<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
 
                                   FORM 10-K
 
<TABLE>
<CAPTION>
   (MARK ONE)
<S>              <C>
      [X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                        FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
      [ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                            OF THE SECURITIES EXCHANGE ACT OF 1934
                       FOR THE TRANSITION PERIOD FROM
-----------------------------------------------------------------------------
                                     TO
-----------------------------------------------------------------------------
                       COMMISSION FILE NUMBER 0-24576
</TABLE>
 
                      ------------------------------------
                      AASCHE TRANSPORTATION SERVICES, INC.
             (Exact name of registrant as specified in its charter)
                      ------------------------------------
 
<TABLE>
<S>                                             <C>
                  DELAWARE                                       36-3964954
        (State or other jurisdiction                           (IRS Employer
     of incorporation or organization)                     Identification Number)
</TABLE>
 
                          10214 NORTH MT. VERNON ROAD
                            SHANNON, ILLINOIS 61078
              (Address of principal executive offices) (Zip Code)
 
       Registrant's telephone number, including area code: (815) 864-2421
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                    Common Stock, par value $.0001 per Share
   Warrant to purchase one share of Common Stock, par value $.0001 per Share
                                (Title of Class)
 
                      ------------------------------------
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ].
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing sale price of the stock as reported on the
Nasdaq National Market on March 25, 1999, was $15,356,820.
 
  At March 25, 1999, 5,098,930 shares of the registrant's Common Stock were
outstanding.
 
                       DOCUMENT INCORPORATED BY REFERENCE
 
  The registrant's definitive proxy statement for the annual meeting of
stockholders, estimated to be held on May 19, 1999, expected to be filed with
the Commission not later than April 16, 1999, is incorporated by reference into
Part III of this Form 10-K.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
     Aasche Transportation Services, Inc. (the "Company"), through its
subsidiaries is a diversified transportation services company. The Company
operates primarily in two segments of the transportation services industry.
Asche Transfer, Inc. ("ATI") and AG Carriers, Inc. ("AG") (collectively, the
"Temperature-Controlled Segment") are truckload operations delivering a variety
of foods and other products for many Fortune 500 companies that require
temperature-controlled service and "just-in-time" delivery. Specialty
Transportation Services, Inc. ("STS") (the "Municipal Solid Waste Segment") is
the only national and the largest for-hire carrier of municipal solid waste and
special waste in transfer vehicles in the United States. STS has long-term
contracts ranging from five to twenty years with municipalities and large
national waste service companies, including Waste Management, Inc., Republic
Industries, Inc., Allied Waste Services, Inc. and Browning-Ferris Industries,
Inc.
 
MEASUREMENT OF SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS
 
     The Company evaluates performance and allocates resources based on net
profit and loss from operations. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. The Municipal Solid Waste Segment financial data includes
parent company subordinated debt of $5,375, less unamortized debt discount of
$537 issued by the parent company and related debt issuance costs of $210, less
accumulated amortization of $74 in connection with the acquisition of the net
assets of the municipal solid waste transport division of Jack Gray Transport,
Inc. (the "Waste Transport Business"). The related interest expense of $611,
amortization of debt issuance costs of $74 and amortization of debt discount of
$264 are also included in the Municipal Solid Waste Segment.
 
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
 
     The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of the distinct differences in the operations.
 
<TABLE>
<CAPTION>
                                                          TEMPERATURE-     MUNICIPAL
            YEAR ENDED DECEMBER 31, 1998:                  CONTROLLED     SOLID WASTE     TOTALS
            -----------------------------                 ------------    -----------    --------
<S>                                                       <C>             <C>            <C>
Net revenues..........................................      $60,762         $52,669      $113,431
Depreciation and amortization.........................        3,972           2,714         6,686
Operating income......................................        3,871           4,232         8,103
Interest expense......................................        1,353           3,654         5,007
Income tax provision..................................        1,157             176         1,333
Segment profit (loss).................................        1,740            (877)          863
Significant noncash items included in segment profit
  (loss):
  Warrant accretion expense...........................           --             786           786
  Amortization of debt issuance costs.................           --             280           280
  Amortization of debt discount.......................           --             264           264
  Other...............................................           --              63            63
Segment assets........................................       30,890          57,284        88,174
Expenditures for long-lived assets....................        5,052           1,622         6,674
</TABLE>
 
OPERATING INCOME
 
<TABLE>
<S>                                                             <C>
Total operating income for reportable segments..............    $ 8,103
Parent company operating loss...............................     (1,248)
                                                                -------
  Total consolidated operating income.......................    $ 6,855
                                                                =======
</TABLE>
 
                                        1
<PAGE>   3
 
SEGMENT PROFIT (LOSS)
 
<TABLE>
<S>                                                             <C>
Total profit for reportable segments........................    $   863
Parent company loss.........................................       (803)
                                                                -------
  Total consolidated profit.................................    $    60
                                                                =======
</TABLE>
 
ASSETS
 
<TABLE>
<S>                                                             <C>
Total assets for reportable segments........................    $88,174
Parent company assets.......................................        104
                                                                -------
  Total consolidated assets.................................    $88,278
                                                                =======
</TABLE>
 
OTHER SIGNIFICANT ITEMS
 
<TABLE>
<CAPTION>
                                                                       PARENT
                                                                       COMPANY
                                                   SEGMENT TOTALS    ADJUSTMENTS    CONSOLIDATED TOTALS
                                                   --------------    -----------    -------------------
<S>                                                <C>               <C>            <C>
Interest expense...............................        $5,007           $  59             $5,066
Income tax provision (benefit).................         1,333            (503)               830
</TABLE>
 
STRATEGY
 
     TEMPERATURE-CONTROLLED SEGMENT
 
     The business strategy of the Temperature-Controlled Segment is to offer
premium-quality services to high-volume selective customers with significant
temperature-controlled transportation and "just-in-time" delivery requirements.
The "just-in-time" concept stresses the importance of precise delivery times and
the need for dependability in order to control inventory levels and limit
handling. The Company believes that these customers provide more predictable
and, in some respects, less price-sensitive business because the Company
believes that service, rather than price, generally is the primary factor that
dictates its customers' choice of carrier.
 
     MUNICIPAL SOLID WASTE SEGMENT
 
     The business strategy of the Municipal Solid Waste Segment is to expand its
municipal solid waste transportation business by continuing to build strong,
long-term relationships with major customers within the municipal solid waste
market. The market has been created during the past ten years as a result of the
outsourcing of transportation services by large waste services companies who
have reduced and eliminated their "non-collection" trucking operations. With
landfill sites being located, in some instances, over 100 miles from cites and
in larger regional sites to serve multiple metropolitan centers, the municipal
solid waste that is collected by waste service companies at residential and
commercial sites in collection vehicles is unloaded and compacted in
semi-trailers at transfer stations operated by waste services companies for
transport to landfill sites. Transfer stations are facilities where solid waste
is received from collection vehicles and then transferred to, and in some cases
compacted in, large specially constructed trailers for transportation to
disposal or resource recovery facilities.
 
     STS utilizes specially designed trailers and unloading equipment as well as
experienced personnel to handle the constant flow of municipal solid waste from
transfer stations to landfill sites. Since STS has developed significant
relationships with large national waste services companies, the Company believes
that STS is favorably positioned to capture a substantial share of the newly
outsourced business.
 
     The Company believes that the growth of the Municipal Solid Waste Segment
will occur by:
 
     -  Supplementing continued growth with increased marketing efforts and more
        aggressive bidding, in particular by pursuing the opportunities
        available through the outsourcing of trucking by the large waste
        services companies;
 
                                        2
<PAGE>   4
 
     -  Seeking suitable acquisitions which will allow STS greater access to new
        major customers in additional geographic markets, primarily by acquiring
        smaller and regional independent companies;
 
     -  Expanding into additional regions by establishing new terminals in areas
        of high population to provide a wider network for developing new
        business; and
 
     -  Leveraging its transportation capabilities to capture outsourcing
        opportunities for other types of solid waste and recyclables including
        biosolids, sludge, saturated soils, scrap metal, paper, green waste and
        compost.
 
MARKETING
 
     TEMPERATURE-CONTROLLED SEGMENT
 
     AG and ATI market high-quality, "just-in-time," temperature-controlled
services in the full-truckload carrier market, primarily to high-volume
customers with predictable movements in traffic lanes served by the
Temperature-Controlled Segment. ATI and AG emphasize their use of
technologically advanced systems and a late-model fleet in attracting large
national shippers of temperature-controlled commodities. The "just-in-time"
concept stresses the importance of precise delivery times and the need for
dependability in order to control inventory levels and limit handling. Full
truckload operations typically involve a single shipment occupying the entire
carrying capacity of a semi-trailer, moving directly from origin to destination.
The full truckload segment generally is less capital intensive, more fragmented
and populated by smaller firms than the less-than-truckload segment.
 
     ATI and AG target the Midwest, Southeast, Northeast and South Central
United States as their principal service areas based upon their success in
developing significant customers in these markets. In particular, the Southeast,
Northeast and South Central regions have generated outbound delivery
opportunities for the return trip to the Midwest. Management believes these
regions offer significant opportunities to service the needs of national
shippers of temperature-controlled commodities. Because of their presence in
these regions, ATI and AG are becoming increasingly competitive for return
shipments, thereby reducing empty miles, improving productivity and increasing
overall profitability.
 
     MUNICIPAL SOLID WASTE SEGMENT
 
     STS markets primarily to large national waste services companies who
outsource the transportation of the municipal solid waste from transfer stations
to landfill sites. By establishing and performing under contracts with such
waste services companies in key markets in the United States including New York,
Los Angeles, Dallas, Phoenix, Baltimore, St. Louis, Portland, Birmingham and
Nashville, the Company believes that STS has positioned itself to attract
additional business in new and existing markets. STS also markets to cities and
other municipalities who contract directly with trucking companies for waste
hauling transportation services.
 
CUSTOMERS AND OPERATIONS
 
     TEMPERATURE-CONTROLLED SEGMENT
 
     The customers of the Temperature-Controlled Segment consist primarily of
high-volume shippers that have significant temperature-controlled transportation
requirements. Management believes these major customers provide more predictable
and, in some respects, less price-sensitive business. ATI and AG are currently
"core carriers" for Coca-Cola, Hershey, Tropicana Foods, Americold, S.C. Johnson
Wax, Schreiber Foods, Abbott Laboratories, Baxter International and Kraft Foods.
"Core-carrier" relationships involve strategic alliances between volume shippers
and their distribution partners dedicated to transporting goods.
 
     Generally, ATI and AG determine freight rates through direct negotiations
with their customers, rather than relying upon published tariffs which maintains
flexibility in rapidly responding to the varying service demands of their
customers. ATI and AG have written contracts with substantially all of their
customers. The contracts generally require the customer to use ATI and AG for a
specified minimum number of shipments
 
                                        3
<PAGE>   5
 
each year and may be terminated by either party upon 30 to 60 days' written
notice. The loss of any of ATI's and AG's largest customers could adversely
affect the profitability of ATI and AG.
 
     MUNICIPAL SOLID WASTE SEGMENT
 
     As of December 31, 1998, substantially all of STS' revenue was under
long-term contracts, with terms ranging from five to twenty years. STS has
written contracts with Waste Management, Inc., Republic Industries, Inc., Allied
Waste Services, Inc. and Browning-Ferris Industries, Inc. STS also has contracts
with the City of Phoenix and the municipal authority of Portland, Oregon. STS
recently entered into a three-year agreement to transport biosolids, sludge and
saturated soils for a subsidiary of Synagro Technologies, Inc. which has begun
to outsource the transportation of such waste throughout the entire country.
 
     Long-term municipal waste contracts are bid competitively and are typically
awarded to the low-cost bidder. A contract with a waste services company may be
awarded on a competitive basis or on a negotiated basis. Historically, in the
waste services organizations, decisions have been made at the regional level so
that the regional supervisor has been given the authority to select an
independent carrier. As these companies continue to stress the need for
outsourcing of waste transportation to their landfills, STS believes that it is
well positioned to receive a substantial amount of new business. STS has won
waste transportation contracts primarily by charging competitive prices and by
offering quality service with late-model, specially designed trailers and
unloading equipment, and experienced personnel. Volume increases within these
contracts can occur each year due to the population growth and aggressive sales
by the waste companies.
 
     Under each contract, STS has been granted the exclusive right to transport
all of the solid waste from a designated transfer station to the landfill site.
All of the contracts provide for annual adjustments in the event of changes in
the Consumer Price Index and provide that in the event of a breach by STS, the
agreement may be terminated only after written notice is given to STS and an
opportunity to cure the breach. The contracts do not have a guaranteed volume or
number of loads, although many contracts have minimum size specifications for
loads. STS does not pay any tipping fees at the transfer stations or at the
landfill sites.
 
REVENUE EQUIPMENT AND COMMUNICATION SYSTEMS
 
     TEMPERATURE-CONTROLLED SEGMENT
 
     The Temperature-Controlled Segment purchases or leases high-quality,
late-model tractors and temperature-controlled trailers manufactured to its
specifications. ATI and AG also contract with owner-operators to provide
additional tractors and trailers. The Temperature-Controlled Segment has
established standard specifications for the purchased tractors and trailers to
simplify driver training, control the cost of maintaining a spare parts
inventory, enhance its preventive maintenance program and increase fuel economy.
The tractors are equipped with optimal comfort and safety features, such as
air-conditioning, high-quality interiors, power steering, engine brakes and
sleeper cabs.
 
     As of December 31, 1998, 504 late-model tractors, including 71 tractors
which are owned by owner-operators, and 610 temperature-controlled trailers were
maintained by the Temperature-Controlled Segment.
 
     All of the tractors in the Temperature-Controlled Segment are equipped with
a two-way, satellite-based tracking and communication system manufactured by
Qualcomm(TM), Incorporated. The Company has a fully integrated management system
that utilizes an IBM AS/400 computer with software from Innovative Computing
Corporation. These technological systems allow dispatchers to monitor the
location and delivery schedules of all shipments and equipment, maintain
constant communications with drivers, coordinate routes and maximize utilization
of drivers and equipment.
 
     MUNICIPAL SOLID WASTE SEGMENT
 
     As of December 31, 1998, 346 late model tractors and 782 trailers were
maintained for the transportation of municipal solid waste. The Municipal Solid
Waste Segment also owns and operates 14 "tipper" unloading machines which are
located in various landfills throughout the country. A "tipper" unloading
machine is used to lift and tilt a trailer to a 70 degree angle to dump the
solid waste out of the trailer. In addition to the
                                        4
<PAGE>   6
 
Municipal Solid Waste Segment owned tractors, 169 tractors are supplied by
owner-operators which permits the Municipal Solid Waste Segment to quickly
expand its fleet to meet the needs of the customers.
 
     After a period of initial use (generally 2 to 3 years), substantially all
of the tractors in the Temperature-Controlled Segment are converted and used by
the Municipal Solid Waste Segment for their remaining useful life. During the
conversion process, which takes approximately two weeks, the body frame is
shortened, the sleeper cab is removed, the unit is painted and any other
necessary customization that is required is performed. By keeping the equipment
longer, the Company is able to lower the overall cost of the equipment as well
as provide STS an additional source of equipment during periods of growth.
 
DRIVERS AND OWNER-OPERATORS
 
     GENERAL
 
     All of the Company's drivers must meet specific standards relating
primarily to driving experience, personal evaluation, safety record and all
Department of Transportation ("DOT") driver qualification mandated criteria
including commercial driver's license qualifications, physical examinations,
drug testing and employer verification background checks. The Company attracts
drivers with competitive compensation and benefit packages and with late-model,
comfortable tractors.
 
     TEMPERATURE-CONTROLLED SEGMENT
 
     The drivers in the Temperature-Controlled Segment are compensated on the
basis of miles driven and number of stops in transit or deliveries completed.
All such drivers are paid by the mile operated, based upon the number of years
of experience and service. In addition, drivers have the right to earn bonuses
based on safety requirements, annual mileage and years of service with the
Company. All drivers and other employees are eligible to participate in the
Company's 401(k) Plan, which includes an employee stock ownership plan, and
health, vision, life and dental insurance plans.
 
     The over-the-road, long-haul, truckload segment of the trucking industry,
of which the Temperature-Controlled Segment is a part, experiences significant
driver turnover. In addition, because of strict regulations, the trucking
industry has a limited pool from which to select qualified drivers. As a result,
the Temperature-Controlled Segment must compete with other transportation
service companies for the currently available drivers. Management anticipates
that the intense competition for qualified drivers in the trucking industry will
continue. In an effort to increase the recruitment of experienced, qualified
drivers and to improve the retention of these drivers, the
Temperature-Controlled Segment has formed a driver retention committee that
meets on a regular basis to address specific recruitment and retention issues.
As a direct result of this process, the Temperature-Controlled Segment has
constructed a driver facility in Shannon, Illinois that includes a diner that
provides meals to drivers, an orientation room, a drivers lounge, sleeping
quarters for drivers, laundry and shower facilities among other benefits.
Although the Company currently has an adequate number of drivers in the
Temperature-Controlled Segment, there can be no assurance that the Company will
not be affected by a shortage of qualified drivers in the future.
 
     In addition to its employees, the Temperature-Controlled Segment contracts
with a select group of owner-operators who own and operate their own tractors
and in certain instances, their own trailers. The owner-operators are
compensated on the basis of a percentage of the revenue derived from the hauling
of each shipment. The Temperature-Controlled Segment's selection process for
independent owner-operators is substantially the same as the process for
employee drivers. Each owner-operator is required to enter into an
owner-operator lease agreement with the Temperature-Controlled Segment, which is
cancelable by either party upon thirty days' notice. The Temperature-Controlled
Segment believes that owner-operators provide the Temperature-Controlled Segment
with an additional source of drivers, particularly during periods of peak demand
for transportation services.
 
                                        5
<PAGE>   7
 
     MUNICIPAL SOLID WASTE SEGMENT
 
     The drivers of the Municipal Solid Waste Segment are generally compensated
on the basis of a percentage of the revenue derived from the hauling of each
load or at a flat rate per load. The drivers and other employees are eligible to
participate substantially in the same benefits that are offered to drivers and
other employees in the Temperature-Controlled Segment. The Company also utilizes
owner-operators in the Municipal Solid Waste Segment who are compensated on the
same basis as employee drivers.
 
     Because all of the municipal solid waste hauling routes can be driven in
one day or less, STS has not experienced a shortage of qualified drivers.
 
SAFETY AND INSURANCE
 
     The Company's safety department is responsible for training and supervising
personnel to keep safety awareness at its highest level. The Company has
implemented an active safety and loss prevention program at its corporate
headquarters and its regional terminals including establishing a safety
committee to promote safety and heighten awareness throughout the organization.
ATI and AG have received a "satisfactory" safety and fitness rating (the highest
rating) from the DOT. STS has not yet been rated by the DOT.
 
     The emphasis on safety begins in the hiring and orientation process, where
prospective employees are required to provide a current medical examiner's
certificate, complete orientation, safety and proficiency training and submit to
drug testing in accordance with all applicable DOT requirements. The Company's
safety and loss prevention program includes ongoing education, random drug
testing, training and retraining of drivers regarding DOT compliance issues,
safe vehicle operations, company policies and procedures and accident reporting.
 
     The Company is committed to securing appropriate insurance coverage at
cost-effective rates. The primary claims that arise in the trucking industry
consist of cargo loss and damage, personal injury, property damage and workers'
compensation. The Company maintains insurance that it believes is adequate to
cover its liabilities and risks.
 
FUEL MANAGEMENT
 
     The Temperature-Controlled Segment manages fuel purchases by directing its
drivers to certain truck stops that give discounts in return for volume
purchases on a recurring basis. Through the use of computerized monitoring
devices imbedded in the engines of its tractors in the Temperature-Controlled
Segment, the Company monitors fuel usage, miles per gallon and cost per mile.
The Municipal Solid Waste Segment has direct purchase agreements with national
fuel suppliers, as well as a cost management program for any fuel purchased. The
Company has not experienced any difficulty in maintaining fuel supplies
sufficient to support its operations. Historically, the Temperature-Controlled
Segment has been able to pass on a portion of fuel price increases to its
customers. Nevertheless, shortages of fuel, increases in fuel prices or fuel tax
rates or rationing of petroleum products could have a materially adverse effect
on the operations and profitability of the Company. In the case of the Municipal
Solid Waste Segment, fuel increases are recovered through the Consumer Price
Index rate adjustment provisions in the waste hauling contracts.
 
COMPETITION
 
     The trucking industry, in general, is highly competitive and fragmented.
The Temperature-Controlled Segment competes primarily with other long-haul,
temperature-controlled truckload carriers, private fleets operated by existing
and potential customers and, to a lesser extent, railroads. The other trucking
companies in the Temperature-Controlled Segment possess substantially greater
financial resources, operate more equipment or carry a larger volume of freight
than the Company. The Temperature-Controlled Segment also competes with other
motor carriers in hiring qualified drivers.
 
     The Municipal Solid Waste Segment competes primarily with smaller privately
owned regional trucking companies and local independent hauling operations. The
Municipal Solid Waste Segment also competes with rail and barge companies for
solid waste transportation.
                                        6
<PAGE>   8
 
REGULATION
 
     The Company's drivers and independent contractors must comply with the
safety and fitness regulations promulgated by the DOT, including those relating
to drug and alcohol testing and hours of service. The Company's operations are
subject to various federal, state and local environmental laws and regulations,
implemented principally by the Environmental Protection Agency and similar state
regulatory agencies, governing the management of hazardous wastes, other
discharge of pollutants into the air and surface and underground waters and the
disposal of certain substances. Management believes that its operations are in
compliance with current laws and regulations.
 
EMPLOYEES
 
     As of December 31, 1998, the Company employed 1,170 persons, of whom 874
were drivers, 296 were maintenance and support personnel including management
and administration, and the Company contracted with 159 owner-operators. As of
December 31, 1998, approximately 150 of the employees in the Municipal Solid
Waste Segment were represented by collective bargaining units and the Company
has never experienced a work stoppage. STS has reached a collective bargaining
agreement with workers in Oregon which expires December 31, 1999. Four terminals
in the Municipal Solid Waste Segment are affiliated with the International
Brotherhood of Teamsters. The Company believes that its relations with its
employees are good.
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The Company's executive officers are as follows:
 
     LARRY L. ASCHE, age 47, has served as Chairman and Director of the Company
since July 1994 and as Chief Executive Officer since November 1996. Mr. Asche
also served as Chief Operating Officer from July 1994 to November 1996. Mr.
Asche has served as President and Director of ATI since its incorporation in
February 1983. He also serves as Chairman of the Board of AG and Vice President
and Director of STS. Mr. Asche acquired the business from Clarence Asche, Mr.
Asche's uncle, in 1973 and operated ATI for ten years as a sole proprietorship.
Mr. Asche is the husband of Diane L. Asche.
 
     KEVIN M. CLARK, age 43, has served as President and Director of the Company
since July 1994. Mr. Clark also served as Chief Executive Officer from July 1994
to November 1996. Since May 1987, Mr. Clark has served as Vice President of ATI.
He also serves as Vice-President of AG and Vice-President of STS. Prior to
joining ATI, Mr. Clark served for over two years as a management consultant to
ATI. From 1982 to 1984, Mr. Clark was Vice President and Director of Batt
Trucking, Inc., Caldwell, Idaho, a refrigerated trucking company. From 1980 to
1984, Mr. Clark was the founder and President of National Traffic Services
Corporation, Boise, Idaho, a management consulting firm providing regulatory
compliance assistance to regional and national transportation companies. Prior
to that time, Mr. Clark served as the Transportation Auditor and Acting Director
of the Idaho Public Utilities Commission, Boise, Idaho and prior thereto, he was
a transportation specialist with Consolidated Freightways, Boise, Idaho. Mr.
Clark has a B.S. degree in business from Ottawa University, Phoenix, Arizona.
Mr. Clark has also received a Transportation Practitioner Degree from the
College of Advanced Traffic, Chicago, Illinois and has been admitted to practice
before the Interstate Commerce Commission and Federal Maritime Commission. Mr.
Clark has served as Chairman of the Advisory Board of Directors of the
University of Georgia Trucking Profitability Strategies Conference. He is also
the author of three books in the transportation and business fields and has been
a frequent speaker for various national organizations.
 
     LEON M. MONACHOS, age 47, has served as a Director of the Company since
March 1996 and as Chief Financial Officer since May 1996. Since September 1996,
Mr. Monachos has served as Vice-President -- Finance of ATI and AG. He also
serves as Vice-President -- Finance and Director of STS. From October 1995 to
May 1996, Mr. Monachos had been an advisor to the president and founder of a
privately-held transportation services company. From June 1986 to September
1995, he was employed at Ernst & Young LLP, a public accounting firm, most
recently as Senior Manager. Mr. Monachos has a B.S. degree from the University
of Illinois and is a certified public accountant.
 
                                        7
<PAGE>   9
 
     GARY I. GOLDBERG, age 55, has served as Vice President of the Company since
February 1998 and a Director since July 1996. Mr. Goldberg is President and a
Director of STS. From 1977 to 1997, Mr. Goldberg served as Executive Vice
President of Jack Gray Transport, Inc. ("JGT"). Prior to joining JGT, he was
employed by Material Service Corporation and Vulcan Materials Company as
controller for eight years. Mr. Goldberg has a B.A. degree in commerce from
DePaul University.
 
     DIANE L. ASCHE, age 45, has served as Vice President, Secretary and
Director of the Company since July 1994. Mrs. Asche has served as Vice
President, Secretary and Director of ATI since its incorporation in February
1983 and in addition, serves as Secretary of AG and STS. Mrs. Asche is the wife
of Larry L. Asche.
 
ITEM 2. PROPERTIES
 
     The Company's corporate headquarters and principal terminal are located on
a five-acre tract in Shannon, Illinois which is owned by ATI and consists of six
buildings with 4,400 square feet of office space, 12,000 square feet of space
devoted to equipment maintenance and repair, as well as two acres of parking
space. ATI operates a 15,000 square-foot terminal, warehouse and office facility
in Apopka, Florida for its foliage division which is leased from an unrelated
party under a five-year lease. ATI owns a 70-door, 10,000 square-foot regional
terminal and maintenance facility in Conley, Georgia and leases from an
unrelated party a 13,000 square-foot office facility, approximately 13,000
square-foot shop area and parking area in Tontitown, Arkansas under a ten-year
lease.
 
     AG owns and operates a regional terminal and maintenance facility in
Tavares, Florida consisting of 6,000 square feet of office space and 2.5 acres
of parking. AG rents two additional acres of parking adjacent to the terminal
facility from Richard S. Baugh, a director of the Company, under a five-year
lease.
 
     STS owns or leases 19 terminals in the following cities: Irondale, Alabama;
Chandler, Arizona; Lancaster, California; Moreno Valley, California; Bradenton,
Florida; Granite City, Illinois; Indianapolis, Indiana; Valparaiso, Indiana;
Nicholasville, Kentucky; Baltimore, Maryland; Freeport, New York; Greensboro,
North Carolina; Arlington, Oregon; Portland, Oregon; Bigler, Pennsylvania;
Duncan, South Carolina; Camden, Tennessee; Irving, Texas and Federal Way,
Washington. STS also utilizes the maintenance facility and a portion of ATI's
terminal in Conley, Georgia as an office, as well as leases office space in
Portage, Indiana. All leases are with unrelated parties.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company has been from time to time a party to litigation incidental to
its business, primarily involving claims for personal injury and property damage
incurred in the transportation of freight. The Company has not received notice
of any material pending claims other than those arising from vehicle accidents
and there are no environmental, regulatory, or other governmental proceedings
pending against the Company. The Company maintains insurance that it believes is
adequate to cover its liability risks.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to the Company's security holders during the
fourth quarter of fiscal 1998.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS
 
STOCK INFORMATION
 
PRICE RANGE OF COMMON STOCK
 
     The Company's common stock is traded on the Nasdaq National Market under
the symbol ASHE. The following table shows the quarters' high and low closing
prices as reported by Nasdaq.
 
                                        8
<PAGE>   10
 
<TABLE>
<CAPTION>
        FISCAL 1998             HIGH    LOW                FISCAL 1997             HIGH    LOW
        -----------             ----    ----               -----------             ----    ----
<S>                             <C>     <C>        <C>                             <C>     <C>
First Quarter...............    5 1/2   3 5/16     First Quarter...............    7 1/16  4 3/4
Second Quarter..............    8 15/32 4          Second Quarter..............    6 1/8   3 7/8
Third Quarter...............    7 1/4   3 9/16     Third Quarter...............    5       3 13/16
Fourth Quarter..............    5 1/2   2 3/4      Fourth Quarter..............    4 3/4   2 1/2
</TABLE>
 
     As of March 25, 1998 there were approximately 212 holders of record and
approximately 2,700 beneficial holders of the Company's common stock.
 
     The Company has never paid cash dividends on its common stock and the Board
of Directors intends to continue a policy of retaining any earnings for use in
the Company's operations. The Company does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's loan agreement
contains a prohibition on the payment of any cash dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The statements of operations data and the balance sheet data are derived
from the audited financial statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere. (in thousands, except per share data)
 
                                        9
<PAGE>   11
 
STATEMENTS OF OPERATIONS DATA:
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                        ---------------------------------------------------------
                                         1998(4)      1997        1996        1995        1994
                                        ---------   ---------   ---------   ---------   ---------
<S>                                     <C>         <C>         <C>         <C>         <C>
NET REVENUES.........................   $ 113,431   $  65,170   $  77,365   $  67,748   $  34,034
OPERATING EXPENSES:
  Salaries, wages and benefits.......      42,065      23,403      27,109      24,352      11,605
  Fuel...............................      13,581      10,867      13,350      10,532       4,889
  Purchased transportation...........      24,180      11,185      10,772       7,148       4,802
  Supplies and maintenance...........      12,053       6,317       7,032       6,369       3,256
  Depreciation and amortization......       6,686       5,354       8,547       7,887       3,309
  Taxes and licenses.................       1,754       1,667       2,073       1,762         792
  Insurance..........................       3,201       2,079       2,838       2,784       1,266
  Communications and utilities.......       1,448         821         818         809         431
  Gain (loss) on disposition of
     equipment(1)....................        (387)       (905)      1,165        (323)        (74)
  Litigation settlement(2)...........          --          --         150          --          --
  Polar restructuring expense(3).....          --          --         490          --          --
  Investment write-off...............          --          --         100          --          --
  Writedown of equipment to net
     realizable value(1).............          --          --       1,155          --          --
  Severance expense..................          --          --          81          --          --
  Merger consummation costs(4).......          --          --          --       1,269          --
  Other..............................       1,995       1,545       2,298       1,297         281
                                        ---------   ---------   ---------   ---------   ---------
     Total operating expenses........     106,576      62,333      77,978      63,886      30,557
                                        ---------   ---------   ---------   ---------   ---------
OPERATING INCOME (LOSS)..............       6,855       2,837        (613)      3,862       3,477
OTHER (EXPENSES) INCOME:
  Interest expense...................      (5,066)     (2,128)     (3,464)     (4,069)     (2,366)
  Warrant accretion expense..........        (786)         --          --          --          --
  Amortization of debt issuance
     costs...........................        (280)         --          --        (447)     (1,786)
  Amortization of debt discount......        (264)         --          --          --          --
  Other..............................         494          67         136         127          61
                                        ---------   ---------   ---------   ---------   ---------
INCOME (LOSS) BEFORE INCOME TAX
  PROVISION (BENEFIT) AND MINORITY
  INTEREST EXPENSE AND EXTRAORDINARY
  ITEM...............................         953         776      (3,941)       (527)       (614)
INCOME TAX PROVISION (BENEFIT).......         830         506      (1,321)        538         465
                                        ---------   ---------   ---------   ---------   ---------
INCOME (LOSS) BEFORE MINORITY
  INTEREST EXPENSE AND EXTRAORDINARY
  ITEM...............................         123         270      (2,620)     (1,065)     (1,079)
  Minority interest expense..........         (63)         --          --          --          --
                                        ---------   ---------   ---------   ---------   ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
  ITEM...............................          60         270      (2,620)     (1,065)     (1,079)
  Loss on extinguishment of debt, net
     of income tax benefit of $134...          --          --          --         261          --
                                        ---------   ---------   ---------   ---------   ---------
NET INCOME (LOSS)....................   $      60   $     270   $  (2,620)  $  (1,326)     (1,079)
                                        =========   =========   =========   =========   =========
Basic and diluted historical income
  (loss) per common share:
  Loss before extraordinary item.....                                       $   (0.28)
  Extraordinary item.................                                           (0.07)
                                                                            ---------
  Net income (loss)..................   $    0.01   $    0.06   $   (0.67)  $   (0.35)
                                        =========   =========   =========   =========
</TABLE>
 
                                       10
<PAGE>   12
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                        ---------------------------------------------------------
                                         1998(4)      1997        1996        1995        1994
                                        ---------   ---------   ---------   ---------   ---------
<S>                                     <C>         <C>         <C>         <C>         <C>
Basic and diluted proforma net loss
  per common share (unaudited):......                                                   $   (0.57)
                                                                                        =========
Basic weighted average common shares
  outstanding:
  Historical.........................   4,600,926   4,273,842   3,928,596   3,750,914
                                        =========   =========   =========   =========
  Proforma...........................                                                   1,878,649
                                                                                        =========
</TABLE>
 
BALANCE SHEET DATA:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                          ----------------------------------------------------
                                            1998       1997       1996       1995       1994
                                          --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Working capital........................   $(36,324)  $ (5,326)  $(11,601)  $(11,729)  $ (3,759)
Property and equipment, net............     45,403     19,176     26,552     48,280     32,114
Total assets...........................     88,278     35,507     46,304     68,933     43,693
Debt and capital lease obligations
  (including current maturities).......     61,978     19,358     30,104     45,868     30,395
Stockholders' equity...................     14,429     12,809     10,531     12,905      8,311
</TABLE>
 
---------------
 
(1) See Note 3 to Audited Consolidated Financial Statements.
 
(2) See Note 13 to Audited Consolidated Financial Statements.
 
(3) See Note 14 to Audited Consolidated Financial Statements.
 
(4) See Note 1 to Audited Consolidated Financial Statements.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     The following management's discussion and analysis of financial condition
and results of operations contain forward-looking statements relating to future
financial results or business expectations. Business plans may change as
circumstances warrant. Actual results may differ materially as a result of
factors over which the Company has no control. Such factors include, but are not
limited to: general economic conditions, availability of drivers, labor costs,
fuel costs, interest rates, competition and governmental regulations. These risk
factors and additional information are included in the Company's reports on file
with the Securities and Exchange Commission.
 
     On January 30, 1998, the Company purchased the net assets of the Waste
Transport Business ("STS Acquisition") for $30,200 in cash. The Waste Transport
Business is operated through STS, a newly formed subsidiary of the Company. The
STS Acquisition was accounted for as a purchase and accordingly, the 1998
consolidated statement of operations includes the results of STS from the date
of acquisition. The results of operations discussed below are not necessarily
comparable between periods because the results from operations for the years
ended December 31, 1997 and 1996 do not include STS and the results from
operations for the year ended December 31, 1998 only include STS since the date
of acquisition.
 
GOING CONCERN AND MANAGEMENT'S PLANS
 
     The Company has not complied with certain loan covenants during the year
ended December 31, 1998, and also is not likely to be able to comply with
certain covenants during 1999, under loan agreements with: (1) American Capital
Strategies, Ltd. ("ACS") (10% stockholder and $8,000 subordinated lender to
STS), (2) one of STS's senior bank lenders ($14,113 outstanding line of credit
and $16,714 note payable at December 31, 1998), (3) the Company's senior bank
lender ($4,547 outstanding line of credit at December 31, 1998), and (4) an
unsecured subordinated lender holding a 14.00% note payable in the amount of
$973
 
                                       11
<PAGE>   13
 
at December 31, 1998 (net of unamortized debt discount of $27) and due July 1,
1999. The violations primarily relate to financial covenants including the:
total leverage ratio; minimum tangible net worth amount; fixed charge coverage
ratio; interest coverage ratio; minimum annual net income; and the maximum
amount for leases and capital expenditures. As of April 15, 1999, the Company
has not been successful in obtaining the necessary waivers and amendments from
the respective lenders in order for the debt not to be considered in default at
December 31, 1998. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
 
     Management's plans include actively seeking refinancing of the $8,000
subordinated debt with ACS which may be in the form of equity securities or in
other certain subordinated debt securities. Upon the refinancing of the $8,000
subordinated debt, management believes it will be successful in obtaining the
necessary waivers and amendments with its other lenders in order for the debt
not to be considered in default at and for the year ended December 31, 1998 and
to enable the Company to comply with its loan covenants during 1999.
 
     Under the provisions of a subordination and intercreditor agreement between
STS, STS's senior bank lenders and ACS, ACS is prohibited from taking any legal
action against STS until an event of default under the loan agreement with ACS
occurs and continues uncured and unwaived for six months after notice of such
event of default is provided to the senior bank lenders by ACS. As of April 15,
1999, no written notification from ACS regarding an event of default has been
received by the senior bank lenders. Upon the occurrence of an event of default,
interest can accrue at the default rate (17.50% on the $5,500 senior
subordinated note and 20.00% on the $2,500 junior subordinated note) until such
default is waived or cured. A prepayment premium can also be assessed under the
provisions of the loan agreement as a result of the default, not to exceed $240.
 
     Under the provisions of the loan agreement with STS's senior bank lender,
upon the occurrence of an event of default, the bank can automatically cease to
make any new loans. Upon written notice, the bank can also declare all principal
and interest amounts outstanding as immediately due and payable. In addition,
upon the occurrence of an event of default, interest can accrue at its current
rate plus 2.00%, compounded daily. As of April 15, 1999, no written notification
from STS's senior bank lender regarding an event of default has been received.
 
     Under the provisions of the loan agreement with the Company's senior bank
lender, upon written notice by the bank of an event of default, the bank can
declare all principal and interest amounts outstanding as immediately due and
payable. In addition, upon the occurrence of an event of default, interest can
accrue at the prime rate plus 3.00% per annum. As of April 15, 1999, no written
notification from the Company's senior bank lender regarding an event of default
has been received.
 
     Under the provisions of the loan agreement with the unsecured subordinated
lender holding a 14.00% note payable in the amount of $973 at December 31, 1998
(net of unamortized debt discount of $27) and due July 1, 1999, the holder of
the note, by written notice, can declare all principal and interest amounts
outstanding as immediately due and payable. In addition, upon notification of
the occurrence of an event of default, interest can accrue at a rate of 18.00%
per annum. As of April 15, 1999, no written notification from the unsecured
subordinated lender has been received.
 
     As a result of the violations of certain financial covenants related to the
8.81% note payable to a bank and the 12.50% and 15.00% subordinated notes
payable to ACS which have not been waived or cured, the long-term portion of the
originally scheduled maturities totaling $22,142 are classified as current
obligations in the accompanying balance sheet at December 31, 1998. In addition,
as a result of the violations of certain financial covenants related to the
revolving lines of credit which have not been waived or cured, the outstanding
borrowings of $18,660 are classified as a current obligation in the accompanying
balance sheet at December 31, 1998. The 14.00% unsecured subordinated notes
payable in the amount of $973 at December 31, 1998 (net of unamortized debt
discount of $27) is already classified as current as it is due July 1, 1999.
 
                                       12
<PAGE>   14
 
RESULTS OF OPERATIONS
 
YEARS ENDED DECEMBER 31, 1998 AND 1997
 
     Net revenues increased $48.3 million, or 74.1%, to $113.4 million in 1998,
from $65.2 million in 1997, largely due to the STS Acquisition. During 1998, the
Company increased its revenue producing power units by 520 units. Without giving
effect to the additional net revenues contributed by the STS Acquisition, the
Company's net revenues decreased by $4.4 million, or 6.8%, due to having less
tractors in service in its Temperature-Controlled Segment.
 
     Total miles increased 23.3 million, or 40.2%, to 81.3 million in 1998 from
58.0 million in 1997, largely due to the STS Acquisition. Average miles per
tractor decreased 16.7% to 100,380 miles in 1998 from 120,501 miles in 1997.
Average revenue per tractor increased 3.5% to $140,072 in 1998 from $135,348 in
1997. The decrease in average miles per tractor and the increase in average
revenue per tractor are attributable to the shorter length of haul in the
Municipal Solid Waste Segment. Without giving effect to the STS Acquisition, the
Company's total miles decreased by 9.6 million, or 16.6%, due to having less
tractors in service in its Temperature-Controlled Segment. Competition for
drivers is intense within the trucking industry and the Company occasionally
experiences difficulty attracting and retaining qualified drivers and owner-
operators which results in the temporary idling of revenue equipment.
 
     The Company's operating ratio (operating expenses divided by operating
revenues) decreased 1.6%, to 94.0% in 1998 from 95.6% in 1997. The decrease in
the operating ratio is largely due to a lower operating ratio in the Municipal
Solid Waste Segment. Without giving effect to the STS Acquisition, the Company's
operating ratio increased 0.1%, to 95.7% in 1998 from 95.6% in 1997. Total
operating expenses increased $44.2 million, or 71.0%, to $106.6 million in 1998,
compared to $62.3 million in 1997, largely due to the STS Acquisition. Without
giving effect to the STS Acquisition, the Company's total operating expenses
decreased $4.2 million, or 6.7%, due primarily having less tractors in service
in its Temperature-Controlled Segment and decreased fuel prices.
 
     Salaries, wages and benefits increased $18.7 million, or 79.7%, to $42.1
million in 1998 compared to $23.4 million in 1997, due to the STS Acquisition
and increases in overall compensation of drivers that were needed to enhance
driver recruitment and retention. Without giving effect to the STS Acquisition,
the Company's salaries, wages and benefits decreased $0.4 million, or 1.7%,
largely due to having less personnel to service the fewer tractors in its
Temperature-Controlled Segment which more than offset increases in overall
compensation of drivers that were needed to enhance driver recruitment and
retention.
 
     Fuel expenses increased $2.7 million, or 25.0% to $13.6 million in 1998
compared to $10.9 million in 1997, largely due to the effect of the STS
Acquisition, which more than offset decreased fuel prices. Without giving effect
to the STS Acquisition, the Company's fuel expense decreased by $2.5 million or
22.6%, largely due to the decrease in the number of tractors in its
Temperature-Controlled Segment and decreased fuel prices.
 
     Purchased transportation expense increased $13.0 million, or 116.2% to
$24.2 million in 1998 compared to $11.2 million in 1997, largely due to the
effect of the STS Acquisition. Without giving effect to the STS Acquisition, the
Company's purchased transportation expense increased by $1.0 million or 8.7%,
due to an increase in contractor operated units.
 
     Supplies and maintenance expenses increased $5.7 million, or 90.8% to $12.1
million in 1998 compared to $6.3 million in 1997, largely due to the effect of
the STS Acquisition. Without giving effect to the STS Acquisition, the Company's
supplies and maintenance expense decreased by $0.8 million or 12.6%, due to a
decrease in company-owned units in service in its Temperature-Controlled
Segment.
 
     Depreciation and amortization expense increased $1.3 million, or 24.9%, to
$6.7 million in 1998 compared to $5.4 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
depreciation and amortization expense decreased by $1.4 million or 25.8%, due to
a decrease in company-owned units in service in its Temperature-Controlled
Segment.
 
                                       13
<PAGE>   15
 
     Insurance expense increased $1.1 million, or 54.0%, to $3.2 million in 1998
compared to $2.1 million in 1997, due to the STS Acquisition.
 
     Interest expense increased $2.9 million, or 138.1%, to $5.1 million in 1998
compared to $2.1 million in 1997, due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's interest expense decreased $0.7
million due to lower levels of debt. Outstanding debt and capital lease
obligations aggregated $62.0 million at December 31, 1998 compared to $19.4
million at December 31, 1997.
 
     Warrant accretion expense of $786 in 1998 represents the accretion of STS
warrants in connection with the STS Acquisition.
 
     Amortization of debt issuance costs of $280 in 1998 represents the
amortization of debt issuance costs in connection with the STS Acquisition.
 
     Amortization of debt discount of $264 in 1998 represents the amortization
of debt discount in connection with the STS Acquisition.
 
     Minority interest expense of $63 in 1998 represents the increase in
minority interest in connection with the STS Acquisition.
 
     The effective income tax rates of 93.3% and 65.2% in 1998 and 1997,
respectively, are higher than the federal statutory rate due primarily to the
nondeductibility of certain expenses (i.e., warrant accretion expense,
amortization of debt discount, minority interest and per diem expense
reimbursements paid to drivers).
 
YEARS ENDED DECEMBER 31, 1997, AND 1996
 
     Net revenues decreased $12.2 million, or 15.8%, to $65.2 million in 1997,
from $77.4 million in 1996, largely due to having less tractors in service.
During 1997, the Company decreased its tractor fleet by 115 units. Average
revenue per tractor increased 0.8% to $135,348 in 1997 from $134,314 in 1996.
 
     Total miles decreased 12.1 million, or 17.2%, to 58.0 million in 1997 from
70.1 million in 1996, largely due to having less tractors in service. Average
miles per tractor decreased 1.0% to 120,501 miles in 1997 from 121,738 miles in
1996, largely due to having less revenue producing tractors in service due to a
shortage of drivers. Competition for drivers is intense within the trucking
industry and the Company occasionally experiences difficulty attracting and
retaining qualified drivers and owner-operators which results in the temporary
idling of revenue equipment.
 
     The Company's operating ratio (operating expenses divided by operating
revenues) decreased 5.2%, to 95.6% in 1997 from 100.8% in 1996, largely due to
several nonrecurring one-time charges in 1996 (i.e., litigation settlement,
Polar restructuring expense, investment write-off, writedown of equipment to net
realizable value and severance expense) totaling $2.0 million and a loss on
disposition of equipment of $1.2 million in 1996 compared to a gain of $0.9
million in 1997. Total operating expenses decreased $15.6 million, or 20.1%, to
$62.3 million in 1997, compared to $78.0 million in 1996, largely due to having
less tractors in service.
 
     Salaries, wages and benefits decreased $3.7 million, or 13.7%, to $23.4
million in 1997 compared to $27.1 million in 1996, largely due to having less
personnel to service the fewer tractors in service, which more than offset
increases in overall compensation of drivers that were needed to enhance driver
recruitment and retention.
 
     Fuel expenses decreased $2.5 million, or 18.6% to $10.9 million in 1997
compared to $13.4 million in 1996, largely due to the decrease in the number of
tractors in service and decreased fuel prices.
 
     Depreciation and amortization expense decreased $3.2 million, or 37.4%, to
$5.4 million in 1997 compared to $8.5 million in 1996, largely due to having
less tractors in service, in accordance with the Company's strategic plan of
selling 68 Polar tractors.
 
     Insurance expense decreased $0.8 million, or 26.7%, to $2.1 million in 1997
compared to $2.8 million in 1996, largely due to the decrease in the number of
tractors in service.
 
                                       14
<PAGE>   16
 
     Gain on disposition of equipment in 1997 was $0.9 million compared to a
loss in 1996 of $1.2 million, largely due to the sale and leaseback of certain
Polar motor carrier equipment that resulted in a loss of $1.0 million in 1996.
 
     Litigation settlement expense in 1996 represents the provision for final
settlement of all outstanding litigation related to Polar's acquisition of Polar
Express, Inc.
 
     Polar restructuring expense in 1996 represents severance payments to
terminated employees of Polar.
 
     Writedown of equipment to net realizable value represents the writedown in
1996 of Polar equipment to more closely approximate the net realizable value of
the related equipment.
 
     Interest expense decreased $1.3 million, or 38.6%, to $2.1 million in 1997
compared to $3.5 million in 1996, due to lower levels of debt and lower overall
interest rates. Outstanding debt and capital lease obligations aggregated $19.4
million at December 31, 1997 compared to $30.1 million at December 31, 1996.
 
     The effective income tax rate of 65.2% in 1997 is higher than the federal
statutory rate due primarily to the non-deductibility of per diem expense
reimbursements paid to drivers.
 
     Net income increased $2.9 million to $0.3 million in 1997 compared to a net
loss of $2.6 million in 1996, largely due to several nonrecurring one-time
charges (i.e., litigation settlement, Polar restructuring expense, investment
write-off, writedown of equipment to net realizable value and severance expense)
totaling $1.2 million, net of tax, in 1996 and a loss on disposition of
equipment of $0.7 million, net of tax, in 1996 compared to a gain of $0.6
million, net of tax, in 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1998, the Company had a net working capital deficit of
$36.3 million. Excluding the long-term debt in default which has been
reclassified to current as a result of covenant violations, the Company had net
working capital of $4.5 million at December 31, 1998. The Company historically
has funded its working capital requirements through a combination of operating
profits, short turnover in trade receivables, effective cash management
practices and borrowings under its revolving bank lines of credit. The Company
has two revolving bank lines of credit with a total borrowing limit of $24.0
million, consisting of $18.0 million (Municipal Solid Waste Segment) and $6.0
million (Temperature-Controlled Segment), based on a percentage of eligible
trade receivables and certain other fixed assets, $18.7 million, of which was
borrowed against the lines of credit at December 31, 1998, consisting of $14.1
million (Municipal Solid Waste Segment) and $4.5 million (Temperature-Controlled
Segment) and approximately $0.8 million was available, consisting of $0.7
million (Municipal Solid Waste Segment) and $0.1 million (Temperature-Controlled
Segment).
 
     The Company's growth and the significant investment in its modern fleet of
tractors and temperature-controlled trailers have historically been financed
substantially through long-term debt and lease obligations collateralized by the
equipment. The Company's outstanding debt and capital lease obligations,
including current maturities, aggregated $62.0 million and $19.4 million at
December 31, 1998 and 1997, respectively. The debt to equity ratio (calculated
excluding payables and other liabilities) was 4.30:1 at December 31, 1998 and
1.51:1 at December 31, 1997. During 1998, the Company increased its fleet size
by 329 tractors and 808 temperature-controlled trailers, primarily through
operating leases.
 
     In January 1997, the Company borrowed $1 million against the appraised
value of approximately $1.5 million of a terminal and maintenance facility, and
used the proceeds to pay down current liabilities. In February 1997, the Company
entered into a purchase agreement to sell certain Polar Express Corporation
motor carrier equipment for $4.6 million. The transaction was completed in March
1997 and generated $1.4 million in net cash proceeds, and the Company used the
proceeds for general corporate purposes. In July 1997, the Company completed a
private placement offering of restricted common stock that raised net proceeds
to the Company of $1.8 million, and the Company used the proceeds for general
corporate purposes.
 
     In March 1998, ATI entered into various agreements for the sale and
leaseback of certain motor carrier equipment which reduced operating expenses
and increased cash flows $0.4 million. The leases are classified
                                       15
<PAGE>   17
 
as capital leases in accordance with SFAS No. 13, Accounting for Leases. The
transactions generated no cash proceeds. During 1998, ATI entered into various
agreements for the sale of certain motor carrier equipment with an immediate
leaseback of the same motor carrier equipment by STS. The motor carrier
equipment sold by ATI was originally financed with debt, capital leases and
operating leases. The net book value of the debt financed equipment and the
capital lease financed equipment was $4.9 million. The leases entered into by
STS are classified as operating leases in accordance with SFAS No. 13,
Accounting for Leases. The transactions generated $1.9 million in net cash
proceeds to the Company.
 
     The Company believes that available cash, cash flow from future operations,
and borrowings available under its lines of credit will be sufficient to meet
its current working capital needs and short-term commitments (excluding the
potential effects of long-term debt in default which has been reclassified to
current as a result covenant violations). The Company's long-term commitments
consist of long-term debt and lease obligations. The Company believes that
available cash, cash flow from operations, equity that the Company has in its
equipment upon sale, and borrowings available under its lines of credit will be
sufficient to meet its long-term commitments.
 
     As of December 31, 1998, the Company has $3.8 million in subordinated debt
due in July and August of 1999. On January 29, 1999, certain related parties,
substantially all of whom are officers and directors of the Company, exchanged
$0.7 million of the subordinated debt for 135,000 shares of the Company's common
stock. On March 12, 1999, an unrelated individual exchanged $1.2 million of the
subordinated debt for 230,000 shares of the Company's common stock.
Additionally, $0.2 million of accrued interest owed to this individual was
exchanged for an additional 37,800 shares of the Company's common stock. The
Company anticipates satisfying the remaining obligations through a refinancing
of the debt or an equity infusion.
 
     Management's plans include actively seeking refinancing of the $8.0 million
subordinated debt with ACS which may be in the form of equity securities or in
other certain subordinated debt securities. Upon the refinancing of the $8.0
million subordinated debt, management believes it will be successful in
obtaining the necessary waivers and amendments with its other lenders in order
for the debt not to be considered in default at and for the year ended December
31, 1998 and to enable the Company to comply with its loan covenants during
1999.
 
     The Company anticipates its future growth in the Municipal Solid Waste
Segment to be more prominent than the Temperature-Controlled Segment. Certain
growth in the Municipal Solid Waste Segment is anticipated to come from new
contract opportunities at existing terminal facilities, also requiring the
purchase of additional motor carrier and other equipment. These equipment
purchases are anticipated to be financed primarily through long-term debt and
lease obligations collateralized by the equipment. Certain growth in the
Municipal Solid Waste Segment is anticipated to come from new contract
opportunities at new locations requiring a significantly greater investment by
the Company. The Company anticipates financing start-up costs for the new
terminal facilities primarily through lease obligations.
 
     As the Company continues to facilitate its planned future growth, the
Company's capital needs may require additional borrowings or an equity infusion.
 
RECENT ACCOUNTING STANDARDS
 
     In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities, including
organization costs, to be expensed as incurred. The SOP broadly defines start-up
activities as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or beneficiary, initiating a new process in an existing facility, or
commencing some new operation. The SOP is effective for the Company for fiscal
years beginning after December 15, 1998, and will require the Company upon
adoption to write off any previously capitalized start-up or organization costs
as a cumulative effect of a change in accounting principle. Thus, effective
January 1, 1999, the Company will write off all organization and start-up costs
under the SOP as a cumulative effect of a change in accounting principle in the
amount of approximately $0.5 million, which primarily relates to the STS costs
incurred in 1998 to open new terminals or expand existing facilities.
 
                                       16
<PAGE>   18
 
CHANGE IN ESTIMATED SALVAGE VALUES
 
     In July 1998, the Company adjusted the estimated salvage values related to
certain motor carrier equipment of AG Carriers from 20% to 49% of the original
purchase price. The change better aligns the allocation of equipment cost with
its expected use. This change reduced operating expenses approximately $0.2
million, $0.1 million after-tax ($0.03 basic and diluted net income per common
share) in 1998.
 
     In December 1996, the Company adjusted the estimated salvage values related
to certain motor carrier equipment of Polar Express Corporation from 44% to 35%
of the original purchase price. The change better aligns the allocation of
equipment cost with its expected use. This resulted in a writedown of equipment
in the amount of $1.2 million, $0.7 million after-tax ($0.18 basic and diluted
net loss per common share) in 1996.
 
     In December 1996, the Company entered into various agreements for the sale
and leaseback of certain Polar Express Corporation motor carrier equipment which
reduced expenses $0.6 million and increased net income $0.4 million during the
year ended December 31, 1997 ($0.09 basic and diluted net income per common
share). The leases are classified as operating leases in accordance with SFAS
No. 13, Accounting for Leases. The book values of the equipment totaling $6.3
million were removed from the balance sheet with the resulting loss of $1.0
million, $0.6 million after-tax ($0.16 basic and diluted net loss per common
share) recorded in 1996.
 
RESTRUCTURING
 
     Due primarily to losses incurred at Asche Transfer, Inc.'s Southwest
Division, formerly Polar Express Corporation ("Polar"), the Company determined
that a restructuring was necessary to reduce the overhead of that operation. In
June 1996, the Company consolidated certain functions, primarily management,
accounting and information systems and terminated approximately 30 employees of
Polar. The Company recorded a non-recurring, one-time restructuring charge of
$0.49 million, or $0.08 net loss per common share. The Company anticipated and
realized cost savings that approximated $1.0 million annually.
 
     In conjunction with the restructuring, the Company determined that losses
realized at Polar were also related to unprofitable transportation services
performed by Polar. The Company decided to no longer haul for certain customers
in certain lanes and to dispose of excess motor carrier equipment. In February
1997, the Company entered into an agreement to sell 68 Polar tractors and 141
Polar trailers for approximately $4.6 million. The termination generated
approximately $1.4 million in net cash proceeds to the Company with no
significant earnings effect in 1997. The transaction was completed in March 1997
and no current plans exist to replace this equipment.
 
SALE LEASEBACKS
 
     In March 1998, ATI entered into various agreements for the sale and
leaseback of certain motor carrier equipment which reduced operating expenses
$0.4 million, $0.3 million after-tax ($0.05 basic and diluted net income per
common share) in 1998. The leases are classified as capital leases in accordance
with SFAS No. 13, Accounting for Leases.
 
     During 1998, ATI entered into various agreements for the sale of certain
motor carrier equipment with an immediate leaseback of the same motor carrier
equipment by STS. The motor carrier equipment sold by ATI was originally
financed with debt, capital leases and operating leases. The net book value of
the debt financed equipment and the capital lease financed equipment was $4.9
million. The leases entered into by STS are classified as operating leases in
accordance with SFAS No. 13, Accounting for Leases. The transactions generated
$1.9 million in net cash proceeds to the Company and resulted in a gain of $0.5
million, of which $0.1 million was recognized in 1998 with the remainder of $0.4
million amortized over the remaining lives of the related leases.
 
                                       17
<PAGE>   19
 
RELATED PARTY LEASES
 
     The Company currently leases certain of its revenue equipment from related
parties. These leases are accounted for as capital leases. Payments to related
parties on capital lease obligations in 1998, 1997 and 1996 were $0.6 million,
$0.8 million and $0.8 million, respectively.
 
SEASONALITY
 
     The Company's Temperature-Controlled Segment results of operations show a
seasonal pattern because certain of the frozen food companies serviced by the
Company generally reduce shipments during the summer season. During the winter
months, the Company has at times experienced delays in meeting its pick-up and
delivery schedules as a result of severe weather conditions. In addition, the
Company's operating expenses have historically been higher in the winter months
due to decreased fuel efficiency and increased maintenance costs in colder
weather. Accordingly, such factors cause fluctuations in results of operations.
The foliage business of ATI experiences seasonal fluctuations in volume during
certain periods of the year. The Company's Municipal Solid Waste Segment does
not experience significant seasonal fluctuations.
 
YEAR 2000
 
     Computer programs have historically been written to abbreviate dates by
using two digits instead of four digits to identify a particular year. The
so-called "year 2000 problem" or "millennium bug" is the inability of computer
software or hardware to recognize or properly process dates ending in "00" and
dates after the year 2000. Significant attention is being focused as the year
2000 approaches on updating or replacing such software and hardware in order to
avoid system failures, miscalculations or business interruptions that might
otherwise result. The Company is taking the steps we believe are necessary to
insure that this potential problem does not adversely affect our operating
results in the future. We are continuing our as-yet incomplete assessment of the
impact of the year 2000 problem.
 
     The Company has reviewed its internal information systems and believes that
the costs and efforts to address the year 2000 problem will not be material to
our business, financial condition or results of operations, and may be resolved
through replacements and upgrades to our software or hardware. The year 2000
problem may, however, adversely impact the Company by affecting the business and
operations of parties with which we transact business, although we are unable to
precisely determine the likelihood or potential impact of any such event. There
can be no assurance that the Company will be able to effectively address year
2000 issues in a cost-efficient manner and without interruption to our business,
or that year 2000 problems encountered by our suppliers, customers or other
parties will not have a material impact on our business, financial condition and
results of operations.
 
     The Company's state of readiness for the year 2000, our estimated costs
associated with year 2000 issues, the risks we face associated with year 2000
issues and our year 2000 contingency plans are summarized below.
 
STATE OF READINESS
 
     Internally, we have implemented a three-phase process to assess year 2000
compliance of our systems and remediate any material non-compliance. The phases
are (1) to identify and test our material computer software and hardware in
order to determine whether they are year 2000 compliant; (2) to correct or
replace those software or hardware systems in which we determine there is a
material problem with year 2000 compliance; and (3) to internally test the
corrected or upgraded systems in order to determine whether they are year 2000
compliant. We have completed all three phases with respect to most of our
purchased information technology ("IT") systems and non-IT systems and believe
the systems are year 2000 compliant. We anticipate completing all three phases
with respect to the remainder of the purchased IT and non-IT systems by the end
of the second quarter in 1999.
 
     Externally, we have implemented a three-phase process to assess year 2000
compliance of the systems of our vendors, customers and third-party servicers,
and remediate any material non-compliance. The phases are (1) to identify the
vendors, customers and other third parties with whom we transact business and
determine
 
                                       18
<PAGE>   20
 
whether they are significant to our business ("core" parties); (2) to contact
the vendors, customers and other third parties with whom we do business by,
among other methods, sending them letters and questionnaires designed to solicit
information relating to the year 2000 problem; and (3) to evaluate the responses
received from the vendors, customers and other third parties. The questionnaire
we are using asks vendors, customers and other third parties such questions as
(i) whether they have a documented year 2000 compliance plan, (ii) whether they
are aware of any year 2000 readiness issues that could affect the Company, (iii)
whether, if such an issue exists, they have plans in place to ensure compliance,
(iv) what their target date is for year 2000 compliance and (v) whether they
have any contingency plans. We have substantially completed all three phases
with respect to core parties. We plan to follow up during 1999 with our core
vendors, core customers and third parties with whom we do business, and update
our information regarding the year 2000 problem. We are in the first and second
phases with respect to non-core parties, and anticipate completing all phases
with respect to non-core parties before the end of the third quarter of 1999.
 
COSTS ASSOCIATED WITH YEAR 2000 ISSUES
 
     We estimate that the costs associated with implementing all phases of our
year 2000 assessment and resolving any year 2000 problems will be less than
$100. This estimate includes expenditures for both repairs and upgrades. We
believe that these costs, assuming this estimate is accurate, would not have a
material effect on our business, financial condition and results of operations.
We anticipate that cash flow from operations will be used to pay the costs
associated with our year 2000 problem. All year 2000 costs are expensed as
incurred.
 
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
 
     We are unaware of any material risk to the Company associated with year
2000 issues at the present time. We believe that the reasonably likely worst
case year 2000 scenario is a decrease in the efficiency with which we procure
and deliver loads, and a decrease in the efficiency with which we receive
payment for services rendered. A decrease in efficiency, however, would not
necessarily result in a decrease in business. We expect that load procurement,
load delivery and billing all could be achieved through alternative methods
within a relatively short period of time. Any disruption, however, could result
in some lost revenue.
 
     We face the additional risk of experiencing an increase in claims and
litigation relating to the year 2000 problem because, among other reasons, there
is no uniform definition of year 2000 "compliance" and because all vendor,
customer and third party situations cannot be anticipated, particularly those
involving third party products. Such claims, if successful, could have a
material adverse effect on future results. Moreover, the costs of defending the
Company against such claims, even if ultimately resolved in our favor, could
have a material adverse effect on future results.
 
CONTINGENCY PLANS
 
     We have not yet developed specific contingency plans for the millennium bug
because our assessment of year 2000 issues is incomplete. We generally expect
that our contingency plans will be to identify and have available to us
alternate vendors and service providers to decrease the impact on the Company if
one or more of the core parties with whom we do business suffers a significant
year 2000 problem. We expect to have the Company's contingency plans complete
before the end of the third quarter of 1999.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company is exposed to market risk related to changes in interest rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
 
     Interest Rate Sensitivity.  The Company's earnings are affected by changes
in short-term interest rates as a result of its notes payable under their
revolving lines of credit. If market interest rates for such borrowings average
1% more during 1999 than they did during 1998, the Company's interest expense
would increase, the income before income taxes would decrease by approximately
$0.1 million. This analysis does not consider the effects of the reduced level
of overall economic activity that could exist in such an environment. Further,
in the event of a change of such magnitude, management could take actions to
further mitigate its exposure to
                                       19
<PAGE>   21
 
the change. However, due to the uncertainty of the specific actions that would
be taken and their possible effects, the sensitivity analysis assumes no changes
in the Company's financial structure.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The financial statements of the Company are annexed to this Report as pages
F-2 through F-24.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this item with respect to the directors of the
Company is incorporated by reference from the Company's definitive proxy
statement, expected to be filed with the Commission on or before April 16, 1999.
Information regarding executive officers is set forth in Part I of this report.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
on or before April 16, 1999.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
on or before April 16, 1999.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
on or before April 16, 1999.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     The financial statements filed as part of this report are listed in the
accompanying Index to Financial Statements. The exhibits filed as part of this
report are listed in the accompanying Index to Exhibits. The Company will
furnish a copy of any exhibit listed to requesting stockholders upon payment of
the Company's reasonable expenses in furnishing those materials. No reports on
Form 8-K were filed by the Company during the fourth quarter of 1998.
 
                                       20
<PAGE>   22
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          AASCHE TRANSPORTATION SERVICES, INC.
                                                           LARRY L. ASCHE
                                          By:
                                          --------------------------------------
 
                                              Larry L. Asche, Chief Executive
                                                           Officer
 
April 15, 1999
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                  SIGNATURE                                    TITLE                        DATE
                  ---------                                    -----                        ----
<C>                                            <S>                                     <C>
             /s/ LARRY L. ASCHE                Chief Executive Officer and Chairman    April 15, 1999
---------------------------------------------  of the Board of Directors (Principal
               Larry L. Asche                  Executive Officer)
 
            /s/ LEON M. MONACHOS               Chief Financial Officer (Principal      April 15, 1999
---------------------------------------------  Financial and Accounting Officer)
              Leon M. Monachos
 
             /s/ KEVIN M. CLARK                President, Director                     April 15, 1999
---------------------------------------------
               Kevin M. Clark
 
            /s/ GARY I. GOLDBERG               Vice President, Director                April 15, 1999
---------------------------------------------
              Gary I. Goldberg
 
             /s/ DIANE L. ASCHE                Vice President, Secretary, Director     April 15, 1999
---------------------------------------------
               Diane L. Asche
 
            /s/ RICHARD S. BAUGH               Director                                April 15, 1999
---------------------------------------------
              Richard S. Baugh
 
            /s/ DENNIS D. WILSON               Director                                April 15, 1999
---------------------------------------------
              Dennis D. Wilson
 
           /s/ MICHAEL TODD RECOB              Director                                April 15, 1999
---------------------------------------------
             Michael Todd Recob
</TABLE>
 
                                       21
<PAGE>   23
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of December 31, 1998 and
  1997......................................................  F-4
Consolidated Statements of Operations for the Years Ended
  December 31, 1998, 1997 and 1996..........................  F-6
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 1998,
  1997 and 1996.............................................  F-7
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1998, 1997 and 1996..........................  F-8
Notes to Consolidated Financial Statements..................  F-9
</TABLE>
 
                                       F-1
<PAGE>   24
 
                         REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
  AASCHE TRANSPORTATION SERVICES, INC.
 
     We have audited the accompanying consolidated balance sheets of Aasche
Transportation Services, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aasche
Transportation Services, Inc. at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
 
     The accompanying financial statements have been prepared assuming that
Aasche Transportation Services, Inc. will continue as a going concern. As more
fully described in Note 4 and the third paragraphs of Notes 5 and 6 to the
financial statements, the Company has not complied with certain covenants of
loan agreements during the year ended December 31, 1998, and also is not likely
to be able to comply with certain covenants of loan agreements during 1999, with
certain lenders. The Company has not been successful in obtaining the necessary
waivers and amendments from the lenders in order for the debt not to be
considered in default at December 31, 1998. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 4. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
 
                                          Ernst & Young LLP
Chicago, Illinois
March 12, 1999,
except for Note 4 and the third paragraphs of Notes 5 and 6,
as to which the date is April 15, 1999
 
                                       F-2
<PAGE>   25
 
                      (This page intentionally left blank)
 
                                       F-3
<PAGE>   26
 
                      AASCHE TRANSPORTATION SERVICES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  1998        1997
                                                                --------    --------
<S>                                                             <C>         <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................    $  2,761    $     --
  Trade receivables, less allowance for doubtful accounts of
     $71....................................................      15,947       5,449
  Prepaid expenses and other current assets.................       3,983       1,631
  Inventory supplies........................................       1,964         575
  Prepaid acquisition costs.................................          --         485
                                                                --------    --------
     Total current assets...................................      24,655       8,140
Property and equipment, at cost.............................      57,053      32,931
  Less accumulated depreciation and amortization............     (11,650)    (13,755)
                                                                --------    --------
     Net property and equipment.............................      45,403      19,176
                                                                --------    --------
Excess of cost over net assets acquired, less accumulated
  amortization of $1,177 and $730...........................      14,176       7,340
Debt issuance costs, less accumulated amortization of
  $280......................................................       1,045          --
Other assets................................................       2,999         851
                                                                --------    --------
     TOTAL ASSETS...........................................    $ 88,278    $ 35,507
                                                                ========    ========
</TABLE>
 
                                       F-4
<PAGE>   27
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  1998        1997
                                                                --------    --------
<S>                                                             <C>         <C>
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Cash overdraft............................................    $  1,657    $    312
  Accounts payable..........................................       3,756         788
  Accrued liabilities.......................................       3,453       1,234
  Guaranteed obligation of Employee Stock Ownership Plan....         155         203
  Lines of credit in default................................      18,660       3,817
  Current maturities of long-term debt with unrelated
     parties (including $16,714 in default).................      18,294       2,752
  Current maturities of long-term debt with related party...         995         995
  Current maturities of capital lease obligations with
     unrelated parties......................................       2,090       2,696
  Current maturities of capital lease obligations with
     related parties........................................         151         669
  Subordinated debt, less unamortized debt discount of $107
     (including $8,973 in default)..........................      11,768          --
                                                                --------    --------
     Total current liabilities..............................      60,979      13,466
  Long-term debt with unrelated parties, less current
     maturities.............................................       2,237       3,745
  Long-term debt with related parties, less current
     maturities.............................................         761       1,550
  Capital lease obligations with unrelated parties, less
     current maturities.....................................       5,797       2,787
  Capital lease obligations with related parties, less
     current maturities.....................................          --         144
  Minority interest.........................................         563          --
  Subordinated debt, less unamortized debt discount of
     $430...................................................       1,070          --
  Deferred income taxes.....................................       1,656       1,006
  Accrued warrant accretion.................................         786          --
                                                                --------    --------
     Total liabilities......................................      73,849      22,698
Stockholders' equity:
  Common stock, $.0001 par value, 10,000,000 shares
     authorized, 4,696,130 and 4,539,735 shares issued and
     outstanding............................................          --          --
  Additional paid-in capital................................      18,077      16,565
  Guarantee of Employee Stock Ownership Plan obligation.....        (155)       (203)
  Accumulated deficit.......................................      (3,493)     (3,553)
                                                                --------    --------
     Total stockholders' equity.............................      14,429      12,809
                                                                --------    --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................    $ 88,278    $ 35,507
                                                                ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   28
 
                      AASCHE TRANSPORTATION SERVICES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                            -----------------------------------
                                                              1998         1997         1996
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>
NET REVENUES............................................    $ 113,431    $  65,170    $  77,365
OPERATING EXPENSES:
  Salaries, wages and benefits..........................       42,065       23,403       27,109
  Fuel..................................................       13,581       10,867       13,350
  Purchased transportation..............................       24,180       11,185       10,772
  Supplies and maintenance..............................       12,053        6,317        7,032
  Depreciation and amortization.........................        6,686        5,354        8,547
  Taxes and licenses....................................        1,754        1,667        2,073
  Insurance.............................................        3,201        2,079        2,838
  Communications and utilities..........................        1,448          821          818
  (Gain) loss on disposition of equipment...............         (387)        (905)       1,165
  Litigation settlement.................................           --           --          150
  Polar restructuring expense...........................           --           --          490
  Investment write-off..................................           --           --          100
  Writedown of equipment to net realizable value........           --           --        1,155
  Severance expense.....................................           --           --           81
  Other.................................................        1,995        1,545        2,298
                                                            ---------    ---------    ---------
     Total operating expenses...........................      106,576       62,333       77,978
                                                            ---------    ---------    ---------
OPERATING INCOME (LOSS).................................        6,855        2,837         (613)
OTHER (EXPENSES) INCOME:
  Interest expense......................................       (5,066)      (2,128)      (3,464)
  Warrant accretion expense.............................         (786)          --           --
  Amortization of debt issuance costs...................         (280)          --           --
  Amortization of debt discount.........................         (264)          --           --
  Other.................................................          494           67          136
                                                            ---------    ---------    ---------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) AND
  MINORITY INTEREST EXPENSE.............................          953          776       (3,941)
INCOME TAX PROVISION (BENEFIT)..........................          830          506       (1,321)
                                                            ---------    ---------    ---------
INCOME (LOSS) BEFORE MINORITY INTEREST EXPENSE..........          123          270       (2,620)
  Minority interest expense.............................          (63)          --           --
                                                            ---------    ---------    ---------
NET INCOME (LOSS).......................................    $      60    $     270    $  (2,620)
                                                            =========    =========    =========
Net income (loss) per common share:
  Basic.................................................    $    0.01    $    0.06    $   (0.67)
                                                            =========    =========    =========
  Diluted...............................................    $    0.01    $    0.06    $   (0.67)
                                                            =========    =========    =========
Basic weighted average common shares outstanding........    4,600,926    4,273,842    3,928,596
                                                            =========    =========    =========
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   29
 
                      AASCHE TRANSPORTATION SERVICES, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                             GUARANTEE OF
                                                                               EMPLOYEE
                                                                                STOCK
                                             COMMON STOCK                     OWNERSHIP
                                           $.0001 PAR VALUE     ADDITIONAL       PLAN                         TOTAL
                                         --------------------    PAID-IN       ("ESOP")     ACCUMULATED   STOCKHOLDERS'
                                          SHARES      AMOUNT     CAPITAL      OBLIGATION      DEFICIT        EQUITY
                                         ---------   --------   ----------   ------------   -----------   -------------
<S>                                      <C>         <C>        <C>          <C>            <C>           <C>
Balance at December 31, 1995..........   3,947,107   $     --    $14,442        $(334)        $(1,203)       $12,905
Escrow shares retired in connection
  with litigation settlement..........     (34,030)        --         --           --              --             --
Exercise of stock options.............      40,000         --        156           --              --            156
Reduction in Guarantee of ESOP
  obligation..........................          --         --         --           90              --             90
Net loss..............................          --         --         --           --          (2,620)        (2,620)
                                         ---------   --------    -------        -----         -------        -------
Balance at December 31, 1996..........   3,953,077         --     14,598         (244)         (3,823)        10,531
Exercise of Series A warrants.........      41,100         --        100           --              --            100
Exercise of stock options.............       5,000         --         18           --              --             18
Common stock issued in private
  placement...........................     540,558         --      1,849           --              --          1,849
Reduction in Guarantee of ESOP
  obligation..........................          --         --         --           41              --             41
Net income............................          --         --         --           --             270            270
                                         ---------   --------    -------        -----         -------        -------
Balance at December 31, 1997..........   4,539,735         --     16,565         (203)         (3,553)        12,809
Exercise of stock options and
  warrants............................     106,395         --        461           --              --            461
Aasche warrants granted in connection
  with STS acquisition................          --         --        801           --              --            801
Issuance of common stock..............      50,000         --        250           --              --            250
Reduction in Guarantee of ESOP
  obligation..........................          --         --         --           48              --             48
Net income............................          --         --         --           --              60             60
                                         ---------   --------    -------        -----         -------        -------
Balance at December 31, 1998..........   4,696,130   $     --    $18,077        $(155)        $(3,493)       $14,429
                                         =========   ========    =======        =====         =======        =======
</TABLE>
 
                            See accompanying notes.
 
                                       F-7
<PAGE>   30
 
                      AASCHE TRANSPORTATION SERVICES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                               ------------------------------
                                                                 1998       1997       1996
                                                               --------    -------    -------
<S>                                                            <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)........................................    $     60    $   270    $(2,620)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation..........................................       6,288      5,072      8,277
     Amortization..........................................         398        282        270
     Warrant accretion expense.............................         786         --         --
     Amortization of debt discount.........................         264         --         --
     Amortization of debt issuance costs...................         218         --         --
     Minority interest.....................................          63         --         --
     Writedown of equipment to net realizable value........          --         --      1,155
     (Gain)loss on disposition of equipment................        (387)      (905)     1,165
     Deferred income taxes.................................         466        351     (1,321)
     Changes in other operating items:
       Trade receivables...................................     (10,498)     1,233       (228)
       Prepaid expenses, inventory and other assets........      (2,355)    (1,094)      (179)
       Accounts payable....................................       2,968     (1,511)      (675)
       Accrued liabilities.................................       2,219     (1,132)       691
                                                               --------    -------    -------
          Net cash provided by operating activities........         490      2,566      6,535
                                                               --------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Property and equipment additions:
     Revenue equipment.....................................      (6,667)    (2,273)      (102)
     Building, office equipment and other..................      (1,669)      (324)      (382)
  Proceeds from the sale of equipment......................       6,663      8,806      8,615
  Purchase of Specialty Transportation Services, Inc.
     and Dump Truck Services, Inc..........................     (33,975)        --         --
                                                               --------    -------    -------
          Net cash (used in) provided by investing
            activities.....................................     (35,648)     6,209      8,131
                                                               --------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings of debt with unrelated
     parties...............................................      19,385         --        800
  Proceeds from borrowings of subordinated debt............      13,375         --         --
  Minority interest........................................         500         --         --
  Debt issuance cost.......................................      (1,263)        --         --
  Net borrowings (repayments) on line of credit............      14,843     (1,425)     2,383
  Net increase (decrease) in cash overdraft................       1,345        (37)       349
  Principal payments on long-term debt with unrelated
     parties...............................................      (5,144)    (4,192)   (12,689)
  Principal payments on long-term debt with related
     party.................................................        (996)      (995)      (938)
  Principal payments on capital leases with unrelated
     parties...............................................      (4,193)    (3,276)    (4,356)
  Principal payments on capital leases with related
     parties...............................................        (644)      (817)      (874)
  Proceeds from exercise of stock options and warrants.....         461        118        156
  Proceeds from issuance of common stock...................         250      1,849         --
                                                               --------    -------    -------
          Net cash provided by (used in) financing
            activities.....................................      37,919     (8,775)   (15,169)
                                                               --------    -------    -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...........       2,761         --       (503)
CASH AND CASH EQUIVALENTS:
  Beginning of year........................................          --         --        503
                                                               --------    -------    -------
  End of year..............................................    $  2,761    $    --    $    --
                                                               ========    =======    =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid............................................    $  4,373    $ 2,068    $ 3,424
                                                               ========    =======    =======
  Income taxes paid........................................    $    489    $    55    $    --
                                                               ========    =======    =======
</TABLE>
 
                            See accompanying notes.
 
                                       F-8
<PAGE>   31
 
                      AASCHE TRANSPORTATION SERVICES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998
                (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
 
1. DESCRIPTION OF THE BUSINESS
 
     Aasche Transportation Services, Inc. (the "Company"), through its
wholly-owned operating subsidiaries, Asche Transfer, Inc. ("ATI") and AG
Carriers, Inc. (collectively, "Temperature-Controlled Segment") is a provider of
temperature-controlled, time-sensitive transportation of perishable consumer
products, and through its 90% owned operating subsidiary, Specialty
Transportation Services, Inc. ("Municipal Solid Waste Segment"), is a provider
of municipal solid waste and bulk industrial transport services, throughout the
continental United States. The remaining 10% ownership interest is held by
American Capital Strategies, Ltd. ("ACS"), a publicly traded investment company.
 
ACQUISITION OF THE MUNICIPAL SOLID WASTE TRANSPORT DIVISION OF JACK GRAY
TRANSPORT, INC.
 
     On January 30, 1998, the Company purchased the net assets of the municipal
solid waste transport division of Jack Gray Transport, Inc. (the "Waste
Transport Business") for $30,200 in cash. The Waste Transport Business is
operated through Specialty Transportation Services, Inc. ("STS"), a newly formed
subsidiary of the Company, headquartered in Portage, Indiana. In conjunction
with the acquisition, the Company recorded $5,200 in cost in excess of net
assets acquired. The acquisition was accounted for as a purchase and
accordingly, the 1998 consolidated statement of operations includes the results
of operations of STS from the date it was acquired.
 
     The acquisition by STS was financed with an $18,000 senior bank credit
facility, $13,375 of subordinated debt, $2,125 of which was issued to related
parties (primarily directors), $8,000 of which was issued to ACS and $500 from
the sale of a 10% common stock interest in STS to ACS. In connection with the
issuance of the subordinated debt, 947,500 warrants to acquire the Company's
common stock at prices ranging from $3.49 to $4.63 per share were issued to
various investors, including related parties (primarily directors), and warrants
to acquire an additional 10% of STS common stock were issued to ACS.
 
     In addition, if the internal rate of return ("IRR") of the $8,000
subordinated debt investment with ACS is less than 24%, STS is required to issue
warrants to ACS to purchase up to an additional 30% of STS common stock for a
nominal cost. The Company has the right to call all, but not less than all, of
these warrants or the underlying common stock, if previously converted, upon 30
days notice after all, but not less than all, of the $8,000 of subordinated debt
issued has been paid in full by the Company for the greater of fair market value
or a 24% IRR. The Company has the right to call the warrants, or underlying
common stock, if previously converted, any time up to 5 years from the date of
the acquisition. Commencing February 1, 2003, the warrants or underlying common
stock, if previously converted, can be put to STS for cash, an increase in the
subordinated debt, or shares in the Company's common stock at the greater of
fair market value or a 24% IRR on its investment. ACS's $500 common stock
investment in STS can be put to STS after February 1, 2003 for the fair market
value of the common stock. Upon certain events, both the subordinated debt
warrants and the common stock in STS can be put to STS for cash, an increase in
the subordinated debt, or shares in the Company's common stock at an earlier
date.
 
     STS transports municipal solid and special waste under contracts ranging
from five to twenty years with municipalities and large national waste service
companies, including Waste Management, Browning-Ferris Republic Industries and
Allied Waste Industries. Under exclusive waste transfer contracts, STS
transports solid and special waste from transfer stations to landfill sites
owned by either the municipality or a waste services company. Subsequent to the
acquisition, STS has expanded its operations to include the transportation of
bulk commodities for the scrap recycling, environmental, construction and
manufacturing industries.
 
     The former executive vice president of Jack Gray Transport, Inc. who
organized the waste transport division of Jack Gray Transport, Inc. in 1983 and
ran its operations until the date of acquisition, has entered into a five year
employment agreement to serve as the President of STS. This former executive
vice-president
                                       F-9
<PAGE>   32
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
has served as a member of the Company's Board of Directors since July 1996 and a
vice president of the Company since January 1998.
 
     STS operates as a stand-alone business unit separate from the Company's
existing Temperature-Controlled Segment.
 
     The following unaudited pro forma data is based on certain amounts derived
from the audited consolidated statement of operations for the year ended
December 31, 1998 and the unaudited statement of operations of the Waste
Transport Business for the one month ended January 30, 1998 and the audited
statement of operations of the Waste Transport Business for the nine months
ended September 30, 1997, the unaudited statement of operations of the Waste
Transport Business for the three months ended December 31, 1997 and the audited
consolidated statement of operations of the Company for the year ended December
31, 1997, and assumes in each case, that the acquisition of the net assets of
the Waste Transport Business occurred on January 1, 1997. The pro forma
statements are not necessarily indicative of the results of operations which
would have occurred had the acquisition taken place on January 1, 1997 or of
future results of the consolidated operations of STS and the Company.
 
PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED):
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED           YEAR ENDED
                                                             DECEMBER 31, 1998    DECEMBER 31, 1997
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
Net revenues.............................................        $116,865             $100,445
Operating income.........................................           7,310                6,736
Income (loss) before income tax provision (benefit)......             954                 (208)
Net income (loss)........................................              58                 (315)
Basic and diluted net income (loss) per share............            0.01                (0.08)
</TABLE>
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
PRINCIPLES OF CONSOLIDATION
 
     The consolidated financial statements include all accounts of the Company
and its operating subsidiaries, ATI, AG Carriers, Inc. and STS. All significant
intercompany accounts and transactions have been eliminated in consolidation.
 
REVENUE RECOGNITION
 
     The Temperature-Controlled Segment recognizes revenue when the freight
leaves the terminal. Cost and related expenses are recorded when the related
revenue is recognized. Management has concluded that the difference between the
Temperature-Controlled Segment's method of recognizing revenue and a prescribed
method does not result in a material difference in reported quarterly or annual
net income and related per share amounts. The Municipal Solid Waste Segment
recognizes revenue when the freight is delivered. Costs and related expenses are
recorded when the related revenue is recognized.
 
CASH EQUIVALENTS
 
     The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
 
PROPERTY AND EQUIPMENT
 
     Property and equipment, including capitalized leases, are stated at cost,
less accumulated depreciation and amortization and are being depreciated and
amortized using both straight-line and accelerated methods
 
                                      F-10
<PAGE>   33
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
over the estimated useful lives of the assets which range from two to thirty
years. Motor carrier equipment, consisting of tractors and trailers, are
depreciated using the straight-line method over the estimated useful lives of
the assets which range from three to ten years. The carrying amounts of motor
carrier equipment are reflected at net realizable value, as determined based on
the estimated salvage values at the end of the estimated useful life of the
related motor carrier equipment.
 
INCOME TAXES
 
     The Company accounts for income taxes using the liability method. Under the
liability method, deferred taxes are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of assets and liabilities and their respective tax bases.
 
DEBT ISSUANCE COSTS
 
     Fees associated with the issuance of debt are amortized using the
straight-line method over the life of the related debt.
 
EXCESS OF COST OVER NET ASSETS ACQUIRED
 
     The excess of cost over net assets acquired is amortized on a straight-line
basis over 30 years, with the exception of the September 1994 acquisition of
Polar Express, Inc. ("PEI"). The excess of cost over net assets acquired
resulting from the September 1994 acquisition of PEI is amortized on a straight
line basis over 25 years. The Company assesses long-lived assets for impairment
under FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of. In accordance with this Statement,
the excess of cost over net assets acquired associated with assets acquired in a
purchase business combination is included in impairment evaluations when events
or circumstances exist that indicate the carrying amount of those assets may not
be recoverable. If this review indicates that the carrying amount will not be
recoverable, as determined based on the estimated undiscounted cash flows over
the remaining amortization period, the carrying amount of the excess of cost
over net assets acquired will be reduced by the estimated shortfall of cash
flows.
 
WARRANT ACCRETION
 
     STS warrants are valued at the greater of fair market value or an amount
that gives rise to an internal rate of return of 24% to the holder of an $8,000
subordinated debt investment.
 
DEBT DISCOUNT
 
     Discounts associated with the issuance of $5,375 of subordinated debt are
amortized using the interest method over the life of the related debt.
 
MINORITY INTEREST
 
     Minority interest associated with a $500 common stock investment in STS is
valued at the fair market value of the related common stock.
 
STOCK-BASED COMPENSATION
 
     In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if
elected, would require companies to use a new fair value method of accounting
for stock-based compensation plans. The Company has elected to continue
following present accounting rules under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") which uses an
intrinsic value method and often results in no compensation expense.
                                      F-11
<PAGE>   34
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of the
grant, no compensation expense is recognized.
 
COMMON SHARE DATA
 
     Basic income per share is computed using the weighted average number of
shares outstanding. On a diluted basis, the weighted average number of shares
outstanding is adjusted for the incremental shares attributed to outstanding
options and warrants, when the effect of such items are dilutive. Diluted
weighted average shares outstanding for 1998 and 1997 in connection with options
and warrants amount to 479,539 shares and 61,585 shares, respectively. In 1996
the weighted average shares outstanding related to options and warrants are
antidilutive and, accordingly, are not included in the per share calculations.
 
SEGMENT INFORMATION
 
     In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which changes the way public companies
report information about operating segments. The Company adopted SFAS No. 131 as
of December 31, 1998. This statement, which is based on the management approach
to segment reporting, establishes requirements to report selected segment
information quarterly and to report entity-wide disclosures about products and
services, major customers and the major countries in which the Company holds
assets and reports revenues.
 
RECENT ACCOUNTING STANDARDS
 
     In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities, including
organization costs, to be expensed as incurred. The SOP broadly defines start-up
activities as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or beneficiary, initiating a new process in an existing facility, or
commencing some new operation. The SOP is effective for the Company for fiscal
years beginning after December 15, 1998, and will require the Company upon
adoption to write off any previously capitalized start-up or organization costs
as a cumulative effect of a change in accounting principle. Thus, effective
January 1, 1999, the Company will write off all organization and start-up costs
under the SOP as a cumulative effect of a change in accounting principle in the
amount of approximately $500, which primarily relates to the STS costs incurred
in 1998 to open new terminals or expand existing facilities.
 
OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
 
     Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade receivables. The Company places its cash and cash equivalents with high
credit quality financial institutions and instruments.
 
     Concentrations of credit risk with respect to trade receivables is limited
to the large number of customers comprising the Company's customer base and
their dispersion across many different geographic locations.
 
     For all periods presented, the Company had no significant concentrations of
credit risk or financial instruments with off-balance sheet risk.
 
USE OF ESTIMATES
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
                                      F-12
<PAGE>   35
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3. PROPERTY AND EQUIPMENT
 
     Property and equipment at December 31, 1998 and 1997 consists of the
following:
 
<TABLE>
<CAPTION>
                                                                  1998        1997
                                                                --------    --------
<S>                                                             <C>         <C>
Land........................................................    $  1,329    $    595
Buildings and improvements..................................       3,130       2,032
Motor carrier equipment.....................................      29,178      15,495
Motor carrier equipment under capital leases:
  Unrelated parties.........................................      11,134      10,520
  Related parties...........................................       2,832       2,758
Other equipment, furniture, and fixtures....................       9,450       1,531
                                                                --------    --------
                                                                  57,053      32,931
Less: Accumulated depreciation and amortization.............     (11,650)    (13,755)
                                                                --------    --------
                                                                $ 45,403    $ 19,176
                                                                ========    ========
</TABLE>
 
     In March 1998, ATI entered into various agreements for the sale and
leaseback of certain motor carrier equipment which reduced operating expenses
$411 and increased net income $253, or $0.06 and $0.05 basic and diluted net
income per common share, respectively, in 1998. The leases are classified as
capital leases in accordance with SFAS No. 13, Accounting for Leases.
 
     During 1998, ATI entered into various agreements for the sale of certain
motor carrier equipment with an immediate leaseback of the same motor carrier
equipment by STS. The motor carrier equipment sold by ATI was originally
financed with debt, capital leases and operating leases. The net book value of
the debt and capital lease financed equipment was $4,884. The leases entered
into by STS are classified as operating leases in accordance with SFAS No. 13,
Accounting for Leases. The transactions generated $1,867 in net cash proceeds to
the Company and resulted in a gain of $453, of which $76 was recognized in 1998
with the remainder of $377 amortized over the remaining lives of the related
leases.
 
     In July 1998, the Company adjusted the estimated salvage values related to
certain motor carrier equipment of AG Carriers, Inc. from 20% to 49% of the
original purchase price. The change better aligns the allocation of equipment
cost with its expected use. This change reduced operating expenses approximately
$235 and increased net income approximately $143, or $0.03 basic and diluted net
income per common share in 1998.
 
     In December 1996, the Company adjusted the estimated salvage values related
to certain motor carrier equipment of Polar from 44% to 35% of the original
purchase price. The change better aligns the allocation of equipment cost with
its expected use. This resulted in a writedown of equipment in the amount of
$1,155, $716 after-tax ($0.18 net loss per common share) in 1996.
 
     In December 1996, the Company entered into various agreements for the sale
and leaseback of certain Polar motor carrier equipment which reduced expenses
$618 and increased net income $383 during the year ended December 31, 1997
($0.09 net income per common share). The leases are classified as operating
leases in accordance with SFAS No. 13, Accounting for Leases. The resulting loss
of $1,043, $647 after-tax ($0.16 net loss per common share) was recorded in
1996.
 
     In February 1997, the Company entered into an agreement to sell 68 Polar
tractors and 141 Polar trailers for $4,592. The transaction generated $1,373 in
net cash proceeds to the Company with no significant earnings effect in 1997.
 
                                      F-13
<PAGE>   36
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4. GOING CONCERN AND MANAGEMENT'S PLANS
 
     The Company has not complied with certain loan covenants during the year
ended December 31, 1998, and also is not likely to be able to comply with
certain covenants during 1999, under loan agreements with: (1) ACS (10%
stockholder and $8,000 subordinated lender to STS), (2) one of STS's senior bank
lenders ($14,113 outstanding line of credit and $16,714 note payable at December
31, 1998), (3) the Company's senior bank lender ($4,547 outstanding line of
credit at December 31, 1998) and, (4) an unsecured subordinated lender holding a
14.00% note payable in the amount of $973 at December 31, 1998 (net of
unamortized debt discount of $27) and due July 1, 1999. The violations primarily
relate to financial covenants including the: total leverage ratio; minimum
tangible net worth amount; fixed charge coverage ratio; interest coverage ratio;
minimum annual net income; and the maximum amount for leases and capital
expenditures. As of April 15, 1999, the Company has not been successful in
obtaining the necessary waivers and amendments from the respective lenders in
order for the debt not to be considered in default at December 31, 1998. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
 
     Management's plans include actively seeking refinancing of the $8,000
subordinated debt with ACS which may be in the form of equity securities or in
other certain subordinated debt securities. Upon the refinancing of the $8,000
subordinated debt, management believes it will be successful in obtaining the
necessary waivers and amendments with its other lenders in order for the debt
not to be considered in default at and for the year ended December 31, 1998 and
to enable the Company to comply with its loan covenants during 1999.
 
     Under the provisions of a subordination and intercreditor agreement between
STS, STS's senior bank lenders and ACS, ACS is prohibited from taking any legal
action against STS until an event of default under the loan agreement with ACS
occurs and continues uncured and unwaived for six months after notice of such
event of default is provided to the senior bank lenders by ACS. As of April 15,
1999, no written notification from ACS regarding an event of default has been
received by the senior bank lenders. Upon the occurrence of an event of default,
interest can accrue at the default rate (17.50% on the $5,500 senior
subordinated note and 20.00% on the $2,500 junior subordinated note) until such
default is waived or cured. A prepayment premium can also be assessed under the
provisions of the loan agreement as a result of the default, not to exceed $240.
 
     Under the provisions of the loan agreement with STS's senior bank lender,
upon the occurrence of an event of default, the bank can automatically cease to
make any new loans. Upon written notice, the bank can also declare all principal
and interest amounts outstanding as immediately due and payable. In addition,
upon the occurrence of an event of default, interest can accrue at its current
rate plus 2.00%, compounded daily. As of April 15, 1999, no written notification
from STS's senior bank lender regarding an event of default has been received.
 
     Under the provisions of the loan agreement with the Company's senior bank
lender, upon written notice by the bank of an event of default, the bank can
declare all principal and interest amounts outstanding as immediately due and
payable. In addition, upon the occurrence of an event of default, interest can
accrue at the prime rate plus 3.00% per annum. As of April 15, 1999, no written
notification from the Company's senior bank lender regarding an event of default
has been received.
 
     Under the provisions of the loan agreement with the unsecured subordinated
lender holding a 14.00% note payable in the amount of $973 at December 31, 1998
(net of unamortized debt discount of $27) and due July 1, 1999, the holder of
the note, by written notice can declare all principal and interest amounts
outstanding as immediately due and payable. In addition, upon notification of
the occurrence of an event of default, interest can accrue at a rate of 18.00%
per annum. As of April 15, 1999, no written notification from the unsecured
subordinated lender has been received.
 
                                      F-14
<PAGE>   37
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5. LINES OF CREDIT
 
     The Company maintains two revolving lines of credit with financial
institutions which provide for a maximum funding of $24,000, consisting of
$18,000 (Municipal Solid Waste Segment) and $6,000 (Temperature-Controlled
Segment) based on a percentage of eligible trade receivables for the
Temperature-Controlled Segment and eligible trade receivables and property and
equipment not used to collateralize the 8.81% note payable to unrelated parties
of $16,714 (see Note 6) for the Municipal Solid Waste Segment. At December 31,
1998, the Company had borrowings of $18,660, consisting of $14,113 (Municipal
Solid Waste Segment) and $4,547 (Temperature-Controlled Segment) outstanding,
with a maximum remaining availability of $804, consisting of $796 (Municipal
Solid Waste Segment) and $8 (Temperature-Controlled Segment). The lines bear
interest at the prime rate (7.75% at December 31, 1998) on $15,660 and LIBOR
(5.28% at December 31, 1998) plus 2.5% on the remaining $3,000. At the time the
Company draws against the line of credit, the Company has the option of
borrowing at the prime rate, or alternatively LIBOR plus 2.5% for the
Temperature-Controlled Segment or LIBOR plus 2.75% for the Municipal Solid Waste
Segment. The lines of 18,000 (Municipal Solid Waste Segment) and $6,000
(Temperature-Controlled Segment) are renewable on December 31, 2000 and April
30, 2000, respectively. The lines of credit are collateralized by trade
receivables for the Temperature-Controlled Segment and eligible trade
receivables and property and equipment not used to collateralize the 8.81% note
payable to unrelated parties of $16,714 for the Municipal Solid Waste Segment.
 
     The Company is subject to certain restrictive covenants related to the line
of credit, which include maintaining a specified debt service coverage ratio,
debt to equity ratio, a specified tangible net worth and a restriction on the
payment of dividends and stock redemptions.
 
     The Company is in violation of certain financial covenants which have not
been waived or cured (see Note 4). Therefore, the outstanding borrowings of
$18,660 are classified as a current obligation in the accompanying balance sheet
at December 31, 1998.
 
                                      F-15
<PAGE>   38
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6. OTHER LONG-TERM DEBT
 
     Other long-term debt at December 31, 1998 and 1997 consists of the
following:
 
<TABLE>
<CAPTION>
                                                                  1998       1997
                                                                --------    -------
<S>                                                             <C>         <C>
8.81% note payable to a bank due in quarterly installments
  of $643, with $6,426 due on December 31, 2002-secured-in
  default...................................................    $ 16,714    $    --
12.50% senior subordinated note payable to ACS, due in
  monthly installments of $153 commencing March 1, 2003
  through February 1, 2006-secured-in default...............       5,500         --
15.00% junior subordinated note payable to ACS, due in
  monthly installments of $69 commencing March 1, 2003
  through February 1, 2006-secured-in default...............       2,500         --
14.00% unsecured subordinated notes payable to unrelated
  parties due July 1, 1999, net of unamortized debt discount
  of $58....................................................       2,042         --
14.00% unsecured subordinated note payable to unrelated
  party due July 1, 1999, net of unamortized debt discount
  of $27-in default.........................................         973         --
8.25% unsecured subordinated notes payable to related
  parties due February 1, 2003, net of unamortized debt
  discount of $430..........................................       1,070         --
14.00% unsecured subordinated notes payable to related
  parties due August 1, 1999, net of unamortized debt
  discount of $21...........................................         753         --
6.40% to 9.25% notes payable to unrelated parties, due in
  various monthly installments through the year
  2003-secured..............................................       2,779      5,512
8.00% unsecured note payable to a related party, due in
  quarterly installments of $249 through May 16, 2000.......       1,556      2,545
14.00% unsecured subordinated note payable to related party
  due February 1, 2006......................................         200         --
Other.......................................................       1,038        985
                                                                --------    -------
Total other long-term debt..................................      35,125      9,042
Less: current maturities....................................     (31,057)    (3,747)
                                                                --------    -------
Other long-term debt, less current maturities...............    $  4,068    $ 5,295
                                                                ========    =======
</TABLE>
 
     The 8.81% note payable, the 12.50% senior subordinated note payable and the
15.00% junior subordinated note payable are collateralized by eligible trade
receivables and certain fixed assets of STS. The 6.40% to 9.25% secured notes
payable are collateralized by the related motor carrier equipment.
 
     The Company is in violation of certain financial covenants related to the
8.81% note payable to a bank and the 12.50% and 15.00% subordinated notes
payable to ACS which have not been waived or cured (see Note 4). Therefore, the
long-term portion of the originally scheduled maturities totaling $22,142 are
classified as current obligations in the accompanying balance sheet at December
31, 1998. The 14.00% unsecured subordinated notes payable in the amount of $973
at December 31, 1998 (net of unamortized debt discount of $27) is already
classified as current as it is due July 1, 1999.
 
     The principal maturities of other long-term debt as of December 31, 1998,
are as follows:
 
<TABLE>
<S>                                                             <C>
1999........................................................    $31,057
2000........................................................        960
2001........................................................        243
2002........................................................        246
2003........................................................      1,444
Thereafter..................................................      1,175
                                                                -------
                                                                $35,125
                                                                =======
</TABLE>
 
                                      F-16
<PAGE>   39
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7. COMMITMENTS
 
     At December 31, 1998 the Company was obligated for future rentals under
capital and operating leases, as follows:
 
<TABLE>
<CAPTION>
                                                               CAPITAL        CAPITAL
                                                             LEASES WITH    LEASES WITH
                                                              UNRELATED       RELATED      OPERATING
                                                               PARTIES        PARTIES       LEASES
                                                             -----------    -----------    ---------
<S>                                                          <C>            <C>            <C>
1999.....................................................      $2,211          $162         $10,598
2000.....................................................       1,862            --          12,081
2001.....................................................       1,192            --          11,457
2002.....................................................       1,172            --           5,457
2003.....................................................       1,984            --           4,913
Thereafter...............................................         233            --           5,673
                                                               ------          ----         -------
                                                                8,654           162         $50,179
                                                                                            =======
Amounts representing interest............................        (767)          (11)
                                                               ------          ----
Present value of minimum lease payments, including
  current portion of $2,090 and $151 respectively........      $7,887          $151
                                                               ======          ====
</TABLE>
 
     The Company financed motor carrier equipment purchases through capital
lease obligations with unrelated parties of $6,579 for the year ended December
31, 1998.
 
     Rent expense under operating leases amounted to $6,686, $3,748 and $1,687
for the years ended December 31, 1998, 1997 and 1996, respectively.
 
     The capital leases with unrelated parties contain purchase options under
which the Company is required to purchase the equipment for a defined residual
amount, ranging from 15% to 40%, at the end of the lease term.
 
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. The carrying amounts of cash and cash equivalents, trade
receivables, prepaid expenses and other current assets, accounts payable, and
accrued liabilities approximate fair value because of the short maturity of
those instruments. The fair value of the Company's outstanding debt and capital
leases is estimated based on similar issues or on the current rates offered to
the Company for debt and capital leases of the same remaining maturities and the
carrying value is a reasonable estimate of its fair market value.
 
9. STOCKHOLDERS' EQUITY
 
PRIVATE PLACEMENT OFFERING
 
     In July 1997, the Company completed a private placement offering of 540,558
shares of common stock at a price of $3.70 per share. The offering was made
solely to accredited investors. The net proceeds of approximately $1,849,
including issuance costs of $51, was used to reduce outstanding indebtedness and
for general corporate purposes.
 
                                      F-17
<PAGE>   40
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
STOCK OPTIONS
 
     In June 1996, the Company merged all of its stock option plans, with the
exception of the two plans in accordance with the separation agreements
described below, into one all inclusive plan, the Aasche Transportation
Services, Inc. Stock Option Plan. All matters relating to eligibility for
options and the number of options to which such individuals may be entitled
based upon events occurring prior to the adoption of this plan will be
determined in accordance with the applicable provisions of the prior plans.
 
     The following table summarizes the activities under the Company's Stock
Option Plan and options granted in accordance with employment and stock option
agreements for the three years ended December 31, 1998:
 
<TABLE>
<CAPTION>
                                                                            OPTIONS OUTSTANDING
                                                           OPTIONS      ----------------------------
                                                        AVAILABLE FOR               WEIGHTED-AVERAGE
                                                            GRANT        SHARES      EXERCISE PRICE
                                                        -------------   ---------   ----------------
<S>                                                     <C>             <C>         <C>
Balance December 31, 1995............................       109,918       423,582        $ 6.97
  Increase in shares reserved........................       200,000            --
  Options granted....................................      (260,000)      260,000        $ 3.85
  Options canceled...................................       245,797      (245,797)       $ 6.56
  Options exercised..................................            --       (40,000)       $ 3.89
                                                         ----------     ---------
Balance December 31, 1996............................       295,715       397,785        $ 5.33
  Options granted....................................       (35,000)       35,000        $ 4.64
  Options canceled...................................        25,585       (25,585)       $ 7.37
  Options exercised..................................            --        (5,000)       $ 3.75
                                                         ----------     ---------
Balance December 31, 1997............................       286,300       402,200        $ 5.37
  Increase in shares reserved........................     1,085,000            --
  Options granted....................................    (1,178,000)    1,178,000        $ 4.19
  Options canceled...................................         1,200        (1,200)       $ 7.00
  Options exercised..................................            --        (5,000)       $ 5.75
                                                         ----------     ---------
Balance December 31, 1998............................       194,500     1,574,000        $ 4.46
                                                         ==========     =========
</TABLE>
 
<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
-----------------------------------------------------------------   ------------------------------
                              WEIGHTED-AVERAGE
EXERCISE PRICE                   REMAINING       WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE
    RANGE         SHARES       CONTRACT LIFE      EXERCISE PRICE      SHARES       EXERCISE PRICE
--------------    ------      ----------------   ----------------     ------      ----------------
<S>             <C>           <C>                <C>                <C>           <C>
$3.66 - $ 5.19   1,428,000          8.89              $4.09           797,000          $4.03
$5.75 - $ 8.38      38,000          7.29              $7.44            38,000          $7.44
$8.75 - $10.94     108,000          5.93              $9.52           108,000          $9.52
                 ---------                                            -------
                 1,574,000                                            943,000
                 =========                                            =======
</TABLE>
 
     The above table includes 714,000 outstanding options with 194,500 options
available for grant issued out of the Company's Stock Option Plan and 860,000
outstanding options issued in accordance with employment and stock option
agreements. The Company had 943,000, 267,000 and 176,300 options exercisable as
of December 31, 1998, 1997 and 1996, respectively.
 
     The exercise price of each option must be at least equal to the fair market
value of the common stock on the date the stock option is granted. The maximum
term of options granted under the Stock Option Plan generally is ten years. The
weighted-average fair value of options granted during 1998, 1997 and 1996 was
$2.20, $1.47 and $2.01, respectively.
 
                                      F-18
<PAGE>   41
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In accordance with a separation agreement between an employee and the
Company in 1996, options to purchase 60,000 shares of the Company's common stock
at an exercise price per share of $3.31 were granted. In May 1998, all 60,000
options were exercised.
 
     In accordance with a separation agreement entered into between a former
consultant of the Company and the Company in July 1996, options to purchase
50,000 shares of the Company's common stock at an exercise price per share of
$3.31 were granted. In March 1998, all 50,000 options were exercised.
 
     Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted under the fair value method. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1998, 1997 and 1996,
respectively: risk-free interest rates of 4.77%, 5.90% and 6.26%; volatility
factors of the expected market price of the Company's common stock of 56.6%,
46.9% and 55.1%; and a weighted-average expected life of the option of 4.7
years, 2.0 years and 4.7 years, respectively; and no dividend yield.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
 
<TABLE>
<CAPTION>
                                                                 1998     1997     1996
                                                                ------    ----    -------
<S>                                                             <C>       <C>     <C>
Net income (loss)...........................................    $ (779)   $143    $(3,010)
Basic net income (loss) per common share....................     (0.17)   0.04      (0.77)
Diluted net income (loss) per common share..................     (0.15)   0.04      (0.77)
</TABLE>
 
EMPLOYEE STOCK OWNERSHIP PLAN
 
     In October 1994, the Company amended and restated the 401(k) Plan to
include as a part of the 401(k) Plan an Employee Stock Ownership Plan (ESOP) for
the benefit of all eligible employees of the Company (see Note 11). Company
matching contributions and any dividends received may be used by the ESOP to
purchase common stock for the account of the participants. The Company may also
make discretionary contributions to the ESOP for the purchase of common stock.
In December 1994, the ESOP borrowed $621 from a bank to purchase 75,000 shares
of common stock from the stockholders. These shares are held in escrow and are
released by the tender to participants' accounts in the ESOP as the loan is
repaid. The loan obligation of the ESOP, which bears interest at prime, is
guaranteed by the Company and is considered unearned employee benefit expense.
The Company's guarantee of the ESOP loan has been recorded as a reduction of
stockholders' equity in the accompanying balance sheet at December 31, 1998 and
1997. The Company made no contributions to the ESOP in 1998, 1997 or 1996.
 
     In December 1994, the Company implemented an Employee Stock Purchase Plan
(ESPP) for the benefit of all eligible employees of the Company. Participants of
the ESSP may contribute "after-tax" compensation through payroll deductions. The
Company was required to provide a 25% matching contribution. In April 1996, the
plan was amended to eliminate the Company matching contribution.
 
                                      F-19
<PAGE>   42
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
WARRANTS
 
     On September 23, 1994, the Company issued to the underwriter of the initial
public offering, for nominal consideration, warrants to purchase up to 53,125
shares of common stock of the Company. All such warrants will be exercisable
during the four-year period commencing on September 23, 1995 at an exercise
price of 125% of the initial public offering price. At December 31, 1998, all
warrants remained outstanding.
 
     On December 22, 1995, pursuant to the Polar merger agreement, the Company
issued 41,100 Series A warrants to purchase the Company's common stock, in
exchange for all outstanding Series A warrants of Polar. The warrants were
exercisable at $2.43 per share through February 8, 2000. In January 1997, all
41,100 Series A Warrants were exercised.
 
     On December 22, 1995, pursuant to the Polar merger agreement, the Company
issued 965,805 Series B warrants to purchase the Company's common stock, in
exchange for all outstanding Series B warrants of Polar. In May 1998, 100 Series
B warrants were exercised. At December 31, 1998, 965,705 warrants remain
outstanding. The warrants are exercisable at $7.91 per share through February 8,
2000, and are redeemable by the Company for approximately $.02 if the closing
price of the Company's common stock exceeds $11.86 for any 20 consecutive
trading days commencing February 9, 1996.
 
     In connection with the private placement offering in July 1997, the Company
issued warrants to purchase 54,070 shares of common stock at an exercise price
of $4.625 per share to accredited investors and warrants to purchase 54,056
shares of common stock at an exercise price of $5.55 per share to the
underwriters of the offering.
 
     In connection with the acquisition of the Waste Transport Business, 947,500
warrants to acquire the Company's common stock at prices ranging from $3.49 to
$4.63 per share were issued to various investors, including related parties
(primarily directors). In October 1998, 20,000 warrants were exercised at $3.49
per share.
 
CONTINGENT ISSUANCE OF COMMON SHARES
 
     In accordance with the original purchase agreement of AG Carriers, Inc., as
amended, the Company guaranteed the total value of the Company's common stock
issued in the purchase. Under the terms of the agreement, as amended, if during
the period from May 16, 1999 through September 12, 1999, the closing price per
share of the Company's common stock has not reached at least $10.90 per share,
then on the 30th day following September 12, 1999, the Company shall issue
sufficient additional shares of the Company's common stock such that all of the
shares issued have a total value of $1,254. In the event the additional shares
are required to be issued, management believes this will not have a material
adverse impact on the financial position or operations of the Company.
 
                                      F-20
<PAGE>   43
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10. INCOME TAXES
 
     Details of the provision (benefit) for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                -------------------------
                                                                1998     1997      1996
                                                                ----    ------    -------
<S>                                                             <C>     <C>       <C>
Current:
  Federal...................................................    $321    $1,883    $    --
  State.....................................................      43       251         --
  Utilization of carryforwards..............................      --    (1,979)        --
                                                                ----    ------    -------
Total current...............................................     364       155         --
Deferred:
  Federal...................................................     412       310     (1,156)
  State.....................................................      54        41       (165)
                                                                ----    ------    -------
Total deferred..............................................     466       351     (1,321)
                                                                ----    ------    -------
                                                                $830    $  506    $(1,321)
                                                                ====    ======    =======
</TABLE>
 
     The provision (benefit) for income taxes differs from the amounts computed
by applying the statutory federal income tax rates to income before income taxes
due primarily to:
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                -------------------------
                                                                1998     1997      1996
                                                                ----    ------    -------
<S>                                                             <C>     <C>       <C>
Income tax at statutory federal rate........................    $324    $  263    $(1,340)
Effect of:
  Warrant accretion expense.................................     303        --         --
  Amortization of debt discount.............................     102        --         --
  State income taxes, net of federal benefit................      26        37       (192)
  Other, net................................................      75       206        211
                                                                ----    ------    -------
                                                                $830    $  506    $(1,321)
                                                                ====    ======    =======
</TABLE>
 
     At December 31, 1998, the Company has approximately $423 of alternative
minimum tax credits available that can be carried forward indefinitely to offset
future income taxes. The Company also has unused net operating loss
carryforwards of approximately $4,300 which expire between 2004 and 2013. As a
result of the Polar merger, utilization of certain net operating loss
carryforwards are subject to annual limitations.
 
                                      F-21
<PAGE>   44
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Temporary differences which result in deferred tax assets (liabilities) are
as follows:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 1998       1997
                                                                -------    -------
<S>                                                             <C>        <C>
Deferred tax assets:
  Allowance for doubtful accounts and driver advances.......    $    27    $    27
  Accrued expenses..........................................        182          8
  Net operating loss carryforwards..........................      1,672        687
  Alternative minimum tax credits...........................        423        423
  Other.....................................................        151         --
                                                                -------    -------
                                                                  2,455      1,145
Deferred tax liabilities:
  Basis of intangible assets................................       (439)      (227)
  Basis of revenue equipment................................     (2,238)    (1,411)
  Basis of capitalized leases...............................     (1,225)      (390)
  Revenue taxed on in transit shipments.....................         --        (15)
  Other.....................................................         --        (83)
                                                                -------    -------
                                                                 (3,902)    (2,126)
                                                                -------    -------
Net deferred tax liability..................................    $(1,447)   $  (981)
                                                                =======    =======
</TABLE>
 
11. RELATED PARTY TRANSACTIONS
 
     The Company currently leases certain of its revenue equipment from related
parties. Payments to related parties on capital lease obligations in 1998, 1997
and 1996 were $686, $817 and $874, respectively.
 
12. EMPLOYEE BENEFIT PLANS
 
     Each of the Company's subsidiaries and divisions has its own profit-sharing
and 401(k) plans covering substantially all full-time employees. In January
1999, all subsidiary and division plans were merged into one Company plan.
Company contributions to the plan were $347, $104 and $97 for the years ended
1998, 1997 and 1996, respectively.
 
     STS participates in several multi-employer, union-sponsored health and
welfare and defined contribution pension plans. Contributions to such plans
amounted to $601 in 1998.
 
13. LITIGATION SETTLEMENT
 
     In May 1996, the Company settled all outstanding litigation related to
Polar's acquisition of PEI for $150, or $0.02 net loss per common share. This
amount does not include the Company's legal costs incurred related to its
defense of this matter, which had been expensed as incurred and had not been
included in the settlement amount.
 
     In conjunction with the Polar merger, 5% of the Company's common stock
issued in the merger (69,941 shares) were held in an escrow account pending
final determination of the litigation. Upon reaching a final settlement, 34,030
of the common shares held in the escrow account were retired by the Company.
 
14. RESTRUCTURING
 
     The Company recorded a non-recurring one-time restructuring charge of $490,
or $0.08 net loss per common share, in June 1996 related to severance payments
to approximately 30 terminated employees of Polar.
 
                                      F-22
<PAGE>   45
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
15. SEGMENT INFORMATION
 
DESCRIPTION OF THE TYPES OF SERVICES FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUES
 
     The Company has two reportable segments, the Temperature-Controlled Segment
and the Municipal Solid Waste Segment (acquired January 30, 1998). The
Temperature-Controlled Segment consists of two operating companies, Asche
Transfer, Inc. and AG Carriers, Inc., that provide temperature-controlled, time-
sensitive transportation of perishable consumer products. The Municipal Solid
Waste Segment consists of one operating company, Specialty Transportation
Services, Inc., that provides municipal solid waste and bulk industrial
transport services.
 
MEASUREMENT OF SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS
 
     The Company evaluates performance and allocates resources based on net
profit and loss from operations. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. The Municipal Solid Waste Segment financial data includes
parent company subordinated debt of $5,375, less unamortized debt discount of
$537 issued by the parent company and related debt issuance costs of $210, less
accumulated amortization of $74 in connection with the acquisition of the Waste
Transport Business. The related interest expense of $611, amortization of debt
issuance costs of $74 and amortization of debt discount of $264 are also
included in the Municipal Solid Waste Segment.
 
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
 
     The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of the distinct differences in the operations.
 
<TABLE>
<CAPTION>
                                                          TEMPERATURE-     MUNICIPAL
            YEAR ENDED DECEMBER 31, 1998:                  CONTROLLED     SOLID WASTE     TOTALS
            -----------------------------                 ------------    -----------    --------
<S>                                                       <C>             <C>            <C>
Net revenues..........................................      $60,762         $52,669      $113,431
Depreciation and amortization.........................        3,972           2,714         6,686
Operating income......................................        3,871           4,232         8,103
Interest expense......................................        1,353           3,654         5,007
Income tax provision..................................        1,157             176         1,333
Segment profit (loss).................................        1,740            (877)          863
Significant noncash items included in segment profit
  (loss):
  Warrant accretion expense...........................           --             786           786
  Amortization of debt issuance costs.................           --             280           280
  Amortization of debt discount.......................           --             264           264
  Other...............................................           --              63            63
Segment assets........................................       30,890          57,284        88,174
Expenditures for long-lived assets....................        5,052           1,622         6,674
</TABLE>
 
OPERATING INCOME
 
<TABLE>
<S>                                                             <C>
Total operating income for reportable segments..............    $ 8,103
Parent company operating loss...............................     (1,248)
                                                                -------
  Total consolidated operating income.......................    $ 6,855
                                                                =======
</TABLE>
 
                                      F-23
<PAGE>   46
                      AASCHE TRANSPORTATION SERVICES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
SEGMENT PROFIT (LOSS)
 
<TABLE>
<S>                                                             <C>
Total profit for reportable segments........................    $   863
Parent company loss.........................................       (803)
                                                                -------
  The consolidated profit...................................    $    60
                                                                =======
</TABLE>
 
ASSETS
 
<TABLE>
<S>                                                             <C>
Total assets for reportable segments........................    $88,174
Parent company assets.......................................        104
                                                                -------
  Total consolidated assets.................................    $88,278
                                                                =======
</TABLE>
 
OTHER SIGNIFICANT ITEMS
 
<TABLE>
<CAPTION>
                                                                       PARENT
                                                                       COMPANY
                                                   SEGMENT TOTALS    ADJUSTMENTS    CONSOLIDATED TOTALS
                                                   --------------    -----------    -------------------
<S>                                                <C>               <C>            <C>
Interest expense...............................        $5,007           $  59             $5,066
Income tax provision (benefit).................         1,333            (503)               830
</TABLE>
 
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
     The following is a summary of the quarterly results of operations for the
years ended December 31, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
<S>                                             <C>         <C>        <C>             <C>
1998
Net revenues................................    $22,170     $29,129      $29,462         $32,670
Operating income............................      1,649       1,768        1,902           1,536
Net income (loss)...........................        286         (52)           8            (182)
Net income (loss) per common share..........    $  0.06     $ (0.01)     $  0.00         $ (0.04)
</TABLE>
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
<S>                                             <C>         <C>        <C>             <C>
1997
Net revenues................................    $17,313     $16,799      $15,658         $15,400
Operating income............................        686       1,034          541             576
Net income..................................         36         161            3              70
Net income per common share.................    $  0.01     $  0.04      $  0.00         $  0.02
</TABLE>
 
17. SUBSEQUENT EVENTS
 
     On January 29, 1999, certain related parties, substantially all of whom are
officers and directors of the Company, exchanged $675 of subordinated debt
bearing 14% interest for 135,000 shares of the Company's common stock.
 
     On March 12, 1999, an unrelated individual exchanged $1,150 of subordinated
debt bearing 14% interest for 230,000 shares of the Company's common stock. In
addition, $189 of accrued interest owed to this individual was exchanged for an
additional 37,800 shares of the Company's common stock, and 75,000 warrants to
purchase the Company's common stock at $5 per share were also issued to this
individual. In connection with the issuance of the warrants to purchase the
Company's common stock, the Company will record a non-recurring, non-cash,
one-time extraordinary loss of $101 in the first quarter of 1999.
                                      F-24
<PAGE>   47
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION                                                     PAGE
-------   -----------                                                     ----
<S>       <C>                                                             <C>
2.1       Agreement and Plan of Merger among Registrant, Asche Newco,
          Inc. and Polar Express Corporation, dated July 12,
          1995(1).....................................................
2.2       Amendment No. 1 to Agreement and Plan of Merger among
          Registrant, Asche Newco, Inc. and Polar Express Corporation,
          dated November 10, 1995(1)..................................
3.1       Certificate of Incorporation of Registrant(2)...............
3.1(a)    Amendment to Certificate of Incorporation of
          Registrant(2)...............................................
3.2       By-laws of Registrant(2)....................................
4.1       Specimen Common Stock Certificate(2)........................
10.1      Employment and Stock Option Agreement between Registrant and
          Kevin M. Clark dated September 23, 1994(2)..................
10.2      Employment and Stock Option Agreement between Registrant and
          Larry L. Asche dated September 23, 1994(2)..................
10.3      Employment and Stock Option Agreement between Registrant and
          Diane L. Asche dated September 23, 1994(2)..................
10.4      Asche Transfer, Inc. Retirement and Savings Plan(2).........
10.5      Restated Aasche Transportation Services, Inc. Employees'
          Stock Ownership Trust as adopted on September 22, 1994(3)...
10.6      Amended and Restated Aasche Transportation Services, Inc.
          Employees' Stock Ownership Plan as adopted on September 22,
          1994(3).....................................................
10.7      First Amendment to the Amended and Restated Aasche
          Transportation Services, Inc. Employees' Stock Ownership
          Plan as adopted on October 24, 1994(3)......................
10.8      Second Amendment to the Amended and Restated Aasche
          Transportation Services, Inc. Employees' Stock Ownership
          Plan as adopted on November 15, 1994(3).....................
10.9      Third Amendment to the Amended and Restated Aasche
          Transportation Services, Inc. Employees' Stock Ownership
          Plan as restated effective as of September 22, 1994, dated
          as of August 10, 1995(8)....................................
10.10     Lease Agreement between Asche Transfer, Inc. and K&D Leasing
          dated December 14, 1992(2)..................................
10.11     Lease Agreement between Asche Transfer, Inc. and Daniel
          Asche dated December 14, 1992(2)............................
10.12     Lease Agreement between Asche Transfer, Inc. and Michele
          Asche dated December 14, 1992(2)............................
10.13     Lease Agreement between Asche Transfer, Inc. and Angela
          Asche dated December 14, 1992(2)............................
10.14     Lease Agreement between Asche Transfer, Inc. and L&D Leasing
          dated December 14, 1992(2)..................................
10.15     Lease Agreement between Asche Transfer, Inc. and
          Asche-Nielsen dated December 14, 1992(2)....................
10.16     Insurance Policy with Golden Rule Insurance Company covering
          the lives of Kevin M. Clark and Larry L. Asche(6)...........
10.17     Amendment No. 1 dated as of January 1, 1995 to Lease
          Agreements dated December 14, 1992 between Asche Transfer,
          Inc. and K&D Leasing, L&D Leasing, Asche-Nielsen, Daniel
          Asche, Michele Asche and Angela Asche, respectively(6)......
</TABLE>
<PAGE>   48
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION                                                     PAGE
-------   -----------                                                     ----
<S>       <C>                                                             <C>
10.18     Amendment No. 2 dated as of July 1, 1995 to Lease Agreements
          dated December 14, 1992 between Asche Transfer, Inc. and K&D
          Leasing, L&D Leasing, Asche-Nielsen, Daniel Asche, Michele
          Asche and Angela Asche, respectively(4).....................
10.19     Agreement for Purchase and Sale of Assets among Registrant,
          AG. Carriers and Richard S. Baugh dated April 20, 1995(7)...
10.20     Amendment No. 1 to Agreement for Purchase and Sale of Assets
          among Registrant, AG. Carriers and Richard S. Baugh dated
          May 16, 1995(7).............................................
10.21     Employment and Stock Option Agreement between Registrant and
          Leon M. Monachos dated May 15, 1996(11).....................
10.22     Aasche Transportation Services, Inc. Stock Option Plan dated
          June 1, 1996(9).............................................
10.23     First Amendment dated May 13, 1998 to the Stock Option
          Plan(12)....................................................
10.24     Asset Purchase Agreement dated September 24, 1997 between
          Gary I. Goldberg and Jack Gray Transport, Inc.(10)..........
10.25     Assignment of Asset Purchase Agreement dated September 29,
          1997 between Gary I. Goldberg and Registrant(10)............
10.26     Credit Agreement dated as of January 30, 1998, by and among
          Specialty Transportation Services, Inc., the Lenders parties
          thereto from time to time, and Mellon Bank, N.A.(11)........
10.27     Subordinated Note and Equity Purchase Agreement, dated
          January 30, 1998, between Specialty Transportation Services,
          Inc. and American Capital Strategies, Ltd.(11)..............
10.28     Term Loan Agreement dated January 30, 1998 between
          Registrant and Aim Financial Corporation(11)................
10.29     Promissory Note dated as of January 16, 1998 by Registrant
          payable to Larry L. Asche in the amount of $500,000(11).....
10.30     Promissory Note dated as of January 16, 1998 by Registrant
          payable to Diane L. Asche in the amount of $500,000(11).....
10.31     Promissory Note dated as of January 26, 1998 by Registrant
          payable to Diane L. Asche in the amount of $25,000(11)......
10.32     Promissory Note dated as of January 20, 1998 by Registrant
          payable to Kevin M. Clark in the amount of $500,000(11).....
10.33     Promissory Note dated as of January 26, 1998 by Registrant
          payable to Richard S. Baugh in the amount of $250,000(11)...
10.34     Promissory Note dated as of January 26, 1998 by Registrant
          payable to Gary I. Goldberg in the amount of $250,000(11)...
10.35     Warrant dated as of January 16, 1998, from Registrant to
          Larry L. Asche(11)..........................................
10.36     Warrant dated as of January 16, 1998, from Registrant to
          Diane L. Asche(11)..........................................
10.37     Warrant dated as of January 26, 1998, from Registrant to
          Diane L. Asche(11)..........................................
10.38     Warrant dated as of January 20, 1998, from Registrant to
          Kevin M. Clark(11)..........................................
10.39     Warrant dated as of January 26, 1998, from Registrant to
          Richard S. Baugh(11)........................................
10.40     Warrant dated as of January 26, 1998, from Registrant to
          Gary I. Goldberg(11)........................................
10.41     Employment Agreement dated as of January 2, 1998 between
          Specialty Transportation Services, Inc. and Gary I.
          Goldberg(11)................................................
10.42     Loan and Security Agreement between Asche Transfer, Inc. AG
          Carriers, Inc. and American National Bank and Trust Company
          of Chicago dated June 23, 1998(12)..........................
</TABLE>
<PAGE>   49
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION                                                     PAGE
-------   -----------                                                     ----
<S>       <C>                                                             <C>
10.43     Secured Guaranty by Aasche Transportation Services, Inc. in
          favor of American National Bank and Trust Company of Chicago
          dated June 23, 1998(12).....................................
10.44     ESOP Loan and Security Agreement between Aasche
          Transportation Services, Inc. Employees' Stock Ownership
          Trust and American National Bank and Trust Company of
          Chicago dated June 23, 1998(12)
10.45     Continuing Unconditional Guaranty by Aasche Transportation
          Services, Inc. in favor of American National Bank and Trust
          Company of Chicago dated June 23, 1998(12)
10.46     Continuing Unconditional Guaranty by Asche Transfer, Inc. in
          favor of American National Bank and Trust Company of Chicago
          dated June 23, 1998(12).....................................
10.47     Continuing Unconditional Guaranty by AG Carriers, Inc. in
          favor of American National Bank and Trust Company of Chicago
          dated June 23, 1998(12).....................................
10.48     Stock Purchase Agreement dated as of July 23, 1998 among
          Specialty Transportation Services, Inc., Michael Sizemore
          and Gary I. Goldberg(13)....................................
21.1      List of the Subsidiaries of Registrant(1)...................
23.1      Consent of Ernst & Young LLP................................
27.1      Financial Data Schedule.....................................
</TABLE>
 
---------------
 
(1)  Incorporated by reference from Registrant's Registration Statement on Form
     S-4 effective November 28, 1995 (File No. 33-99264).
 
(2)  Incorporated by reference from Registrant's Registration Statement on Form
     SB-2 effective September 23, 1995 (File No. 33-81942c).
 
(3)  Incorporated by reference from Registrant's Registration Statement on Form
     S-8 filed on December 21, 1994 (File No. 33-87826).
 
(4)  Incorporated by reference from Registrant's Report on Form 10-QSB for the
     quarter ended March 30, 1995 (File No. 0-24576).
 
(5)  Incorporated by reference from Registrant's Report on Form 10-QSB for the
     quarter ended September 30, 1995 (File No. 0-24576).
 
(6)  Incorporated by reference from Registrant's Report on Form 10-QSB for the
     quarter ended December 31, 1994 (File No. 0-24576).
 
(7)  Incorporated by reference from Registrant's Current Report on Form 8-K
     dated May 16, 1995, filed May 31, 1995 (File No. 0-24576).
 
(8)  Incorporated by reference from Registrant's Report on Form 10-K for the
     fiscal year ended December 31, 1995 (File No. 0-24576).
 
(9)  Incorporated by reference from Registrant's Registration Statement on Form
     S-8 filed on June 21, 1996 (File No. 333-06569).
 
(10) Incorporated by reference from Registrant's Report on Form 10-Q for the
     quarter ended September 30, 1997 (File No. 0-24576).
 
(11) Incorporated by reference from Registrant's Report on Form 8-K filed on
     March 30, 1998 (File No. 0-24576).
 
(12) Incorporated by reference from Registrant's Report on Form 10-Q for the
     quarter ended June 30, 1998 (File No. 0-24576).
 
(13) Incorporated by reference from Registrant's Report on Form 10-Q for the
     quarter ended September 30, 1998 (File No. 0-24576).