AASCHE TRANSPORTATION SERVICES INC, 10-K, 1998-03-31

AASCHE TRANSPORTATION SERVICES INC
10-K, 1998-03-31
TRUCKING (NO LOCAL)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] 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

AASCHE TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-3964954
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)

10214 NORTH MT. VERNON ROAD 61078
SHANNON, ILLINOIS (Zip Code)
(Address of principal executive offices)

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 24, 1998, was $12,267,091.

At March 24, 1998, 4,539,735 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 13, 1998, expected to be filed with
the Commission not later than April 10, 1998 is incorporated by reference into
Part III of this Form 10-K.
================================================================================
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PART I

ITEM 1. BUSINESS

GENERAL

Aasche Transportation Services, Inc. (the "Company"), through its
subsidiaries is a 58-year-old non-union, truckload carrier that operates
primarily in the temperature-controlled segment of the transportation services
industry. The Company transports a variety of foods and other products that
require temperature-controlled service and "just-in-time" delivery. 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.
A substantial portion of the Company's business is concentrated in target
markets in the Midwest, Southeast, Northeast and South Central United States.
The Company operates predominately in the long-haul, "full-truckload" segment of
the temperature-controlled transportation services industry although the
regional fleet continues to expand. Less than 10% of the business is in the
"less-than-truckload" segment. 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.

STRATEGY

The Company's business strategy is to offer premium-quality service to
high-volume selective customers that have significant temperature-controlled
transportation requirements. 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. The Company is currently
a "core carrier" for Coca-Cola (including Coca-Cola Foods, Coca-Cola/ Minute
Maid, Coca-Cola Company and Coca-Cola USA), Hershey, Tropicana Foods, Americold,
S.C. Johnson Wax, Schreiber Foods, Abbott Laboratories, Baxter International and
Kraft Foods. The Company seeks to expand its core carrier relationships with
well known national producers of foods and other products.

The Company uses sophisticated satellite communications and advanced
computer systems to increase operating and administrative efficiencies.
Management believes a significant commitment to technologically advanced systems
is important to delivering high-quality services required by the high-volume
customers sought by the Company. These systems have allowed the Company to
improve customer satisfaction, asset and driver utilization and operating
efficiency.

The Company maintains a fleet of late-model tractors and trailers which,
coupled with its commitment to advanced technology systems, management believes
will enable the Company to continue to attract as customers high-volume,
national producers of food and other products requiring temperature-controlled
transportation.

Part of the Company's growth strategy is to increase market share through
acquisitions in the transportation industry. In May 1995, the Company acquired
the assets of AG. Carriers, Inc., a Florida-based, non-union carrier
specializing in the transportation services of temperature-controlled products
for customers in the Southeast, Northeast and Midwestern United States. In
December 1995, the Company acquired, through merger, Polar Express Corporation
("Polar"), an Arkansas-based, non-union truckload carrier transporting a variety
of food and other products primarily in the South Central United States. In May
1997, the Company merged Polar with Asche Transfer, Inc. ("Asche Transfer") to
form the Southwest Division.

On January 30, 1998, Specialty Transportation Services, Inc. ("STS"), a
newly formed subsidiary of the Company, acquired the municipal solid waste
transport division of Jack Gray Transport, Inc. ("JGT"). 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 and Republic Waste Industries.

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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. STS services these waste contracts from terminals
in the following metropolitan areas: Portland, Oregon; Long, Island, New York;
Los Angeles, California; Phoenix, Arizona; Nashville, Tennessee; Seattle,
Washington; Greensboro, North Carolina; Spartanburg, South Carolina; and
Atlanta, Georgia. One of STS' principal contracts is a 20 year contract
averaging approximately $10 million per year with a tri-county governmental
agency in Portland, Oregon, known as the Metro Sanitary District, to haul
virtually all of the county's waste. See Note 16 to Notes to Consolidated
Financial Statements.

The Company intends to pursue acquisition opportunities to enhance the
Company's strategic, financial and operational objectives. No specific sums have
been earmarked for acquisitions, and the aggregate amount expended for
acquisitions will depend on the availability of suitable candidates and the
negotiated terms.

MARKETING

The Company markets high-quality, "just-in-time," temperature-controlled
services in the truckload carrier market, primarily to high-volume customers
with predictable movements in traffic lanes served by the Company. The Company
has concentrated its marketing efforts on the transportation of temperature-
controlled products for the following reasons:

- Producers and processors of temperature-controlled commodities demand
premium-quality transportation service from carriers with technologically
advanced systems and a late-model fleet of equipment to maintain
consistent temperature integrity and product condition.

- The demand for food and household products is generally less sensitive to
changes in the economy than more cyclical products, and management
believes demand for frozen food and other temperature-sensitive products
has been increasing in recent years.

- Growth opportunities arise for truck lines in the temperature-controlled
market segment as shippers with proprietary trucks replace their aging
fleets in favor of truckload carriers with late-model fleets and
technologically advanced systems.

The Company targets the Midwest, Southeast, Northeast and South Central
United States as its principal service areas based upon its 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 food and food products. Because of its presence in these regions,
the Company is becoming increasingly competitive for return shipments, thereby
reducing empty miles, improving productivity, and increasing overall
profitability.

CUSTOMERS

The Company's customers 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 for the Company. The Company is currently a "core
carrier" for Coca-Cola (including Coca-Cola Foods, Coca-Cola/Minute Maid,
Coca-Cola Company and Coca-Cola USA), 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.

The Company maintains a strong commitment to expanding its relationships
with existing customers. Once a customer relationship has been established,
regional customer service personnel maintain frequent contact and solicit
additional business. Customer shipping patterns are monitored daily and, as such
patterns expand or change, the Company attempts to obtain additional customers
to complement the new traffic flow.

Generally, the Company determines its freight rates through direct
negotiations with its customers, rather than relying upon published tariffs.
This practice allows the Company to maintain flexibility in responding rapidly
to the varying service demands of its customers. The Company has written
contracts with
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approximately 98% of its customers. The contracts generally require the customer
to use the Company for a specified minimum number of shipments each year and may
be terminated by either party upon 30 to 60 days' written notice. The loss of
any of the Company's largest customers could adversely affect the Company's
profitability.

OPERATIONS

The Company's operations are designed to maximize efficiency and provide
quality service to customers. Through the use of the Company's satellite-based
communication system, which is complemented by its fully integrated computer
system, dispatchers monitor the location and delivery schedules of all shipments
and equipment to coordinate routes and maximize utilization of drivers and
equipment.

The Company's headquarters and principal terminal are located at Shannon,
Illinois. In addition, the Company operates the Asche Foliage Transport regional
terminal, warehouse and office facility in Apopka, Florida, a maintenance
terminal and office facility in Atlanta Georgia, the AG Carriers terminal in
Tavares, Florida and a terminal in Tontitown, Arkansas. These terminals help
facilitate the efficient dispatch of the Company's equipment within it's freight
lanes, enhance driver recruiting and return drivers to their homes on a regular
schedule. The Company also has arrangements to drop trailers at various major
customers' shipping locations to facilitate preloading of shipments and thereby
increase efficiency.

REVENUE EQUIPMENT

The Company's policy is to purchase or lease high-quality, late-model
tractors and temperature-controlled trailers manufactured to its specifications.
The Company also contracts with owner-operators to provide additional tractors
and trailers. The Company has established standard specifications for the
purchased tractors and trailers that allow the Company to simplify driver
training, control the cost of maintaining a spare parts inventory, enhance its
preventive maintenance program and increase fuel economy. The Company believes
the higher initial cost of such equipment is recovered through better resale
marketability and helps the Company to attract and retain drivers. 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, 1997, the Company maintained a fleet of approximately
450 late-model tractors, including 49 tractors which are owned by
owner-operators, and approximately 584 refrigerated trailers. Most of the
Company-owned tractors are Kenworth and Peterbilt, which are manufactured by
Paccar, and most of the Company-owned trailers are manufactured by Utility and
Great Dane. Most of the Company's trailers are equipped with logistics tracks on
the interior sidewall so that decking can be installed to increase utilization
by providing a second stacking surface for its customers' products.

The Company has established a computerized maintenance program that tracks
service intervals, repairs and component history and gives the per-mile
operating cost of each piece of equipment. The Company is an authorized Paccar
warranty repair facility for the Kenworth and Peterbilt tractors that the
Company owns, which allows the Company to be reimbursed from the manufacturer
for the cost of repairing its tractors.

DRIVERS AND OWNER-OPERATORS

All of the Company's drivers must meet specific standards relating
primarily to safety record, driving experience and personal evaluation,
including Department of Transportation ("DOT") mandated physical examinations,
drug testing and personal background checks. The Company recruits drivers by
offering competitive compensation packages and operating late-model, comfortable
tractors.

Company drivers are compensated on the basis of miles driven and number of
stops in transit or deliveries completed. All drivers are paid by the mile
operated, based upon the number of years of experience and service with the last
three employers. In addition, short-haul and long-haul drivers have the right to
earn bonuses based on safety requirements, annual mileage and years of service
with the Company. All employees,

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including drivers, are eligible to participate in the Company's 401(k) Plan,
which includes an employee stock ownership plan, and health, life and dental
insurance plans.

The over-the-road, long-haul, truckload segment of the trucking industry,
of which the Company 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 Company 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. Although the Company currently
has an adequate number of drivers, 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 Company contracts with a select group of
owner-operators who own and operate their own tractors and in certain instances,
their own trailers. The Company'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 Company, which is cancelable by either party upon thirty days' notice.
The Company believes that owner-operators provide the Company with an additional
source of drivers, particularly during periods of peak demand for transportation
services.

TRANSPORTATION TECHNOLOGY

The Company has invested in technological systems that are designed to
enhance operational and administrative efficiencies. Substantially all of the
Company's tractors are equipped with a two-way, satellite-based tracking and
communication system manufactured by Qualcomm(TM), Incorporated ("Qualcomm"), a
leading communications systems company, as well as on board computers that
enable the Company to monitor scheduling and equipment locations more
effectively while communicating directly with drivers, and informing customers
of the location and estimated delivery time of their freight.

The Qualcomm system allows drivers and dispatchers to have instant,
on-the-road communication. This enhanced communication system permits a
dispatcher to make a load assignment to the driver through an on-board display
unit. This unit also signals a driver when an assignment is available, in order
to allow for rest in the tractor's sleeper cab pending an assignment. The system
permits the driver to respond to the dispatcher quickly, thereby eliminating
waiting time and inefficient dependence upon truck-stop telephones. In addition,
directions to each customer pick-up and drop-off location are programmed into
the database to provide drivers and dispatchers constant access to the
information.

The Qualcomm system has also increased the Company's ability to maintain
strong communications with its customers. The Qualcomm system automatically
transmits to the Company the location of every cargo load each hour, equipment
information and other data that may be used by the dispatcher to meet delivery
schedules to match available equipment and loads. Because accurate information
concerning the status and estimated delivery time of cargo shipments is
continuously tracked by the Company's on-line computer, responses to customer
inquiries can be made much more rapidly with the Qualcomm system. The Company's
billing department has immediate access to all information necessary to generate
customer invoices upon delivery of a load.

The Company has a centralized, fully integrated management system that
utilizes an IBM AS/400 computer with software from Innovative Computing
Corporation. The system is located at the corporate headquarters and is on-line
with the Company's other terminals. The system's company-wide database allows
the Company to respond quickly to customer information requests without having
to combine data files from several sources. The Company also utilizes
"electronic data interchange" that permits direct communication of billing and
load tracking information between the Company's computer system and the computer
systems of many of its customers. The Company's ability to exchange data
electronically with customers regarding their shipments has significantly
enhanced quality control and customer service.

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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. The Company has received a
"satisfactory" safety and fitness rating (the highest rating) from the DOT.

The emphasis on safety begins in the hiring and orientation process, where
prospective employees are given physical examinations, orientation, safety
training and drug testing. Newly hired drivers, regardless of experience level,
must participate in a three day training program. The Company's safety and loss
prevention program is comprised of ongoing education, random drug testing,
training and retraining of drivers regarding safe vehicle operations, loading
and unloading 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

Motor carrier service is dependent upon the availability of diesel fuel.
The Company manages fuel purchases by directing its drivers to certain truck
stops that give the Company discounts in return for volume purchases on a
recurring basis. Through the use of computerized monitoring devices imbedded in
the engines of its tractors, the Company monitors fuel usage, miles per gallon
and cost per mile. The Company has not experienced any difficulty in maintaining
fuel supplies sufficient to support its operations. Historically, the Company
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.

COMPETITION

The trucking industry, in general, is highly competitive and fragmented.
The Company competes primarily with other long-haul, temperature-controlled
truckload carriers, private fleets operated by existing and potential customers
and, to a lesser extent, railroads. Although the general effect of deregulation
and the trucking industry during the 1980s created substantial downward pressure
on the industry's rate structure, the Company believes that competition for the
freight transported by the Company is based primarily on its ability to provide
premium quality service, i.e., just-in-time performance, advanced technology
capabilities and reliability made possible through operation of a late-model
fleet. The Company believes that significant opportunities exist for growth in
the temperature-controlled segment. The Company currently accounts for less than
1% of the revenue generated by the temperature-controlled segment of the
trucking industry. The five largest companies in the temperature-controlled
segment generated a substantial portion of the revenues of all companies in the
segment, and there are other trucking companies in the temperature-controlled
segment that possess substantially greater financial resources, operate more
equipment or carry a larger volume of freight than the Company. The Company also
competes with other motor carriers in hiring qualified drivers.

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. Management believes that its
operations are in material compliance with current laws and regulations.

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

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surface and underground waters and the disposal of certain substances.
Management believes that its operations are in material compliance with current
laws and regulations.

EMPLOYEES

As of December 31, 1997, the Company employed 578 persons, of whom 429 were
drivers, 149 were maintenance and support personnel including management and
administration, and the Company contracted with 49 owner-operators. As of
December 31, 1997, none of the Company's employees was represented by a
collective bargaining unit and the Company has never experienced a work
stoppage. 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 46, 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 Asche Transfer since its
incorporation in February 1983. He also serves as Chairman of the Board of AG
Carriers and Vice President and Director of STS. Mr. Asche acquired the business
from Clarence Asche, Mr. Asche's uncle, in 1973 and operated Asche Transfer for
ten years as a sole proprietorship. Mr. Asche is the husband of Diane L. Asche.

KEVIN M. CLARK, age 42, 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
Asche Transfer. He also serves as Vice-President of AG Carriers and
Vice-President of STS. Prior to joining Asche Transfer, Mr. Clark served for
over two years as a management consultant to Asche Transfer. 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, Acting Director, 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 46, 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 Asche Transfer and AG
Carriers. 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.

DANIEL R. WRIGHT, age 54, has served as Chief Operating Officer since
November 1996. From July 1994 to February 1996, Mr. Wright was Vice
President -- Marketing and Customer Services of Asche Transfer. From February
1996 to November 1996, Mr. Wright was Executive Vice President of Polar. He
previously served as Director of Operations for Asche Transfer from February
1993 where he was responsible for the dispatch and coordination of Asche
Transfer's equipment. Prior to working for Asche Transfer, Mr. Wright was
regional manager for Can Am Express of Summit, Illinois from July 1990 until
January 1993. Prior to this position, Mr. Wright was Vice President and General
Manager for R&A Trucking in Waterloo,

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Iowa for three years, and before he assumed this position, Mr. Wright was Vice
President of Marketing and Operations at Hawkeye Refrigerated Services in Cedar
Rapids, Iowa for six years.

GARY I. GOLDBERG, age 54, has served as Vice President of the Company since
February 1998 and a Director since July 1996. Mr. Goldberg is President and
Director of STS. From 1977 to 1997, Mr. Goldberg served as Executive Vice
President of 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 44, 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 Asche Transfer since its incorporation in
February 1983 and in addition, serves as Secretary of AG Carriers and STS. From
the time Larry L. Asche and Mrs. Asche acquired the business, she has controlled
and directed the administration of the Company. 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, that consist 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. The AG Carriers
facility in Tavares, Florida, acquired in May 1995, consists of 6,000 square
feet of office space and 2.5 acres of parking. The Company rents two additional
acres of parking adjacent to the AG Carriers headquarters from Richard S. Baugh
under a five-year lease. The Company leases from an unrelated party a 15,000
square-foot terminal, warehouse and office facility used for the operations of
the Asche Foliage Transport Division in Apopka, Florida under a five-year lease.
The Company also owns a 70-door, 10,000 square-foot terminal in Atlanta,
Georgia. The Company also 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.

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 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 1997.

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.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW FISCAL 1996 HIGH LOW
----------- ---- --- ----------- ----
<S> <C> <C> <C> <C> <C>
First Quarter.................. 7 1/16 4 3/4 First Quarter.................. 5 1/2 3 5/8
Second Quarter................. 6 1/8 3 7/8 Second Quarter................. 7 1/8 3 1/2
Third Quarter.................. 5 3 13/16 Third Quarter.................. 5 7/8 3 1/2
Fourth Quarter................. 4 3/4 2 1/2 Fourth Quarter................. 5 3/8 3 3/22

</TABLE>

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As of March 24, 1998 there were approximately 217 holders of record.

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)

STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET REVENUES............................................... $ 65,170 $ 77,365 $ 67,748 $ 34,034 $ 19,335
OPERATING EXPENSES:
Salaries, wages and benefits............................. 23,403 27,109 24,352 11,605 5,243
Fuel..................................................... 10,867 13,350 10,532 4,889 2,285
Purchased Transportation................................. 11,185 10,772 7,148 4,802 5,519
Supplies and maintenance................................. 6,317 7,032 6,369 3,256 1,421
Depreciation and amortization............................ 5,354 8,547 7,887 3,309 1,680
Taxes and licenses....................................... 1,667 2,073 1,762 792 349
Insurance................................................ 2,079 2,838 2,784 1,266 617
Communications and utilities............................. 821 818 809 431 210
Gain (loss) on disposition of equipment(1)............... (905) 1,165 (323) (74) (1)
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.................................................... 1,545 2,298 1,297 281 196
--------- --------- --------- --------- ---------
Total operating expenses............................... 62,333 77,978 63,886 30,557 17,519
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS).................................... 2,837 (613) 3,862 3,477 1,816
OTHER (EXPENSES) INCOME:
Interest expense......................................... (2,128) (3,464) (4,069) (2,366) (1,270)
Amortization of debt issuance cost(4).................... -- -- (447) (1,786) --
Other.................................................... 67 136 127 61 8
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) AND
EXTRAORDINARY ITEM....................................... 776 (3,941) (527) (614) 554
INCOME TAX PROVISION (BENEFIT)............................. 506 (1,321) 538 465 222
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 270 (2,620) (1,065) (1,079) 332
Loss on extinguishment of debt, net of income tax benefit
of $134................................................ -- -- 261 -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS).......................................... $ 270 $ (2,620) $ (1,326) (1,079) 332
========= ========= ========= ========= =========
Basic and diluted historical income (loss) per common
share:
Loss before extraordinary item........................... $ (0.28)
Extraordinary item....................................... (0.07)
---------
Net income (loss)........................................ $ 0.06 $ (0.67) $ (0.35)
========= ========= =========
Basic and diluted proforma net (loss) income per common
share (unaudited)(5):.................................... $ (0.57) $ 0.26
========= =========
Weighted average common shares outstanding:
Historical............................................... 4,273,842 3,928,596 3,750,914
========= ========= =========
Proforma(5).............................................. 1,878,649 1,275,000
========= =========
</TABLE>

9
<PAGE> 10

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $(5,326) $(11,601) $(11,729) $(3,759) $(1,492)
Property and equipment, net................................. 19,176 26,552 48,280 32,114 9,557
Total assets................................................ 35,507 46,304 68,933 43,693 11,452
Debt and capital lease obligations (including current
maturities)............................................... 19,358 30,104 45,868 30,395 9,166
Stockholders' equity........................................ 12,809 10,531 12,905 8,311 1,203
</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.
(5) The pro forma net (loss) income per share data assume that 1,275,000 shares
were issued and outstanding prior to the reorganization of the Company.

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 which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors.

RESULTS OF OPERATIONS

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.

10
<PAGE> 11

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 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.

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.

YEARS ENDED DECEMBER 31, 1996, AND 1995

Net revenues increased $9.6 million, or 14.2%, to $77.4 million in 1996
compared with $67.7 million in 1995. The increase in 1996 is partially due to
the acquisition of AG Carriers ("AG Acquisition"). During 1996, the Company
decreased its owned tractor fleet by 35 units and reduced contractor-operated
units by 14.

Total miles increased 11.3 million, or 19.3%, to 70.1 million in 1996,
compared to 58.8 million in 1995, partially due to the AG Acquisition. Average
miles per tractor increased to 121,738 miles for 1996 from 120,843 miles for
1995. Average revenue per tractor increased 0.6% to $134,314 in 1996 from
$133,476 in 1995, due to better equipment utilization.

The Company's operating ratio (operating expenses divided by operating
revenues) increased to 100.8% for 1996 from 94.3% for 1995. Total operating
expenses increased $14.1 million, or 22.1%, to $78.0 million in 1996 compared
with $63.9 million in 1995, partially due to the AG Acquisition, as well as, the
loss on disposition of equipment, the litigation settlement, the Polar
restructuring expense and the writedown of equipment to net realizable value.

Salaries, wages and benefits increased $2.8 million, or 11.3%, to $27.1
million in 1996 compared to $24.4 million in 1995, partially due to the AG
Acquisition as well as increases in overall compensation of drivers in order to
enhance driver recruitment and retention.

Fuel expenses increased $2.8 million, or 26.8%, to $13.4 million in 1996
compared to $10.5 million in 1995, partially due to the AG Acquisition, as well
as the increased number of company-owned units in service throughout the year
and increased fuel prices.

Purchased transportation increased $3.6 million, or 50.7%, to $10.8 million
in 1996 compared to $7.1 million in 1995, partially due to the AG Acquisition,
including an increase in brokered freight as well as an increase in equipment
operating lease payments.

Supplies and maintenance expenses increased $0.7 million, or 10.4%, to $7.0
million in 1996 compared to $6.4 million in 1995, primarily due to the AG
Acquisition.

Depreciation and amortization increased $0.7 million, or 8.4%, to $8.5
million in 1996 compared with $7.9 million in 1995, primarily due to the AG
Acquisition.

Loss on disposition of equipment in 1996 was $1.2 million compared to a
gain in 1995 of $0.3 million, largely due to the sale and leaseback of certain
Polar motor carrier equipment that resulted in a loss of $1.0 in 1996.
11
<PAGE> 12

Litigation settlement expense represents the final settlement of all
outstanding litigation related to Polar's acquisition of Polar Express, Inc.

Polar restructuring expense represents severance payments to terminated
employees of Polar.

Writedown of equipment to net realizable value represents the writedown of
Polar equipment to more closely approximate the net realizable value of the
related equipment at year-end.

Interest expense decreased $0.6 million, or 14.9%, to $3.5 million for 1996
compared with $4.1 million for 1995, due to lower levels of debt and lower
overall interest rates. Outstanding debt and capital lease obligations
aggregated $30.1 million at December 31, 1996 compared to $45.9 million at
December 31, 1995.

Net loss increased $1.3 million to $2.6 million in 1996 compared to $1.3
million in 1995, largely due to the AG Acquisition and 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, and a loss on disposition
of equipment of $0.7 million, net of tax, in 1996, which more than offset the
nonrecurring one-time charges (i.e., merger consummation costs, amortization of
debt issuance, costs and loss on extinguishment of debt) totaling $1.3 million,
net of tax, and a gain on disposition of equipment of $0.2 million, net of tax,
in 1995.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Company had a net working capital deficit of $5.3
million, primarily as a result of the financing of revenue equipment purchases
(noncurrent assets) through borrowings, a portion of which is reflected in
current liabilities. 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 borrowing under its
revolving bank line of credit. The Company has a revolving bank line of credit
with a $6.0 million borrowing limit based on a percentage of eligible trade
receivables, $3.8 million of which was borrowed against this line of credit at
December 31, 1997, and approximately $0.5 million was available.

The Company's growth in prior years and the significant investment in its
modern fleet of tractors and temperature-controlled trailers have been financed
substantially through long-term debt and capital lease obligations
collateralized by the equipment. The Company's outstanding debt and capital
lease obligations, including current maturities, aggregated $19.4 million and
$30.1 million at December 31, 1997 and 1996, respectively. The debt to equity
ratio (calculated excluding payables and other liabilities) was 1.51:1 at
December 31, 1997 and 2.86:1 at December 31, 1996. During 1997, the Company
decreased its fleet size by 115 tractors and 133 temperature-controlled
trailers.

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 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.

The Company believes that available cash, cash flow from future operations,
and borrowings available under its line of credit will be sufficient to meet its
current working capital needs. As the Company continues to facilitate its
planned future growth, the Company's capital needs may require additional
borrowings or an equity infusion.

CHANGE IN ESTIMATED SALVAGE VALUES

12
<PAGE> 13

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 motor carriers 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.

RECENT ACCOUNTING STANDARDS

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 will adopt SFAS No. 131
in fiscal 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.

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 1997, 1996 and 1995 were $0.8 million,
$0.8 million and $1.0 million, respectively.

SEASONALITY

The Company's 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 Division of Asche
Transfer experiences seasonal fluctuations in volume during certain periods of
the year.

YEAR 2000

The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers and large customers to
ensure that those parties have appropriate plans to remediate Year 2000 issues
where their systems interface with the Company's systems or otherwise impact its
operations. The Company is assessing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their computer
systems.

The Company's comprehensive Year 2000 initiative is being managed by a team
of internal staff. The team's activities are designed to ensure that there is no
adverse effect on the Company's core business operations and that transactions
with customers and suppliers are fully supported. The Company is well under way
with these efforts, which are scheduled to be completed in early 1999. While the
Company believes its planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of other companies on which
the Company's systems and operations rely will be converted on a timely basis
and will not have a material effect on the Company. The cost of the Year 2000
initiatives is not expected to be material to the Company's results of operation
or financial position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are annexed to this Report as pages
F-1 through F-22.

13
<PAGE> 14

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 prior to April 10, 1998.
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
prior to April 10, 1998.

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
prior to April 10, 1998.

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
prior to April 10, 1998.

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 1997.

14
<PAGE> 15

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.

By: /s/ LARRY L. ASCHE

------------------------------------
Larry L. Asche, Chief Executive
March 27, 1998 Officer

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 March 27, 1998
- --------------------------------------------- of the Board of Directors (Principal
Larry L. Asche Executive Officer)

/s/ LEON M. MONACHOS Chief Financial Officer (Principal March 27, 1998
- --------------------------------------------- Financial and Accounting Officer)
Leon M. Monachos

/s/ KEVIN M. CLARK President, Director March 27, 1998
- ---------------------------------------------
Kevin M. Clark

/s/ GARY I. GOLDBERG Vice President, Director March 27, 1998
- ---------------------------------------------
Gary I. Goldberg

/s/ DIANE L. ASCHE Vice President, Secretary, Director March 27, 1998
- ---------------------------------------------
Diane L. Asche

/s/ RICHARD S. BAUGH Director March 27, 1998
- ---------------------------------------------
Richard S. Baugh

/s/ DENNIS D. WILSON Director March 27, 1998
- ---------------------------------------------
Dennis D. Wilson

/s/ JAMES A. JALOVEC Director March 27, 1998
- ---------------------------------------------
James A. Jalovec
</TABLE>

15
<PAGE> 16

INDEX TO FINANCIAL STATEMENTS

Reports of Independent Auditors............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE> 17

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Aasche Transportation Services, Inc.

We have audited the accompanying consolidated balance sheets of Aasche
Transportation Services, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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 did not audit the 1995 financial statements of Polar Express
Corporation, a wholly-owned subsidiary, which statements reflect total net
revenues constituting 39% of the related consolidated total. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Polar Express Corporation,
is based solely on the report of other auditors.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and, for 1995, the report of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Aasche Transportation
Services, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Chicago, Illinois
February 27, 1998

F-2
<PAGE> 18

INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors
Polar Express Corporation
Tontitown, Arkansas

We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of POLAR EXPRESS CORPORATION (A WHOLLY-OWNED
SUBSIDIARY OF AASCHE TRANSPORTATION SERVICES, INC.) as of December 29, 1995.
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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of POLAR EXPRESS CORPORATION for the year ended December 29, 1995 in
conformity with generally accepted accounting principles.

BAIRD, KURTZ & DOBSON

Fayetteville, Arkansas
March 1, 1996

F-3
<PAGE> 19

AASCHE TRANSPORTATION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Trade receivables, less allowance for doubtful accounts of
$71.................................................... $ 5,449 $ 6,682
Prepaid expenses and other current assets................. 1,631 1,641
Inventory supplies........................................ 575 392
Prepaid acquisition costs................................. 485 --
-------- --------
Total current assets................................... 8,140 8,715
Property and equipment, at cost............................. 32,931 43,901
Less accumulated depreciation and amortization............ (13,755) (14,349)
-------- --------
Net property and equipment............................. 19,176 29,552
-------- --------
Excess of cost over net assets acquired, less accumulated
amortization of $730 and $448............................. 7,340 7,622
Other assets................................................ 851 415
-------- --------
TOTAL ASSETS........................................... $ 35,507 $ 46,304
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................ $ 312 $ 349
Accounts payable.......................................... 788 2,299
Accrued liabilities....................................... 1,234 2,366
Guaranteed obligation of Employee Stock Ownership Plan.... 203 244
Line of credit............................................ 3,817 5,242
Current maturities of long-term debt with unrelated
parties................................................ 2,752 4,922
Current maturities of long-term debt with related party... 995 995
Current maturities of capital lease obligations with
unrelated parties...................................... 2,696 2,596
Current maturities of capital lease obligations with
related parties........................................ 669 1,303
-------- --------
Total current liabilities.............................. 13,466 20,316
Long-term debt with unrelated parties, less current
maturities............................................. 3,745 5,767
Long-term debt with related party, less current
maturities............................................. 1,550 2,545
Capital lease obligations with unrelated parties, less
current maturities..................................... 2,787 6,163
Capital lease obligations with related parties, less
current maturities..................................... 144 327
Deferred income taxes..................................... 1,006 655
-------- --------
Total liabilities...................................... 22,698 35,773
Stockholders' equity:
Common stock, $.0001 par value, 10,000,000 shares
authorized, 4,539,735 and 3,953,077 shares issued and
outstanding............................................ -- --
Additional paid-in capital................................ 16,565 14,598
Guarantee of Employee Stock Ownership Plan obligation..... (203) (244)
Accumulated deficit....................................... (3,553) (3,823)
-------- --------
Total stockholders' equity............................. 12,809 10,531
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $ 35,507 $ 46,304
======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 20

AASCHE TRANSPORTATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET REVENUES............................................... $ 65,170 $ 77,365 $ 67,748
OPERATING EXPENSES:
Salaries, wages and benefits............................. 23,403 27,109 24,352
Fuel..................................................... 10,867 13,350 10,532
Purchased transportation................................. 11,185 10,772 7,148
Supplies and maintenance................................. 6,317 7,032 6,369
Depreciation and amortization............................ 5,354 8,547 7,887
Taxes and licenses....................................... 1,667 2,073 1,762
Insurance................................................ 2,079 2,838 2,784
Communications and utilities............................. 821 818 809
(Gain) loss on disposition of equipment.................. (905) 1,165 (323)
Litigation settlement.................................... -- 150 --
Polar restructuring expense.............................. -- 490 --
Investment write-off..................................... -- 100 --
Writedown of equipment to net realizable value........... -- 1,155 --
Severance expense........................................ -- 81 --
Merger consummation costs................................ -- -- 1,269
Other.................................................... 1,545 2,298 1,297
--------- --------- ---------
Total operating expenses.............................. 62,333 77,978 63,886
--------- --------- ---------
OPERATING INCOME (LOSS).................................... 2,837 (613) 3,862
OTHER (EXPENSES) INCOME:
Interest expense......................................... (2,128) (3,464) (4,069)
Amortization of debt issuance cost....................... -- -- (447)
Other.................................................... 67 136 127
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) AND
EXTRAORDINARY ITEM....................................... 776 (3,941) (527)
INCOME TAX PROVISION (BENEFIT)............................. 506 (1,321) 538
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 270 (2,620) (1,065)
Loss on extinguishment of debt, net of income tax benefit
of $134............................................... -- -- 261
--------- --------- ---------
NET INCOME (LOSS).......................................... $ 270 $ (2,620) $ (1,326)
========= ========= =========
Basic and diluted net income (loss) per share:
Income (loss) before extraordinary item.................. $ 0.06 $ (0.67) $ (0.28)
Extraordinary item....................................... -- -- (0.07)
--------- --------- ---------
Net income (loss)........................................ $ 0.06 $ (0.67) $ (0.35)
========= ========= =========
Weighted average common shares outstanding................. 4,273,842 3,928,596 3,750,914
========= ========= =========
</TABLE>

See accompanying notes.

F-5
<PAGE> 21

AASCHE TRANSPORTATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
GUARANTEE
OF EMPLOYEE
STOCK
COMMON STOCK OWNERSHIP DEFERRED RETAINED
$.0001 PAR VALUE ADDITIONAL PLAN DEBT EARNINGS TOTAL
------------------ PAID-IN ("ESOP") ISSUANCE (ACCUMULATED) STOCKHOLDERS'
SHARES AMOUNT CAPITAL OBLIGATION COST (DEFICIT) EQUITY
------ ------ ---------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........... 3,267,550 $-- $ 9,255 $(621) $(447) $ 123 $ 8,310
Issuance of shares in connection with
AG Carriers acquisition.............. 120,075 -- 1,045 -- -- -- 1,045
Reduction in Guarantee of ESOP
obligation........................... -- -- -- 287 -- -- 287
Exchange of Polar 8% subordinated notes
payable.............................. -- -- 1,116 -- -- -- 1,116
Issuance of shares in connection with
Polar initial public offering........ 558,805 -- 3,020 -- -- -- 3,020
Amortization of debt issuance cost..... -- -- -- -- 447 -- 447
Issuance of other shares............... 677 -- 6 -- -- -- 6
Net loss............................... -- -- -- -- -- (1,326) (1,326)
--------- --- ------- ----- ----- ------- -------
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
Common stock issued for options
exercised............................ 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
========= === ======= ===== ===== ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 22

AASCHE TRANSPORTATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 270 $ (2,620) $ (1,326)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation......................................... 5,072 8,277 7,660
Amortization......................................... 282 270 759
Writedown of equipment to net realizable value....... -- 1,155 --
(Gain) loss on disposition of equipment.............. (905) 1,165 (323)
Deferred income taxes................................ 351 (1,321) 404
Extraordinary item-extinguishment of debt............ -- -- 118
Changes in other operating items:
Trade receivables.................................. 1,233 (228) (426)
Prepaid expenses and other assets.................. (1,094) (179) 138
Accounts payable................................... (1,511) (675) (244)
Accrued liabilities................................ (1,132) 691 680
------- -------- --------
Net cash provided by operating activities........ 2,566 6,535 7,440
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions:
Revenue equipment....................................... (2,273) (102) (1,432)
Building, office equipment and other.................... (324) (382) (1,297)
Proceeds from the sale of equipment....................... 8,806 8,615 2,325
Purchase of AG Carriers net of cash acquired.............. -- -- (2,974)
------- -------- --------
Net cash provided by (used in) investing
activities.................................... 6,209 8,131 (3,378)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on line of credit............. (1,425) 2,383 2,044
Principal payments on subordinated debt................... -- -- (1,117)
Borrowings on long-term debt with unrelated parties....... -- 800 5,228
Principal payments on long-term debt with unrelated
parties................................................. (4,192) (12,689) (12,770)
Principal payments on long-term debt with related party... (995) (938) (498)
Principal payments on capital leases with unrelated
parties................................................. (3,276) (4,356) (2,426)
Principal payments on capital leases with related
parties................................................. (817) (874) (579)
Proceeds from exercise of stock options and warrants...... 118 156 --
Proceeds from issuance of common stock.................... 1,849 -- 3,215
------- -------- --------
Net cash used in financing activities............ (8,738) (15,518) (6,903)
------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (CASH OVERDRAFT)......................... 37 (852) (2,841)
CASH AND CASH EQUIVALENTS
(CASH OVERDRAFT):
Beginning of year......................................... (349) 503 3,344
------- -------- --------
End of year............................................... $ (312) $ (349) $ 503
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid............................................. $ 2,068 $ 3,424 $ 3,940
======= ======== ========
Income taxes paid......................................... $ 55 $ -- $ 103
======= ======== ========
</TABLE>

See accompanying notes.

F-7
<PAGE> 23

AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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 is a 58-year old non-union motor carrier
specializing in truckload transportation of perishable consumer products,
principally items requiring refrigeration, throughout the continental United
States.

PURCHASE OF AG TRANSPORTATION SERVICE, INC. AND AG. CARRIERS, INC.

On May 16, 1995 the Company purchased all of the outstanding common stock
of AGC Transportation Service, Inc. and the net assets of AG. Carriers, Inc.
(collectively, AG Carriers) in exchange for $11,250 consisting of $5,275 cash,
$1,000 in the Company's common stock (115,075 shares) and two notes payable in
the amount of $4,975. The acquisition was accounted for as a purchase and
accordingly, the 1995 consolidated statement of operations, includes the results
of AG Carriers for the seven and a half month period from the date of its
acquisition.

In accordance with the original purchase agreement, 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,
1998 through September 12, 1998, the closing price per share of the Company's
common stock has not reached at least $8.69 per share, then on the 30th day
following September 12, 1998, 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 $1,120. 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.

AG Carriers is a Florida-based carrier specializing in transporting
temperature-controlled foodstuffs and juice concentrates.

The following unaudited pro forma consolidated statement of operations is
based on certain amounts derived from the audited consolidated financial
statements of AG Carriers and the Company for the year ended December 31, 1995
(the financial statements of the Company include the results of Polar Express
Corporation, see "Merger With Polar Express Corporation" below), and assumes
that the acquisition of the assets and liabilities of AG Carriers occurred on
January 1, 1994. The pro forma statement is not necessarily

F-8
<PAGE> 24
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

indicative of the results of operations which would have occurred had the
acquisition taken place on January 1, 1994 or of future results of the
consolidated operations of AG Carriers and the Company.

<TABLE>
<S> <C>
Net revenues................................................ $73,976
Operating expenses.......................................... 69,214
---------
Operating income............................................ 4,762
Other (expenses) income:
Interest expenses......................................... (4,374)
Amortization of debt issuance cost........................ (447)
Interest income........................................... 184
---------
(4,637)
---------
Income before income taxes and extraordinary item........... 125
Income tax provisions....................................... 799
---------
Loss before extraordinary item.............................. (674)
Loss on extinguishment of debt.............................. (261)
---------
Net loss.................................................... $ (935)
=========
Basic and diluted net loss per common share:
Loss before extraordinary item............................ $ (0.17)
Extraordinary loss........................................ (0.07)
---------
Net loss.................................................. $ (0.24)
=========
Weighted average common shares outstanding.................. 3,905,015
=========
</TABLE>

MERGER WITH POLAR EXPRESS CORPORATION

On December 22, 1995, the Company completed a merger, pursuant to which
Polar Express Corporation ("Polar") became a wholly owned subsidiary of the
Company. Under the terms of the merger agreement, 1,401,355 shares of the
Company's common stock were issued in exchange for all of the outstanding common
shares and unit purchase options of Polar. Approximately 5% of these shares were
held in an escrow account to cover liability and litigation costs related to the
litigation described in Note 13. In addition, the Company issued 1,006,905
warrants to purchase the Company's common stock in exchange for all the
outstanding warrants of Polar. In January 1997, 41,100 of these warrants were
exercised. The transaction costs associated with the merger (consisting
primarily of legal, accounting and advisory fees) resulted in a nonrecurring
charge of $1,269 which was recorded in the fourth quarter of 1995, and is
included as an operating expense. The merger was accounted for as a pooling of
interests. Accordingly, the accompanying 1995 consolidated financial statements
have been retroactively restated to include the results of operations, financial
position and cash flows of the merged entities.

In connection with the acquisition of Polar Express, Inc. ("PEI") by Polar
in September 1994, Polar incurred a one-time, non-cash deferred debt issuance
cost of $2,233 resulting from the issuance of 1,000,000 shares of Polar common
stock to subordinated note holders, of which $1,786 was expensed in the fourth
quarter of 1994 and $447 was expensed in the first quarter of 1995.

In April 1997, Polar was merged into ATI and renamed ATI's Southwest
Division. The merger was accounted for similar to a pooling of interests.

F-9
<PAGE> 25
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include all accounts of the Company
and its wholly owned subsidiaries, Asche Transfer, Inc. ("ATI"), AG Carriers and
Double A Development, Inc. ("Double A") (see Note 3). All significant
intercompany accounts and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

Revenue is recognized 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 Company'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.

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 over the estimated
useful lives of the assets which range from two to thirty 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.

DEFERRED FINANCING 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 in connection with the
acquisition of AG Carriers ($6,237) is amortized on a straight-line basis over
30 years. The excess of cost over net assets acquired resulting from the
September 1994 acquisition of PEI by Polar ($1,833) 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.

F-10
<PAGE> 26
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 ("APB 25"), "Accounting for Stock Issued to Employees" which uses an
intrinsic value method and often results in no compensation expense. 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.

Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings
per Share," accordingly, all references in these financial statements to
earnings per share, diluted earnings per share and related weighted average
shares have been restated to reflect this adoption. Diluted weighted average
shares outstanding for 1997 in connection with options and warrants amount to
61,585 shares. In 1996 and 1995, the weighted average shares outstanding related
to options and warrants are antidilutive and, accordingly, are not included in
the per share calculations.

RECENT ACCOUNTING STANDARDS

Management believes that the adoption of this new standard will not have a
material impact on the Company's financial position or results of operations.

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

F-11
<PAGE> 27
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1997 and 1996 consists of the
following:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and Land Improvements............................... $ 595 $ 548
Buildings................................................ 2,032 1,982
Motor carrier equipment.................................. 15,495 23,757
Motor carrier equipment under capital leases:
Unrelated parties...................................... 10,520 13,097
Related parties........................................ 2,758 3,160
Other equipment, furniture, and fixtures................. 1,531 1,357
-------- --------
32,931 43,901
Less: Accumulated depreciation and amortization.......... (13,755) (14,349)
-------- --------
$ 19,176 $ 29,552
======== ========
</TABLE>

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 book values of
the equipment totaling $6,329 were removed from the balance sheet with the
resulting loss of $1,043, $647 after-tax ($0.16 net loss per common share)
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.
The transaction was completed in March 1997.

The Company financed motor carrier equipment purchases with long-term notes
payable of $8,043 during the year ended December 31, 1995.

4. LINE OF CREDIT

The Company maintains a revolving line of credit with a financial
institution which provides for a maximum funding of $6,000 based on a percentage
of eligible trade receivables. At December 31, 1997, the Company had borrowings
of $3,817 outstanding, with a maximum remaining availability of $540. The line
bears interest at the prime rate (8.5% at December 31, 1997) for the first
$2,000 and the prime rate plus one half of one percent on the balance above
$2,000. The line is renewable on May 30, 1998. The line of credit is
collateralized by trade receivables. 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.

F-12
<PAGE> 28
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT

Long-term debt at December 31, 1997 and 1996 consists of the following:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
6.40% to 9.25% notes payable to unrelated parties due, in
various monthly installments through the year 2001....... $ 5,512 $10,689
8.00% note payable to a related party, due in quarterly
installments of $249 through May 16, 2000................ 2,545 3,540
Other...................................................... 985 --
------- -------
Total long-term debt....................................... 9,042 14,229
Less; current maturities................................... (3,747) (5,917)
------- -------
Long-term debt, less current maturities.................... $ 5,295 $ 8,312
======= =======
</TABLE>

On December 29, 1995, the Company fully extinguished certain secured
obligations of Polar totaling $4,937, and refinanced such debt with another
lender, substantially lowering its overall interest rate. As a result of the
early retirement, the Company accelerated amortization of unamortized debt
issuance costs and incurred prepayment penalties totaling approximately $395,
which has been presented as an extraordinary item in the consolidated statement
of operations, with associated tax benefits of $134.

Notes payable to unrelated parties are secured by the related motor carrier
equipment.

The note payable to a related party resulted from the acquisition of AG
Carriers (Note 1) and is unsecured.

The principal maturities of long-term debt as of December 31, 1997, are as
follows:

<TABLE>
<S> <C>
1998........................................................ $3,747
1999........................................................ 2,967
2000........................................................ 1,283
2001........................................................ 148
2002........................................................ 28
Thereafter.................................................. 869
------
$9,042
======
</TABLE>

F-13
<PAGE> 29
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS

At December 31, 1997 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>
1998........................................... $3,218 $707 $ 4,290
1999........................................... 2,475 147 3,934
2000........................................... 734 -- 2,871
2001........................................... -- -- 604
------ ---- -------
6,427 854 $11,699
=======
Amounts representing interest.................. (944) (41)
------ ----
Present value of minimum lease payments,
including current portion of $2,696 and $669
respectively................................. $5,483 $813
====== ====
</TABLE>

Rent expense under operating leases amounted to $3,748, $1,687 and $617 for
the years ended December 31, 1997, 1996 and 1995, 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 20% to 40%, at the end of the lease term.

7. 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.

8. 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, were used to reduce outstanding indebtedness
and for general corporate purposes.

STOCK OPTION AGREEMENTS

On September 23, 1994, the Company entered into five-year employment and
stock option agreements with certain stockholders/officers of the Company under
which the stockholders/officers will be granted stock options to acquire up to
78,000 shares of common stock of the Company at exercise prices ranging from
$8.75 per share to $9.50 per share during the period from January 1, 1995 to
January 1, 1998, as defined in the agreement. The options shall expire upon the
first to occur: seven years after the date of grant of such options; or, the
date as of which the stockholder/officer shall cease, for any reason, to be an
officer of the Company. At

F-14
<PAGE> 30
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 1997, 1996 and 1995, options to purchase 54,000, 33,000 and 15,000
shares respectively, have been granted, at exercise prices ranging from $8.75
per share to $9.25 per share, under the employment and stock option agreements,
of which none have been exercised.

On September 23, 1994, the Company adopted an incentive stock option plan
(Incentive Plan) for certain key employees of the Company. Under the Incentive
Plan, the Company may grant options to purchase up to 50,000 shares of the
Company's common stock to certain key employees. On July 26, 1995, the
stockholders approved an amendment to the Incentive Plan increasing the number
of shares available for grant to 150,000.

The following table summarizes the activities under the Incentive Plan for
the three years ended December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS --------------------------------------------
AVAILABLE FOR EXERCISE WEIGHTED-AVERAGE
GRANT SHARES PRICE RANGE EXERCISE PRICE
------------- ------ ----------- ----------------
<S> <C> <C> <C> <C>
Balance December 31, 1994.... 21,600 28,400 $7.00 $7.00
Options granted............ (41,717) 41,717 $6.12 - $8.81 $8.60
Options canceled........... 2,950 (2,950) $7.00 $7.00
Increase in shares
reserved................ 100,000 --
------- -------
Balance December 31, 1995.... 82,833 67,167 $6.12 - $8.81 $7.99
------- -------
Options granted............ (45,000) 45,000 $3.75 - $4.63 $4.10
Options canceled........... 50,167 (50,167) $4.63 - $7.00 $6.55
------- -------
Balance December 31, 1996.... 88,000 62,000 $3.75 - $8.81 $6.34
------- -------
Options granted............ (20,000) 20,000 $4.25 $4.25
Options canceled........... 11,200 (11,200) $7.00 - $7.66 $7.50
------- -------
Balance December 31, 1997.... 79,200 70,800 $3.75 - $8.81 $6.76
======= =======
</TABLE>

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. These options
will vest 18 months following the date of grant, provided the optionee remains
an employee of the Company. The maximum term of options granted under the
Incentive Plan generally is ten years. No options were exercised in 1997, 1996
or 1995. The weighted-average fair value of options granted during 1997, 1996
and 1995 is $4.25, $4.00 and $3.21, respectively. At December 31, 1997, the
weighted-average remaining contractual life of the options is 8.38 years.

On September 23, 1994, the Company adopted a stock option plan
(Non-Employee Directors and Advisors Plan) for the benefit of directors and
advisors who are not employees of the Company. Each eligible director and
advisor at the adjournment of each annual meeting held was automatically granted
options to purchase 5,000 shares of the Company's common stock at an exercise
price per share equal to 125% of the closing price of the common stock on the
date of the grant. In May 1996, the plan was amended whereby options granted
under the plan are granted at an exercise price per share equal to the closing
price of the common stock on the date of grant. An option may be exercised at
any time within 10 years from the date of grant. At December 31, 1997, 1996 and
1995, options to purchase 55,000, 40,000 and 25,000 shares, respectively have
been granted at prices ranging from $3.75 to $10.94, of which 5,000 options were
exercised at a price per share of $3.75 in May 1997. No options were exercised
in 1996 or 1995.

On May 1, 1995, the Company entered into a five-year employment and stock
option agreement, under which its former chief financial officer may acquire up
to 100,000 shares of common stock of the Company at exercise prices equal to the
closing price of the common stock at each vesting date. Such options vested
20,000 per year beginning May 1, 1995. In May 1996, his employment was
terminated. At the time of his

F-15
<PAGE> 31
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

termination, 40,000 options had vested. In August 1996, these options were
exercised at a price per share of $3.89.

On December 22, 1995, pursuant to the Polar merger agreement, the Company
issued options to purchase 150,015 shares of the Company's common stock in
exchange for 365,000 options to purchase Polar stock, which were originally
granted on February 8, 1995. Such options were exercisable at $7.66 per share.
Of these options, 102,750 vested at 33 1/3% per year commencing one year from
the date of grant, and the balance of 47,265 vested at 25% per year commencing
one year from the date of grant. During 1996, the 102,750 options that vested at
33 1/3% per year were canceled in connection with a separation agreement and
32,880 of the 47,265 options that vest at 25% per year were canceled. During
1997, the remaining 14,385 options were canceled.

On December 22, 1995, pursuant to the Polar merger agreement, options to
purchase 100,000 shares of the Company's common stock were granted to Polar's
former chief financial officer, under the 1995 Incentive Stock Option Plan (the
"1995 ISO Plan"). The exercise price of these options was $6.12 per share, and
such options vested in cumulative annual increments of 25,000 shares commencing
June 30, 1996. During 1996, his employment was terminated and these options were
canceled. In accordance with a separation agreement between the employee and the
Company, options to purchase 60,000 shares of the Company's common stock at an
exercise price per share of $4.88 were granted, of which none have been
exercised. These options expire on August 25, 1999.

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
$4.06 were granted, of which none have been exercised. These options expire on
March 31, 1998.

On May 15, 1996, the Company entered into a five-year employment and stock
option agreement, under which its current chief financial officer may acquire up
to 200,000 shares of common stock of the Company at an exercise price per share
of $3.75. On May 15, 1996, 100,000 options vested and the remainder vest in
annual increments of 20,000 shares per year commencing May 15, 1997. The options
shall expire on the earlier of: ten years after the date of grant of such
options; or, a date up to six months, as defined in the agreement, subsequent to
which the chief financial officer shall cease, for any reason, to be an employee
of the Company. No options under this agreement have been exercised.

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 above, 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 weighted-average fair value of all options granted during 1997, 1996
and 1995, excluding those options granted under the Incentive Plan, was $5.16,
$4.00 and $4.56 respectively. At December 31, 1997, the weighted-average
remaining contractual life of all options, excluding those options granted under
the Incentive Plan, is 6.05 years.

Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 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 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.00%, 6.34% and 6.75%; volatility
factors of the expected market price of the Company's common stock of 46.9%,
55.1% and 45.5%; and a weighted-average expected life of the option of 2.4
years, 3.5 years and 3.5 years, respectively; and no dividend yield.
F-16
<PAGE> 32
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss).................................... $ 143 $(3,010) $(1,505)
Basic and diluted net income (loss) per common
share.............................................. 0.04 (0.77) (0.39)
</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, 1997 and
1996. The Company made no contributions to the ESOP in 1997, 1996 or 1995.

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.

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, 1997, 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. At December 31, 1997,
all such 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.

F-17
<PAGE> 33
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 placement
agent.

9. INCOME TAXES

Details of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal....................................... $ 1,883 $ -- $ --
State......................................... 251 -- --
Utilization of carryforwards.................. (1,979) -- --
------- ------- ----
Total current................................... 155 -- --
Deferred:
Federal....................................... 310 (1,156) 466
State......................................... 41 (165) 72
------- ------- ----
Total deferred.................................. 351 (1,321) 538
------- ------- ----
Income tax provision before extraordinary
item.......................................... 506 (1,321) 538
Tax benefit of extraordinary item............... -- -- (134)
------- ------- ----
$ 506 $(1,321) $404
======= ======= ====
</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,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory federal rate.............. $263 $(1,340) $(268)
Effect of:
Amortization of debt issuance cost.............. -- -- 152
Tax loss on note exchange....................... -- -- (169)
Nondeductible merger consummation costs......... -- -- 431
State income taxes, net of federal benefit...... 37 (192) 48
Other, net...................................... 206 211 210
---- ------- -----
$506 $(1,321) $ 404
==== ======= =====
</TABLE>

At December 31, 1997, 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 $1,800 which expire between 2004 and 2010. As a
result of Polar's purchase of PEI, Polar's subsequent initial public offering,
and the Merger (Note 1), utilization of certain net operating loss carryforwards
are subject to annual limitations.

F-18
<PAGE> 34
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,
---------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and driver advances.... $ 27 $ 27
Accrued expenses....................................... 8 13
Net operating loss carryforwards....................... 687 2,666
Alternative minimum tax credits........................ 423 356
------- -------
1,145 3,062
Deferred tax liabilities:
Basis of intangible assets............................. (227) (164)
Basis of revenue equipment............................. (1,411) (3,171)
Basis of capitalized leases............................ (390) (313)
Revenue taxed on in transit shipments.................. (15) (15)
Other.................................................. (83) (29)
------- -------
(2,126) (3,692)
------- -------
Net deferred tax liability............................... $ (981) $ (630)
======= =======
</TABLE>

10. RELATED PARTY TRANSACTIONS

The Company currently leases certain of its revenue equipment from related
parties. Payments to related parties on capital lease obligations in 1997, 1996
and 1995 were $817, $874 and $1,016, respectively.

11. EMPLOYEE BENEFIT PLAN

Each of the Company's subsidiaries and divisions has its own profit-sharing
and 401(k) plans covering substantially all full-time employees after one year
of service. The table below illustrates the key elements of each plan.

<TABLE>
<CAPTION>
SOUTHWEST
ATI DIVISION OF ATI AG CARRIERS
--- --------------- -----------
<S> <C> <C> <C>
Matching contribution.......................... 50% Discretionary 50%
Participant's maximum contribution eligible for
matching..................................... 6% N/A 3%
Discretionary company contributions allowed.... Yes Yes Yes
Company contribution 1997...................... $76 $-- $28
Company contribution 1996...................... $79 $-- $18
Company contribution 1995...................... $62 $30 $ 8
</TABLE>

12. MAJOR CUSTOMERS

For the year ended December 31, 1995, one customer (S.C. Johnson Wax)
accounted for 12% of the net revenues of the Company.

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.
F-19
<PAGE> 35
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the
years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997(1)
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>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31(2) JUNE 30(3) SEPTEMBER 30 DECEMBER 31(4)
----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
1996
Net revenues................................. $19,038 $20,051 $19,881 $18,395
Operating income (loss)...................... 972 848 1,013 (3,446)
Net income (loss)............................ 71 (45) 135 (2,780)
Net income (loss) per common share........... $ 0.02 $ (0.01) $ 0.03 $ (0.70)
</TABLE>

- -------------------------
(1) Net income for the three months ended March 31, 1997, June 30, 1997 and
September 30, 1997 have been restated from the amounts that were originally
reported of $64, $285 and $5, respectively, due to a restatement of the
income tax provision for the respective periods resulting in restated net
income per common share from amounts previously reported of $0.02 and $0.07
for the three months ended March 31, 1997 and June 30, 1997, respectively.

(2) Includes the effects of the litigation settlement (See Note 13).

(3) Includes the effects of the restructuring charge (See Note 14).

(4) Includes the effects of the sale leaseback transaction and the write-down of
equipment to net realizable value (See Note 3).

16. SUBSEQUENT EVENTS

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 will be
operated through Specialty Transportation Services, Inc. ("STS"), a newly formed
subsidiary of the Company, headquartered in Portage, Indiana. The Company also
issued 825,000 options to purchase the Company's common stock at prices ranging
from $3.94 to $4.88 to key employees of STS. In conjunction with the
acquisition, the Company will record approximately $4,250 in cost in excess of
net assets acquired. As of December 31, 1997, $485 in prepaid acquisition costs
were paid by the Company and recorded

F-20
<PAGE> 36
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

on the accompanying balance sheet. The acquisition will be accounted for as a
purchase and accordingly, the 1998 consolidated statement of operations will
include the results of STS from the date of its acquisition.

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), and $500 of common stock in exchange for a 10%
ownership interest in STS. 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 was issued to various investors, including related
parties (primarily directors), and warrants to acquire an additional 10% of STS
common stock were issued for a nominal cost.

In addition, if the internal rate of return ("IRR") of an $8,000
subordinated debt investment is less than 24%, STS is required to issue warrants
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. The $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 and Republic Waste
Industries. Under the 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. STS services these waste contracts
from terminals in the following metropolitan areas: Portland, Oregon; Long
Island, New York; Los Angeles, California; Phoenix, Arizona; Nashville,
Tennessee; Seattle, Washington; Greensboro, North Carolina; and Spartanburg,
South Carolina; and Atlanta, Georgia.

The former executive vice president of Jack Gray Transport, Inc. who
organized the waste transport division of Jack Gray Transport, Inc. in 1983, has
entered into a five year employment agreement to serve as the President of STS.
This former executive vice-president has served as a member of the Company's
Board of Directors since July 1996.

STS will be operated as a stand-alone business unit separate from the
Company's existing temperature-controlled operations.

The following unaudited pro forma statements of operations data are based
on certain amounts derived from the audited statements of operations of the
Waste Transport Business for the nine months ended September 30, 1997 and the
year ended December 31, 1996 and the unaudited consolidated statements of
operations of the Company for the nine months ended September 30, 1997 and the
audited consolidated statements of operations for the year ended December 31,
1996, and assumes in each case, that the acquisition of the net assets of the
Waste Transport Business occurred on January 1, 1996. The following unaudited
pro forma balance sheet data is based on certain amounts derived from the
audited balance sheet of the Waste Transport Business at September 30, 1997 and
the unaudited balance sheet of the Company at September 30, 1997, and assumes
that the acquisition of the net assets of the Waste Transport Business occurred
on September 30, 1997. The pro forma statements are not necessarily indicative
of the results of operations or financial position which would have occurred had
the acquisition taken place on January 1, 1996 or

F-21
<PAGE> 37
AASCHE TRANSPORTATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 1997, respectively, or of future results of the consolidated
operations or financial position of STS and the Company.

PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED):

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Net revenues............................................... $75,334 $107,981
Operating income........................................... 5,052 2,291
Loss before income tax benefit............................. (156) (5,817)
Net loss................................................... (236) (3,746)
Basic and diluted net loss per share....................... (0.06) (0.95)
</TABLE>

PRO FORMA BALANCE SHEET DATA (UNAUDITED):

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C> <C>
Current assets............................................. $ 9,673
Total assets............................................... 75,054
Current liabilities........................................ 17,536
Long-term debt, excluding current maturities............... 39,949
Stockholder's equity....................................... 13,392
Total liabilities and stockholders' equity................. 75,054
</TABLE>

F-22
<PAGE> 38

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <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 Key Employee Incentive Stock Option Plan as adopted on
September 23, 1994(3)
10.6 Non-Employee Directors and Advisors Plan as adopted on
September 23, 1994(4)
10.7 Second Amendment to Key Employee Incentive Stock Option Plan
effective as of July 26, 1995(5)
10.8 Non-Employee Directors and Advisors Plan as adopted on
September 23, 1994(3)
10.9 First Amendment to Non-Employee Directors and Advisors Plan
effective as of April 12, 1995(4)
10.10 Restated Aasche Transportation Services, Inc. Employees'
Stock Ownership Trust as adopted on September 22, 1994(3)
10.11 Amended and Restated Aasche Transportation Services, Inc.
Employees' Stock Ownership Plan as adopted on September 22,
1994(3)
10.12 First Amendment to the Amended and Restated Aasche
Transportation Services, Inc. Employees' Stock Ownership
Plan as adopted on October 24, 1994(3)
10.13 Second Amendment to the Amended and Restated Aasche
Transportation Services, Inc. Employees' Stock Ownership
Plan as adopted on November 15, 1994(3)
10.14 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(9)
10.15 The Aasche Transportation Services, Inc. Employee Stock
Purchase Plan(6)
10.16 Second Amendment to Aasche Transportation Services, Inc.
Employee Stock Purchase Plan effective as of May 1, 1996(9)
10.17 First Amendment to Aasche Transportation Services, Inc.
Employee Stock Purchase Plan effective as of January 1,
1995(6)
10.18 Stock Purchase and Sale Agreement between Aasche
Transportation Services, Inc. Employees' Stock Ownership
Trust and Larry L. Asche dated October 21, 1994(6)
10.19 Stock Purchase and Sale Agreement between Aasche
Transportation Services, Inc. Employees' Stock Ownership
Trust and Diane L. Asche dated October 21, 1994(6)
</TABLE>
<PAGE> 39

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.20 Stock Purchase and Sale Agreement between Aasche
Transportation Services, Inc. Employees' Stock Ownership
Trust and Kevin M. Clark dated October 21, 1994(6)
10.21 Lease Agreement between Asche Transfer, Inc. and K&D Leasing
dated December 14, 1992(2)
10.22 Lease Agreement between Asche Transfer, Inc. and Daniel
Asche dated December 14, 1992(2)
10.23 Lease Agreement between Asche Transfer, Inc. and Michele
Asche dated December 14, 1992(2)
10.24 Lease Agreement between Asche Transfer, Inc. and Angela
Asche dated December 14, 1992(2)
10.25 Lease Agreement between Asche Transfer, Inc. and L&D Leasing
dated December 14, 1992(2)
10.26 Lease Agreement between Asche Transfer, Inc. and
Asche-Nielsen dated December 14, 1992(2)
10.27 Insurance Policy with Golden Rule Insurance Company covering
the lives of Kevin M. Clark, Larry L. Asche and Diane L.
Asche(6)
10.28 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)
10.29 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)
10.30 Agreement for Purchase and Sale of Assets among Registrant,
AG. Carriers and Richard S. Baugh dated April 20, 1995(7)
10.31 Amendment No. 1 to Agreement for Purchase and Sale of Assets
among Registrant, AG. Carriers and Richard S. Baugh dated
May 16, 1995(7)
10.32 Revolving Loan and Security Agreement between Registrant,
Asche Transfer, Inc., Florasche, Inc. (now AG Carriers,
Inc.) and LaSalle National Bank dated May 15, 1995(8)
10.33 First Amendment to Revolving Loan and Security Agreement
between Registrant, Asche Transfer, Inc., Florasche, Inc.
(now AG Carriers, Inc.) and LaSalle National Bank dated June
22, 1995(9)
10.34 Second Amendment to Revolving Loan and Security Agreement
between Registrant, Asche Transfer, Inc., Florasche, Inc.
(now AG Carriers, Inc.) and LaSalle National Bank dated
December 29, 1995(9)
10.35 Loan and Security Agreement between Aasche Transportation
Services, Inc. Employees' Stock Ownership Trust and LaSalle
National Bank dated June 27, 1995(8)
10.36 Form of the Aasche Transportation Services, Inc. 1995
Incentive Stock Option Plan(1)
10.37 Employment and Stock Option Agreement between Registrant and
Leon M. Monachos dated May 15, 1996(12)
10.38 Aasche Transportation Services, Inc. Stock Option Plan dated
June 1, 1996(10)
10.39 Amended Employment and Stock Option Agreement between
Registrant, Polar Express Corporation and Trey Trumbo dated
July 22, 1996(11)
</TABLE>
<PAGE> 40

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.40 Separation Agreement between Registrant, Polar Express
Corporation and Orin S. Neiman dated July 26, 1996(11)
10.41 Employment and Stock Option Agreement between Registrant and
Daniel Wright dated November 4, 1996(12)
10.42 Asset Purchase Agreement dated September 24, 1997 between
Gary I. Goldberg and Jack Gray Transport, Inc.(13)
10.43 Assignment of Asset Purchase Agreement dated September 29,
1997 between Gary I. Goldberg and Registrant(13)
10.44 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.(14)
10.45 Subordinated Note and Equity Purchase Agreement, dated
January 30, 1998, between Specialty Transportation Services,
Inc. and American Capital Strategies, Ltd.(14)
10.46 Term Loan Agreement dated January 30, 1998 between
Registrant and Aim Financial Corporation(14)
10.47 Promissory Note dated as of January 16, 1998 by Registrant
payable to Larry L. Asche in the amount of $500,000(14)
10.48 Promissory Note dated as of January 16, 1998 by Registrant
payable to Diane L. Asche in the amount of $500,000(14)
10.49 Promissory Note dated as of January 26, 1998 by Registrant
payable to Diane L. Asche in the amount of $25,000(14)
10.50 Promissory Note dated as of January 20, 1998 by Registrant
payable to Kevin M. Clark in the amount of $500,000(14)
10.51 Promissory Note dated as of January 26, 1998 by Registrant
payable to Richard S. Baugh in the amount of $250,000(14)
10.52 Promissory Note dated as of January 26, 1998 by Registrant
payable to Gary I. Goldberg in the amount of $250,000(14)
10.53 Warrant dated as of January 16, 1998, from Registrant to
Larry L. Asche(14)
10.54 Warrant dated as of January 16, 1998, from Registrant to
Diane L. Asche(14)
10.55 Warrant dated as of January 26, 1998, from Registrant to
Diane L. Asche(14)
10.56 Warrant dated as of January 20, 1998, from Registrant to
Kevin M. Clark(14)
10.57 Warrant dated as of January 26, 1998, from Registrant to
Richard S. Baugh(14)
10.58 Warrant dated as of January 26, 1998, from Registrant to
Gary I. Goldberg(14)
10.59 Employment Agreement dated as of January 2, 1998 between
Registrant and Gary I. Goldberg(14)
21.1 List of the Subsidiaries of Registrant(1)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Baird Kurtz & Dobson (Polar Express Corporation)
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).
<PAGE> 41

(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-QSB for the
quarter ended June 30, 1995 (File No. 0-24576).

(9) Incorporated by reference from Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995 (File No. 0-24576).

(10) Incorporated by reference from Registrant's Registration Statement on Form
S-8 filed on June 21, 1996 (File No. 333-06569).

(11) Incorporated by reference from Registrant's Registration Statement on Form
S-8 filed on January 9, 1997 (File No. 333-19475).

(12) Incorporated by reference from Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-24576).

(13) Incorporated by reference from Registrant's Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 0-24576).

(14) Incorporated by reference from Registrant's Report on Form 8-K filed on
March 30, 1998 (File No. 0-24576).

<PAGE> 1
EXHIBIT 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 333-19475, 333-06569, and 33-87826) and on Form S-3 (No.
333-37529) of Aasche Transportation Services, Inc. and in the related
Prospectus of our report dated February 27, 1998, with respect to the
consolidated financial statements of Aasche Transportation Services, Inc.,
included in the Annual Report to Shareholders (Form 10-K) for the year ended
December 31, 1997.

/s/ Ernst & Young, LLP

Chicago, Illinois
March 30, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion of our report dated March 1, 1996, regarding
the consolidated statements of operations, changes in stockholders' equity and
cash flows of POLAR EXPRESS CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF AASCHE
TRANSPORTATION SERVICES, INC.) for the year ended December 29, 1995,
incorporated by reference from Aasche Transportation Services, Inc. Form 10-K
into the Registration Statement on Form S-8 (No. 333-19475).

BAIRD, KURTZ & DOBSON

Fayetteville, Arkansas
March 30, 1998

<ARTICLE> 5

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