365 of theBankruptcy Code, the Debtor may reject executory contracts, including unexpiredleases.  Except with respect to certainlessors who have, from time to time, sought to cause the Debtor to move toassume or reject their leases, the Debtor has through the date of confirmationof a plan of reorganization to determine whether to assume or reject a givenlease.

 

The Company has made certainadequate protection payments on its secured debt since filing forReorganization on May 19, 2003.  Inaddition, monthly payments due on an operating lease with an officer of theCompany for 20 trailers financed by an unrelated lending institution have beenmade since entering Chapter 11 protection (see Note 16).

 

In October of 2003, the Companyexercised its right to terminate a three year property lease with VikingProperties for its Columbus office facility and equipment parking lot, as astep towards consolidating its operations and reducing operating costs.  In addition, the Company entered into a new112 month property lease agreement for an equipment “drop lot” at a cost of$1,500 per month in order to maintain a presence in the Columbus, Ohio area andproperly service the Company’s growing Central Ohio customer base.

 

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):

 
|                                 |   | **Sept 30,  2003** |    |
|--------------------------------------|--------|--------------------|---------|
|                                 |   |               |    |
| Demand Notes Payable                 |   | $                  | 191,367 |   |
| Accounts Payable-Trade               |   | 512,269            |    |
| Accrued Interest                     |   | 277,198            |    |
| Accrued Brokerage and Contract Labor |   | 170,769            |    |
| Accrued Payroll Taxes                |   | 321,504            |    |
| Mortgages Payable                    |   | 878,650            |    |
| Notes Payable                        |   | 6,215,343          |    |
| Capital Lease Obligations            |   | 1,149,398          |    |
|                                 |   |               |    |
|                                 |   | 9,716,498          |    |
|                                      |        |                    |         |  |

 

11

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**NOTE 4 - FACTORING AGREEMENT**

 

On April 10, 2003, the Companyentered into a one year factoring agreement with Systran Financial ServicesCorporation (Systran) whereby the Company may sell its trade receivables, withrecourse.  The agreement includes theCompany presenting, on a monthly basis, a minimum anticipated volume of billsfor financing through Systran in the amount of $1,000,000. In addition, theCompany may receive an advance rate of 90% of eligible receivables financedwith a 10% deposit withheld and subsequently paid to the Company as receivablesare collected.  The credit limit underthe factoring agreement is $3,500,000. The agreement also includes a rate of interest equal to 2% over primeand has replaced a line of credit arrangement with CitiCapital (see Note 7).

 

On May 1, 2003, proceeds of$1,300,000 were used to repay the existing line of credit with CitiCapitalBusiness Credit, in the amount of $1,200,000 and $100,000 was disbursed to oneof the Company’s lenders having certain collateral rights to the Company’strade receivables.  In May, 2003, theBankruptcy Court approved this agreement as a post-petition obligation.

 

**NOTE5 - CONTINGENCIES**

 

The Company is subject to various otherclaims, legal proceedings and investigations covering a wide range of mattersthat may arise in the ordinary course of business.  Management believes the resolutions of claims and pendinglitigation will not have a material effect, individually or in the aggregate,to the financial position, results of operations and cash flows prior tocontemplating potential insurance recoveries or accruals.

 

The Company has guaranteed certain financingof trade accounts receivables.  Inconnection therewith, the Company was contingently liable for approximately$1,096,053 at September 30, 2003, at which time the value of the underlyingcollateral in the amount of $1,298,065 is, in the opinion of management,adequate to secure the guarantee.

 

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**NOTE6 - REVENUE EQUIPMENT HELD FOR SALE**

 

The Company returned 68trailers and 5 tractors held under capital leases to the lessors during2003.  All of the trailers and onetractor are expected to be sold within one year.  The carrying amounts of these assets and liabilities included inthe disposal group at September 30, 2003, are as follows:

 
| Trailers held under capital lease, now held  for sale, net of accumulated depreciation |   | $      | 1,123,350 |   |
|----------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                   |   |   |      |
| Capital lease obligation                                                               |   | $      | 1,139,623 |   |
|                                                                                   |   |   |      |
| Tractor held under capital lease, now held  for sale, net of accumulated depreciation  |   | $      | 39,903    |   |
|                                                                                   |   |   |      |
| Capital lease obligation                                                               |   | $      | 50,326    |   |

 

Four of the tractors held undercapital lease were returned to the lessor, and the capital lease obligationrelating to each tractor was reduced. The following is a summary of those transactions.

 
|                                            |   | **Pre-Petition** |     | **Post-Petition** |   |
|-------------------------------------------------|--------|------------------|----------|-------------------|--------|
| Reduction in Tractors held under Capital  Lease |   | $                | (124,702 | )                 | $      | (50,479 | ) |
| Reduction in Capital Lease obligations          |   | 81,745           |     | 23,175            |   |
| Loss on Disposition of Assets                   |   | $                | (42,957  | )                 | $      | (27,304 | ) |

 

**NOTE7 - RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS**

 

During the three months endedMarch 31, 2003, the Company incorrectly classified certain activity whichresulted in an overstatement of the Loss from the Disposition of Assets.  The Company became aware of the problemduring the three months ended September 30, 2003, revised their controlstructures and corrected the loss.

 

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The following represents the corrected financialstatements.

 

**AS RESTATED**

 
|                                                                |   | **3 Months  Ended  March 31, 2003** |     | **3 Months  Ended  June 30, 2003** |   | **6 Months  Ended  June 30, 2003** |   |
|---------------------------------------------------------------------|--------|-------------------------------------|----------|------------------------------------|--------|------------------------------------|--------|
|                                                                |   |                                |     |                               |   |                               |   |
| Operating Deficit                                                   |   | $                                   | (378,590 | )                                  | $      | (983,387                           | )      | $ | (1,361,977 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Other Income (Expense)                                              |   | (340,540                            | )        | (181,613                           | )      | (522,153                           | )      |
|                                                                |   |                                |     |                               |   |                               |   |
| Loss from Operations Before Reorganization  Items And Tax Provision |   | (719,130                            | )        | (1,165,000                         | )      | (1,884,130                         | )      |
|                                                                |   |                                |     |                               |   |                               |   |
| Reorganization Items                                                |   |                                |     | 31,330                             |   | 31,330                             |   |
|                                                                |   |                                |     |                               |   |                               |   |
| Net Loss                                                            |   | $                                   | (719,130 | )                                  | $      | (1,196,330                         | )      | $ | (1,915,460 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Earnings Per Share:                                                 |   |                                |     |                               |   |                               |   |
| Basic                                                               |   | $                                   | (.096    | )                                  | $      | (.121                              | )      | $ | (.221 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Diluted                                                             |   | $                                   | (.096    | )                                  | $      | (.121                              | )      | $ | (.221 | ) |

 

**AS ORIGINALLYREPORTED**

 
|                                                                |   | **3 Months  Ended  March 31, 2003** |     | **3 Months  Ended  June 30, 2003** |   | **6 Months  Ended  June 30, 2003** |   |
|---------------------------------------------------------------------|--------|-------------------------------------|----------|------------------------------------|--------|------------------------------------|--------|
|                                                                |   |                                |     |                               |   |                               |   |
| Operating Deficit                                                   |   | $                                   | (378,590 | )                                  | $      | (983,387                           | )      | $ | (1,361,977 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Other Income (Expense)                                              |   | (422,284                            | )        | (181,613                           | )      | (603,897                           | )      |
|                                                                |   |                                |     |                               |   |                               |   |
| Loss from Operations Before Reorganization  Items And Tax Provision |   | (800,874                            | )        | (1,165,000                         | )      | (1,965,874                         | )      |
|                                                                |   |                                |     |                               |   |                               |   |
| Reorganization Items                                                |   | —                              |     | 31,330                             |   | 31,330                             |   |
|                                                                |   |                                |     |                               |   |                               |   |
| Net Loss                                                            |   | $                                   | (800,874 | )                                  | $      | (1,196,330                         | )      | $ | (1,997,204 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Earnings Per Share:                                                 |   |                                |     |                               |   |                               |   |
| Basic                                                               |   | $                                   | (.107    | )                                  | $      | (.121                              | )      | $ | (.230 | ) |
|                                                                |   |                                |     |                               |   |                               |   |
| Diluted                                                             |   | $                                   | (.107    | )                                  | $      | (.121                              | )      | $ | (.230 | ) |

 

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

 

Overview.

 

The followingdiscussion should be read in conjunction with the Financial Statements,including footnotes, contained herein. The discussion is qualified in its entirety by the foregoing.  Historical results of operations and thepercentage relationships among any amounts in the Financial Statements, and anytrends that may appear to be inferable therefrom, should not be taken asnecessarily indicative of trends of operations or results of operations for anyfuture periods.  Further, the Companyfiled Chapter 11 proceedings during the second quarter of the year forre-organization under the United States Bankruptcy Code, and the effects fromfiling and operating as a Debtor in Possession have altered, and will continueto alter, how the Company operates and is expected to change the financialstructure and statements for the Company in the future.

 

The discussioncontains forward-looking statements. These forward-looking statements involve risks and uncertainties, andthe cautionary statements set forth below identify important factors that couldcause actual results to differ materially from those predicted in theforward-looking statements.  Thesefactors include, but are not limited to, adverse changes in general economicconditions, including adverse conditions to the companies that are theCompany’s core of shippers, fuel prices, driver costs, the ability to haveenough drivers to utilize the Company equipment, the ability to financeequipment, interest rates, the ability to borrow working capital, and otherfactors.  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 interimfinancial information for the quarters and nine months periods ended September30, 2003, and September 30, 2002, are unaudited.  The statements included reflect all adjustments that the Companyconsiders necessary for a fair presentation of the results of operations forthe interim periods covered and of the financial condition of the Company atthe date of the interim balance sheet. The results of the interim periods are not necessarily indicative of theresults for the entire year.

 

Three MonthsEnded September 30, 2003.

 

Freightrevenues for the three months ended September 30, 2003, were $3,303,539, adecrease of $103,498 (3.9%) from the $3,407,037 in revenues for the thirdquarter of 2002.  The decrease infreight revenues was basically attributable to the Company having a decrease inthe amount of operating equipment as a result of having approximately 10% - 15% of its fleet out of service due to mechanical breakdowns and drivershortages.  In addition, a shift in theCompany’s sales mix concentrated with a new and large national customer provedto produce higher rates but less revenue per week due to the extended unloadingtimes associated with multi-stop offs. A corrective shift in the volume of

 

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business andload selection was made with this customer in the late 3rd quarterof 2003 designed to increase the revenue and reduce deadhead.

 

Training school revenues forthe third quarter of 2003 were $109,750, a 4.59% decrease from the thirdquarter 2002 revenues of $115,026. Training school revenue decreases were primarily due to enrollment inthe schools declining from the prior year as a result of the lack of readilyavailable funding sources.  The declineis considered nominal in that the decrease represented about two students lessfor this period than in the prior year.

 

Cost ofrevenue, formerly referred to as equipment operating expenses, increased in thethird quarter of 2003 to $3,206,320 from $3,131,111 for the third quarter of2002.  The increase in cost of revenuetotals $75,209 (2.4%).  The increase wasprimarily due to the increase in the number of deadhead miles being drivenbecause of the distance between where the base of freight is located and wherethe equipment is domiciled, a deficient power unit to trailer ratio causingexcessive empty mile shuttling to meet customer freight volume and servicedemands, an increase in fuel prices from the prior year, and an increase inequipment maintenance / tire costs related to equipment age, and due to notcapitalizing major equipment repairs this year compared to the capitalizedactivity last year.

 

Operatingexpenses were down to $462,734 for the third quarter of 2003 compared to$579,313 for the like period of 2002, a decrease of $116,579 (20.1%), which wasgreater than the percentage decrease in freight revenues, and is indicative ofa reduction in the general and administrative expenses compared to the prioryear as the Company down sized its personnel and associated costs as acompensating measure to declining revenues. This reduction in operating expenses was partially offset by garageexpenses increasing from the prior year because of the age of the tractor fleetrequiring additional service.  Generaland Administrative expense for the quarter actually went down from $493,266 for2002 to $358,272 for the like period in 2003 and garage expense (Companyin-house labor only) went up only $18,415 for the comparable periods.

 

Operatingincome for the third quarter of 2003 was a loss of ($255,765), an increase of$67,404 (35.8%) from the loss of ($188,361) for the same period of 2002.  This increase is primarily the result of theincreases in the cost of revenue, particularly in major expenses includingfuel, equipment maintenance /tires, and insurance, reducing the gross profitfor the period.  Operating income as apercentage of total revenues went down to a minus (-7.5%) in the quarterly periodended September 30, 2003, from a minus (-5.3%) for the same period in2002.  This was due to the decrease infreight revenues while at the same time there was an increase in the equipmentoperating expenses.

 

Losses fromoperations were ($261,315) for the quarter compared to ($411,721) for the samequarter in 2002.  The improvement wasentirely due to savings in interest expense from the prior year as the resultof being in Chapter 11.

 

The netresults, after taking into account the reorganization items for fees and losseson disposition of assets were that the Company had a net loss after provisionfor income

 

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taxes for thethird quarter of 2003 of ($330,619) compared to a net loss of ($411,721) forthe third quarter of 2002, which is a reduction in the loss of $81,102 (19.7%)from the prior year.

 

In summary,the improvement in results for the three month period ending September 30,2003, were primarily due to a significant decrease in interest expense, anddecreases in G & A expenses from personnel reductions and general costcutting, offset by the increased costs of revenue associated with operatingolder equipment, and equipment productivity declines related to the sales mixconcentration with a major customer, 

 

Nine monthsEnded September 30, 2003.

 

Freightrevenues for the nine months ended September 30, 2003, decreased $780,417(7.2%) to $10,098,847 from $10,879,264 at the end of the nine months periodending September 30, 2002.  Trainingschool revenues for the nine months ended September 30, 2003, decreased $23,224to $354,997 (6.1%) from $378,221 for the nine months period ended September 30,2002.  The decrease in freight revenueswas, as stated for the quarterly results, basically attributable to thereduction in the available equipment and decline in freight volume related tothe domestic economy (through the first two quarters of 2003), although thepercentage decrease for the 3rd quarter of 2003 was less than that for the ninemonth period, representing an improving trend. Training school revenue decreases were due primarily to the lack ofavailable funding for student tuition - a growing nation-wide industry problemfor the past two years.

 

Cost ofrevenue, formerly referred to as equipment operating expenses, increased in thenine months period ended September 30, 2003, by $438,067 (4.6%) to $10,061,482from $9,623,415 for the same period in 2002. The increase in expenses was, as stated for the 3rd quarter results,primarily due to the increase in deadhead miles and decreased equipmentproductivity associated with the Company’s concentration with a particularlarge customer, and increased maintenance costs associated with operating olderequipment, plus a sharp increase in average fuel prices from the prior year.

 

Operatingexpenses increased $378,762 (23.2%) to $2,010,104 for the nine months endedSeptember 30, 2003, compared to $1,631,342 for the same period of 2002.  The increase was generally due to theimpairment losses of $434,583 in the value of the Company assets taken as aresult of the filing of the Chapter 11 reorganization petition and specificallydue to an impairment of goodwill recorded in the 2nd Quarter of 2003in the amount of $ 353, 438 due to the effect of the Company’s increasedoperating losses on its intangible valuation model and the lack of retention ofthe acquired customer base.

 

Operatingincome for the nine months ended September 30, 2003, was ($1,617,742), adecrease of $1,620,470 (59,401.4%) from $2,728 for the same period in2002.  Operating income as a percentageof total revenues went down from .02% for the nine months ending September 30,2002, to a -15.5% for the same period in 2003. The factors for the decrease for this period were basically the same asfor the three month quarterly period,

 

17

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being thedecrease in available revenue producing equipment together with the changes inthe sales mix that have caused the deadhead to increase very significantly, andfreight tonnage decreases related to the struggling U. S. economy in themanufacturing and retail sectors in the first two quarters of 2003, sharp risesindustry wide in fuel and insurance, and a significant increase in equipmentmaintenance costs .

 

The netresults were that the Company had a net loss after provision for income taxesfor the nine months period ended September 30, 2003, of ($2,246,079) comparedto a net loss of ($678,167) for the same period of 2002, which is an increaseof $1,567,912 (231.2%) from the prior year’s loss.  The net loss, as well as the increase in net loss from the prioryear is basically attributable to a significant increase in the cost of revenuewhile at the same time there was a decrease in revenues, the impairment lossesfrom the filing of the Chapter 11 reorganization petition, and the additionallyincurred reorganization fees.

 

Capital andLiquidity

 

Management believes that byreorganizing it can get the Company’s operating expenses in line with operatingrevenues so that it will be able to manage its cash flow and, hopefully, withthe other changes being implemented, reverse its loss trend and get back tooperating profitably.  However, untilthe Company 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.

 

In the two months followingfiling Chapter 11, the Company did not have to make payments on its operatingequipment or the majority of its contractual debt service.  As a result, the Company was able to utilizethe cash flow that normally would have been used to make those payments and paythe annual license plate fees, insurance and other expenses in order for it tobe able to continue operating under judicial protection.

 

Managementcontinues to adjust its corrective actions to bring profits and cash flowpositive.  Currently, there is a strongpush to improve gross revenues and rates with additional Columbus, Ohio-basedand Ohio Valley outbound customers, and replacing discounted inbound brokeredfreight with direct freight business.

 

There is alsoa focus to place back into service tractors that were inoperable because ofmaintenance problems, and to keep the Company’s full fleet of equipmentoperable.  However, it has been costlyfor the Company to maintain the equipment as it is reaching the mid to upperportion of its life cycle.  Also, theCompany has been focusing its efforts to add owner/operators to provideincremental revenues and margins without the cash outlay and long-term debtobligations associated with adding Company owned equipment.

 

Key strategic actions requiredto put the Company in a profitable formula would include increasing its powerunits by 20%, which it still hopes to accomplish by adding

 

18

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owner/operators, together witha commensurate increase in its trailer pool, as well as replacing its shorter48’ trailers with the longer, now industry-preferred, 53’ trailers.

 

Since filing Chapter 11 in May2003, the Company has been negotiating with its secured lenders payments on theuse of the equipment and other assets. As of October 15, 2003, the Company had settled the adequate protectionpayments and terms with all secured equipment lenders, giving the Company afull complement of revenue generating equipment (tractors and trailers) at asignificantly reduced debt service compared to the full contractualpayments.  This allows the Company totake advantage of a strongly improving freight demand, higher rates, and betterequipment productivity, and newly acquired customers developed in the latethird quarter of 2003 and continuing on into the fourth quarter of the year.

 

Toward the end of the thirdquarter of 2003, management started changing the Company’s sales mix toincrease its revenue and reduce its empty miles simultaneously by limiting itsfreight volume with its top twenty customers, and one major customer inparticular.  This plan is also designedto improve equipment productivity and reduce driver turnover (through betterdriver pay) and is part of an aggressive and detailed recovery plan thatmanagement expects to show continued and measurable improved financialperformance in the 4th quarter of 2003.

 

Management continued 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.

 

To improve service capabilitiesand foster lender cooperation, the Company completed a trailer replacementtransaction with the largest trailer dealer and finance company, DaytonLeasing, upgrading the trailer pool with more 53’ units and significantlyreducing the monthly equipment lease costs.

 

Efforts to reduce the Company’sequipment maintenance costs to a normal cost curve were significantlyincreased.  The Company has beenupgrading and adding to the maintenance crew with the goal of eliminatingcostly outside services and returning all equipment back into service, andtransitioning back to a “preventive” maintenance profile (from an excessivelycostly “demand” maintenance condition).

 

Initially after filing forChapter 11 Reorganization, the Company retained its insurance coverage atexisting premium rates, which met the risk requirements necessary to operateunder judicial protection.  As ofOctober 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 wereincreased a modest amount compared to industry standards, increasing by 9 % forthe current coverage year (2003 / 2004) in contrast to the prior policy period.

 

19

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In addition, the Company hasimplemented an enhanced driver and owner/operator recruiting effort led by oneof its senior managers.  It is designedto staff all trucks and reduce the turnover to below industry standards.  Likewise, the operations’ department hasbeen reorganized to a central dispatch format and supported by customer servicepersonnel to improve service performance levels back to above industry norm(98+ %) and push equipment/driver productivity to profitable levels.

 

In early May, the Companyentered into a new receivables-based line of credit agreement with SystranFinancial Services, a division of Textron Financial Corporation, whichsignificantly increased its cash flow through higher advance rates with lowerfinancing costs, and expanded its available credit by $1.5 million.  This credit facility has continued after thefiling of the Chapter 11 petition with only a slight increase in the rate paidby the Company, and with the Company retaining the additional credit capacityof $ 1.5 million.

 

In April 2003, the Companyreturned to the cost advantages of outsourcing its payroll and related taxprocessing.  This employee leasing plancontinued after the Company filed for creditor protection under Chapter 11.

 

Managementcontinues to seek growth opportunities to expand the number of power units andtrailers it is operating in order to reach a revenue level that will generatesufficient margins to support its fixed costs and generate a net profit.  The Company was near completing an assetacquisition in late April 2003 that would have increased the number of powerunits by approximately 65 (65 % increase in fleet size), but the problems withcash flow that surfaced at that time caused that transaction to be put off atleast temporarily until the sellers see how the Company performs inreorganization.

 

In themeantime, the Company needs to be able to operate more of its already ownedequipment that has been inoperable because of either a lack of drivers or alack of funds to fix equipment breakdowns, and it is hopeful that this can beaccomplished with the reorganization, as discussed above.  The Company is also still making a concertedeffort to hire additional owner/operators, and is currently working toaccumulate a group of twenty by year-end.

 

Managementhopes to be able to emerge from the judicial reorganization in a timely mannerwith a stronger balance sheet, increased liquidity, and a scale of operationsthat will foster sustained earnings and growth.  Having now successfully completed the adequate protection phaseof the reorganization, the next step is to develop and file a formal businessplan (the Plan of Reorganization) and seek its approval with the lenders andthe Bankruptcy Court.  At this time, theCompany hopes to submit its reorganization plan in the second quarter of 2004.

 

The Company continues to seek outsideequity and quasi-equity funding, and believes there is interest from outsidefunding sources that would appropriately recapitalize the Company at itscurrent size, or alternatively, in conjunction with an acquisition increasingits scale of operations and profit potential significantly.

 

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**Item 3. Controls and Procedures.**

 

At the end ofthe period covered by this report, the Company carried out an evaluation, underthe supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe Company’s disclosure controls and procedures pursuant to Exchange Act Rule13a-15(e).  Based upon that evaluation,the Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective. During the thirdquarter of 2003, there were no changes in the Company’s internal control overfinancial reporting that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal 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 onForm 8-K.

There were no reports on Form 8-K filed during the quarter for whichthis report is filed.

 

**SIGNATURES**

 

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                    | Gasel  Transportation Lines, Inc.                                                 |                                   |
|-------------------------|-----------------------------------------------------------------------------------|----------------------------------------|
|                    | (Registrant)                                                                      |
| Date  November 13, 2003 |                                                                              | /s/   Michael  J. Post  |   |
|                    | (Signature)*Michael  J. Post, President                                           |
|                    |                                                                              |
| Date  November 13, 2003 |                                                                              | /s/   S.  Gene Thompson |   |
|                    | (Signature)*  S. Gene Thompson, Vice  President and  Chief Financial Officer |

 

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