GAINSCO INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934

For Quarter Ended September 30, 2002 Commission File Number 1-9828

GAINSCO, INC.
(exact name of registrant as specified in its charter)

Texas 75-1617013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1445 Ross Ave., Suite 5300, Dallas, Texas 75202
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (214) 647-0415

500 Commerce Street, Fort Worth, Texas 76102
(Former address of principal executive offices)

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 twelve (12) months, and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of November 12, 2002, there were 21,169,736 shares of the registrant's Common
Stock ($.10 par value) outstanding.

GAINSCO, INC. AND SUBSIDIARIES

INDEX

2

PART I. FINANCIAL INFORMATION

INDEPENDENT AUDITORS' REVIEW REPORT

The Board of Directors and Shareholders
GAINSCO, INC.:

We have reviewed the accompanying condensed consolidated balance sheet of
GAINSCO, INC. and subsidiaries as of September 30, 2002, and the related
condensed consolidated statements of operations, Shareholders' Equity and
Comprehensive Income, and cash flows for the three-months and nine-months
periods ended September 30, 2002 and 2001. These condensed financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
GAINSCO, INC. and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, statements of shareholders' equity and
comprehensive income, and statements of cash flows for the year then ended (not
presented herein); and in our report dated March 18, 2002, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the condensed information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2001 and the accompanying condensed
consolidated statement of shareholders' equity and comprehensive income (loss)
for the year ended December 31, 2001, is fairly presented, in all material
respects, in relation to the consolidated balance sheet and consolidated
statement of shareholders' equity and comprehensive income (loss) from which
they have been derived.

As discussed in Note 1(g) to the condensed consolidated financial statements,
effective January 1, 2002, GAINSCO, INC. and subsidiaries adopted the provisions
of Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets".

KPMG LLP

Dallas, Texas
November 12, 2002

3

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

4

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

5

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
(Unaudited)

See accompanying notes to consolidated financial statements.

6

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)

(continued)

7

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)

See accompanying notes to consolidated financial statements.

8

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)

See accompanying notes to consolidated financial statements.

(continued)

9

GAINSCO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)

See accompanying notes to consolidated financial statements.

10

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(1) Summary of Accounting Policies

(a) Basis of Consolidation

In the opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position of GAINSCO, INC. and subsidiaries (the "Company") as of
September 30, 2002, the results of operations for the three months and
nine months ended September 30, 2002 and 2001, the statements of
shareholders' equity and comprehensive income (loss) for the nine
months ended September 30, 2002 and the twelve months ended December
31, 2001 and the statements of cash flows for the nine months ended
September 30, 2002 and 2001, on the basis of accounting principles
generally accepted in the United States of America ("U.S. GAAP"). The
December 31, 2001 balance sheet and statement of shareholders' equity
and comprehensive income (loss) included herein are derived from the
consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto
included in the Company's December 31, 2001 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. The results of
operations for the period ended September 30, 2002 are not necessarily
indicative of the operating results for the full year.

The accompanying consolidated financial statements are prepared in
conformity U.S. GAAP. The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Reference is made to the Company's annual consolidated financial
statements for the year ended December 31, 2001 for a description of
all other accounting policies.

(b) Nature of Operations

On February 7, 2002, the Company announced its decision to discontinue
writing commercial lines insurance business due to continued adverse
claims development and unprofitable results.

On August 12, 2002, the Company announced its decision to put itself
in a position to exit its remaining active insurance business,
personal auto, in as orderly and productive a fashion as possible. In
June 2002, the company entered into a letter of intent to sell its
Miami, Florida based operation, the Lalande Group, to an unaffiliated
party. In September 2002 negotiations in respect of the possible
transaction were terminated. Operationally, the Company is currently
implementing another round of rate increases, along with other
measures, to enhance the profit potential of this business in 2003 and
related strategic options.

11

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

On August 12, 2002, the Company entered into a definitive acquisition
agreement to sell and transfer a management contract controlling
GAINSCO County Mutual Insurance Company ("GCM") to Berkeley Management
Corporation ("Berkeley"), an affiliate of Liberty Mutual Insurance
Company ("Liberty"), for a purchase price of up to $10.0 million, of
which $1.0 million is payable upon closing and the balance in
contingent payments through September 2009. The $9.0 million total of
future payments would be payable $3 million in September 2003 and $1
million each year thereafter through September 2009 and each payment
is contingent on there being no materially adverse change in the
regulatory treatment of GCM specifically, or county mutuals generally,
from legislative or regulatory administrative actions prior to the
applicable payment date. Following the closing, the surplus of GCM
which is approximately $3,574,000 will remain as a part of the
combined statutory policyholders' surplus of the Company. The
obligation of Berkeley to make the contingent payments in accordance
with the acquisition agreement is guaranteed by Liberty. Pursuant to a
100% quota share reinsurance agreement (the "GAIC Reinsurance
Agreement") to be entered into at closing among GCM and GAINSCO's
subsidiaries, General Agents Insurance Company of America, Inc.
("GAIC") and MGA Agency, Inc., and certain other arrangements, the
Company will retain all assets and liabilities associated with GCM's
past, present and runoff commercial insurance business. The Company
makes a number of representations, warranties and covenants in the
acquisition agreement and generally indemnifies Berkeley and Liberty
for any losses incurred resulting from (i) breaches of
representations, warranties or covenants of the Company; (ii) employee
benefit plan obligations of GCM relating to pre-closing periods; (iii)
tax obligations of GCM relating to pre-closing periods; (iv) all
liabilities of GCM, to the extent that they result from conditions or
circumstances arising or events occurring before the closing, subject
to certain exceptions; (v) all insurance claims, liabilities and
obligations of GCM that are not reinsured pursuant to the GAIC
Reinsurance Agreement or certain insurance fronting programs between
GCM and Metropolitan Property & Casualty Insurance Company and Omni
Insurance Company, respectively; and (vi) any and all insurance
claims, liabilities and obligations of GAIC under the GAIC Reinsurance
Agreement. GCM does not have any employees or employee benefit plans.
The closing of the transaction is subject to receipt of regulatory
approvals from the Texas, Oklahoma and North Dakota Departments of
Insurance and to approval by GAINSCO's bank and other conditions. The
Company ultimately expects to record a gain from this transaction.

As a result of the sale of their office building (see (c)
Investments), the Company leased new office space to house its
principal executive offices and commercial insurance operations. In
August 2002, the Company entered into an office lease for
approximately 8,352 square feet of space in Fountain Place, 1445 Ross
Avenue, Suite 5300, Dallas, Texas, to house the Company's executive
offices. This address is the Company's new registered address. The
lease is for a term of four years, although the Company has the right
to terminate the lease at its option at the end of 2005 upon payment
of a termination fee equal to approximately $29,000. The annual rental
expense is approximately

12

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

$175,500. The lessor is Crescent Real Estate Funding X, L.P., an
affiliate of Crescent Real Estate Equities Company, a Texas real
estate investment trust f/k/a Crescent Real Estate Equities, Inc.
("Crescent"). Robert W. Stallings, GAINSCO's Chairman of the Board,
became a member of the Board of Trust Managers of Crescent in May 2002
and John C. Goff, a member of GAINSCO's Board, is the Chief Executive
Officer and Vice Chairman of the Board of Trust Managers of Crescent.
Mr. Goff is deemed to be the beneficial owner of 3,630,248 common
shares of Crescent, comprising 3.4% of the beneficial ownership of
such shares. Mr. Stallings is deemed to be the beneficial owner of
22,000 common shares of Crescent, comprising less than 1% of the
beneficial ownership of such shares. The management of the Company
believes that the terms of the Company's lease with Crescent are no
less favorable to GAINSCO than those offered to other tenants by
Crescent or than GAINSCO could obtain for comparable space from
unaffiliated parties.

In July 2002, the Company also entered an office lease with an
unaffiliated third party for 10,577 square feet of space at 5400
Airport Freeway, Suite A, Fort Worth, Texas, to house the Company's
commercial insurance operations. The lease is for a term of five
years, although the Company may terminate the lease at its option
after the expiration of three years. The annual base rental expense is
equal to $105,770.

(c) Investments

Bonds available for sale and other investments are stated at fair
value with changes in fair value recorded as a component of
comprehensive income. Short-term investments are stated at cost.

The following schedule summarizes the components of other investments:

The equity investments were predominately private equity investments
that were not traded in public markets and cost was considered to
approximate fair value. Cost was considered to approximate fair value
for the equity investments and the note receivable because they were
carried at the amount recoverable from Goff Moore Strategic Partners,
L.P. ("GMSP") under the put option as discussed below. The Company
held an embedded derivative financial instrument in common stock
warrants attached to the note receivable. As of December 31, 2001, the
exercise price of the warrants was not determinable and, therefore,
the warrants were not recorded in the financial statements.

The agreement with GMSP provided an opportunity to convert the equity
investments and the note receivable with a cost of $4.2 million to
cash as of November 2002, as follows: the Company could at its option
require GMSP to purchase these investments for $2.1 million, less any
future cash received prior to November 2002 from the investments. GMSP
could at its option require the Company to sell the equity investments
and the note receivable to GMSP for $4.2 million, less any future cash
received prior to November 2002 from the investments. During the
second quarter of 2001, the Company recognized a permanent impairment
of these

13

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

investments and wrote down the carrying value to the amount
recoverable from GMSP under the put option. This write down amounted
to $2,176,231 and was recorded as a realized capital loss in the
Statement of Operations. In February 2002, GMSP consented to the early
exercise of the Company's option, and the Company exercised its option
to require GMSP to purchase the illiquid investments for approximately
$2.1 million.

The marketable securities were sold in the first quarter of 2002 for a
small gain.

The "specific identification" method is used to determine costs of
investments sold. Provisions for possible losses are recorded only
when the values have experienced impairment considered "other than
temporary" by a charge to realized losses resulting in a new cost
basis of the investment.

The unrealized gains (losses) on investments at September 30, 2002 and
December 31, 2001 are set forth in the following table:

Proceeds from the sale of bond securities totaled $7,962,963 and
$7,989,470 for the three months ended September 30, 2002 and 2001,
respectively, and $81,458,046 and $35,770,164 for the nine months
ended September 30, 2002 and 2001, respectively. Proceeds from the
sale of common stocks totaled $0 and $6,027,392 for the three months
and the nine months ended September 30, 2001, respectively. There
were no sales of common stock during 2002. There were no sales of
other investments during the three months ended September 30, 2002
and 2001. Proceeds from the sale of other investments totaled
$2,111,119 and $382,867 for the nine months ended September 30, 2002
and 2001, respectively.

14

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

Realized gains and losses on investments for the three months and nine
months ended September 30, 2002 and 2001, respectively, are presented
in the following table:

During the first nine months of 2002, the Company reduced the carrying
value of a non-rated commercial mortgage backed security to $0
resulting in a write down of $2,010,670 as a result of a significant
increase in the default rate in January and February of 2002 in the
underlying commercial mortgage portfolio, which has disrupted the cash
flow stream sufficiently to make future cash flows unpredictable. This
write down was offset by net realized gains of $3,058,144 recorded
from the sale of various bond securities.

In August 2002, the Company entered into an amendment to its
Investment Management Agreements with Goff Moore Strategic Partners,
L.P. ("GMSP") (See "Transactions with Goff Moore Strategic Partners,
L.P. - 1999 GMSP Transaction"). The amendment reduces, effective as of
October 1, 2002, the minimum aggregate monthly payment owed by the
Company to GMSP from $75,000 to $63,195 (with respect to each calendar
month from October 2002 through September 2003), $53,750 (with respect
to each calendar month from October 2003 through September 2004), and
$45,417 (with respect to each calendar month after September 2004).
The amendment also changes the date upon which either party to each of
the investment management agreements can terminate the agreement at
its sole option from October 4, 2002 to September 30, 2005. The
amendment was approved by each of the required applicable State
insurance departments.

The Company sold the office building at 500 Commerce Street in Fort
Worth, Texas, where the Company's principal executive offices and
commercial insurance operations were located, to an unaffiliated third
party for $5 million on August 30, 2002. The Company recorded a gain
of $402,629 from this transaction.

15

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(d) Federal Income Taxes

The Company and its subsidiaries file a consolidated Federal income
tax return. Deferred income tax items are accounted for under the
"asset and liability" method which provides for temporary differences
between the reporting of earnings for financial statement purposes and
for tax purposes, primarily deferred policy acquisition costs, the
discount on unpaid claims and claim adjustment expenses, net operating
loss carry forwards and the nondeductible portion of the change in
unearned premiums. The Company paid no Federal income taxes during the
nine months ended September 30, 2002. The Company received Federal
income tax refunds totaling $250,000 during the nine months ended
September 30, 2001.

The Company recognized a current tax benefit of $2,607,796 during the
third quarter of 2002 as a result of a carry back of alternative
minimum tax losses. A change in the tax law during 2002 extended the
carry back period for losses to offset income in earlier periods. As a
result, the Company was entitled to a tax refund which it received in
October 2002.

In assessing the realization of its deferred tax assets, management
considers whether it is more likely than not that a portion or all of
the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Based upon management's consideration of expected reversal
of deferred tax liabilities and projected future taxable income,
management believes it is more likely than not that the Company will
not realize the benefits of these deferred tax assets in the near
future. At September 30, 2002, the Company has established a valuation
allowance against its net deferred tax assets, exclusive of the tax
effect of unrealized gains, in the amount of $32,268,579. At December
31, 2001 the valuation allowance was $31,534,712 and included the tax
effect on unrealized gains.

As of September 30, 2002, the Company has net operating loss carry
forwards for tax purposes of $1,639,332, $30,985, $23,531,349,
$33,950,174 and $9,417,005 which, if not utilized, will expire in
2018, 2019, 2020, 2021, and 2022, respectively. As of September 30,
2002 the Company has capital loss carry forwards of $16,976 and $7,586
for tax purposes which, if not utilized, will expire in 2005 and 2007.

16

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(e) Earnings Per Share

The following table sets forth the computation of basic and diluted
earnings per share:

*The effects of common stock equivalents and convertible preferred stock are
antidilutive for the three months and nine months ended 2002 and 2001,
respectively, due to the net loss for the periods; therefore, diluted loss per
share is reported the same as basic loss per share.

17

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(f) Accumulated Other Comprehensive Income

The following schedule presents the components of other comprehensive
income:

The 2002 reclassification adjustment for amounts included in net
income for realized gains (losses) excludes the realized loss due to
the impairment of a fixed maturity because this amount was not a
component of accumulated other comprehensive income as of December 31,
2001.

(g) Goodwill

Goodwill represents the excess of purchase price over fair value of
net assets acquired. In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (Statement 141) and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart
from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. Statement 142
requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."

The Company adopted the provisions of Statement 141 effective July 1,
2001 and Statement 142 effective January 1, 2002. The adoption of
Statement 141 had no impact on the consolidated financial statements.
The adoption of Statement 142 resulted in the Company no longer
amortizing the remaining goodwill. As of the date of adoption, the
Company had unamortized goodwill in the amount of $3,468,507 that was
subject to the transition provisions of Statements 141 and 142.

18

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

Statement 141 required, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and to make any
necessary reclassifications in order to conform with the new criteria
in Statement 141 for recognition apart from goodwill. Upon adoption of
Statement 142, the Company was required to reassess the useful lives
and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company was required to test the
intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. The Company did not
record any impairments as a result of the adoption of Statement 142.

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" (Statement 144), establishing financial accounting
and reporting for the impairment or disposal of long-lived assets.
Statement 144 is effective for fiscal years beginning after December
15, 2001. The Company adopted the provisions of Statement 144
effective January 1, 2002. Pursuant to Statement 144 the
discontinuance of commercial lines has not been reported as
discontinued operations. The adoption of Statement 144 had no other
effect on the Company's financial position or results of operation.

On January 7, 2000, the Company completed the acquisition of
Tri-State, an insurance operation specializing primarily in
underwriting, servicing and claims handling of nonstandard personal
auto insurance in Minnesota, North Dakota and South Dakota. The
purchase price was approximately $6,000,000 with an additional payment
of $1,148,454 made in July, 2000 and additional payments up to
approximately $4,350,000 in cash possible over the next several years
based on a conversion goal and specific profitability targets. The
Company paid $1,566,081 in January of 2001 for the conversion goal.

The Company decided to no longer pursue a long-term geographic
expansion strategy in personal automobile beyond that of its core
operation in Florida, and sold Tri-State to Tri-State's president for
$935,000 in cash on August 31, 2001. The remaining goodwill associated
with the Tri-State acquisition of $5,086,283 was recorded as goodwill
impairment during the second quarter of 2001. The Company recognized a
capital loss for tax purposes of $5,066,423 from this sale during the
second quarter of 2001.

In December 2001, prior to the adoption of Statement 142, the Company
recorded an impairment of $13,360,603 on the goodwill associated with
the 1998 acquisition of the Lalande Group. As a result of the decision
to position the Company for an exit from personal auto, the Company
evaluated the related goodwill and recorded an impairment of
$2,859,507 in the second quarter of 2002. The remaining goodwill as of
September 30, 2002 is $609,000 and is related to the 1998 acquisition
of the Lalande Group. Effective in 2002, goodwill is no longer
amortized but will be subject to an impairment test based on its
estimated fair value. Therefore, additional impairment losses could be
recorded in future periods.

19

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(h) Accounting Pronouncements

On July 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" (Statement 146). The provisions of Statement 146
are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not expect the adoption of
Statement 146 to have a material effect on its consolidated financial
position or result of operations.

(i) Benefit Plans

Because of their importance to the Company, in August 2002 the Company
entered into executive severance agreements with three senior
executives, Richard M. Buxton, Daniel J. Coots and Rick Laabs. The
agreements generally provide that the Company shall pay the executive,
upon termination of the employment of the executive by the Company
without cause or by the executive with good reason during the term of
the agreement, a lump sum severance amount equal to the base annual
salary of the executive as of the date that the executive's employment
with the Company ends. The current base annual salaries of Messrs.
Buxton, Coots and Laabs are $170,000, $155,000 and $150,000,
respectively. The executive severance agreements do not supersede the
change in control agreements or any other severance agreements the
employees may have with the Company.

The Company entered into Retention Incentive Agreements with sixteen
of its officers and other employees (none of whom are among the five
most highly compensated employees of the Company as of the most recent
proxy statement sent to shareholders). Each of the Retention Incentive
Agreements generally requires that the Company pay the applicable
employee an amount based upon the employee's annual base salary, less
amounts owed by the Company to the employee pursuant to any change in
control or severance agreements the employee may have with the
Company. The Company's obligation to make payments under each
Retention Incentive Agreement is conditioned upon the employee
remaining in the employ of the Company through a specified date,
unless terminated earlier by the Company without cause or by the
employee with good reason. The Company could be obligated to make up
to an aggregate of approximately $793,000 in payments under the
Retention Incentive Agreements.

20

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(2) Reinsurance

The amounts deducted in the Consolidated Statements of Operations for
reinsurance ceded for the three months and nine months ended September 30,
2002 and 2001, respectively, are set forth in the following table.

Claims ceded to the commercial automobile plans of Arkansas, California,
Louisiana, Mississippi and Pennsylvania are designated as "plan servicing".
There were no plan servicing premiums earned during the nine months ended
September 30, 2002 and 2001, respectively.

There were no plan servicing or Florida business unearned premiums at
September 30, 2002 and December 31, 2001, respectively. The amounts
included in the Consolidated Balance Sheets for reinsurance ceded under
fronting arrangements and reinsurance ceded to the commercial automobile
plans of Arkansas, California, Louisiana, Mississippi and Pennsylvania as
of September 30, 2002 and December 31, 2001 were as follows:

Effective December 31, 2000 the Company entered into a quota share
reinsurance agreement whereby the Company ceded 100% of its commercial auto
liability unearned premiums and 50% of all other commercial business
unearned premiums at December 31, 2000 to a non-affiliated reinsurer. For
policies with an effective date of January 1, 2001 through December 31,
2001, the Company entered into a quota share reinsurance agreement whereby
the Company ceded 21.03% of its commercial business to a non-affiliated
reinsurer. Also effective December 31, 2000, the

21

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

Company entered into a reserve reinsurance cover agreement with a
non-affiliated reinsurer. This agreement reinsures the Company's ultimate
net aggregate liability in excess of $32,500,000 up to an aggregate limit
of $89,650,000 for net commercial auto liability losses and loss adjustment
expense incurred but unpaid as of December 31, 2000. At September 30, 2002
and December 31, 2001 a deferred reinsurance gain of $4,550,823 and
$7,937,531, respectively, has been recorded in deferred revenues. For the
third quarter and the first nine months of 2002, $922,618 and $3,386,708,
respectively, has been recorded in other income which represents the
reserve development under the reserve reinsurance cover agreement. No
amounts were recognized for the third quarter and the first nine months of
2001 under the reserve reinsurance agreement. Since its inception at
December 31, 2000, $4,499,177 has been recorded in other income which
represents the reserve development under the reserve reinsurance cover
agreement. The deferred gain item will be recognized in income in future
periods based upon the ratio of claims paid in the $57,150,000 layer to the
total of the layer. The Company established a reinsurance balance
receivable and a liability for funds held under reinsurance agreements for
the reserves transferred at December 31, 2001. Also in connection with this
agreement, the Company was required to maintain assets in a trust fund with
a fair value at least equal to the funds held liability. The trust fund was
established during the third quarter of 2001 and at December 31, 2001 the
assets in the trust had a fair value of $49,553,698. Because the Company's
statutory policyholders' surplus fell below certain levels specified in the
agreement, the reinsurer had the option to direct the trustee to transfer
the assets of the trust to the reinsurer. In March of 2002, the reinsurer
exercised this option and the trust assets were transferred to the
reinsurer. As a result, investments and funds held under reinsurance
agreements were reduced by approximately $44.0 million. The Company
recorded a realized gain of approximately $486,000 as a result of this
transfer. The reinsurer remains responsible for reimbursing the Company for
claim payments covered under this agreement.

The Company remains directly liable to its policyholders for all policy
obligations and the reinsuring companies are obligated to the Company to
the extent of the reinsured portion of the risks.

(3) Note Payable

In November 1998, the Company entered into a credit agreement with a
commercial bank pursuant to which it borrowed $18,000,000. Interest was due
monthly at an interest rate that approximated the 30-day London Interbank
Offered Rate (LIBOR) plus 175 basis points. Principal payments of $500,000
were due each quarter with the balance of $10,500,000 due at maturity of
the note on October 1, 2003.

In March 2001, the credit agreement was amended, specific breaches of
covenants were waived, $2,500,000 in principal was prepaid and certain
terms were amended. Interest was due monthly at an interest rate that
approximates the 30-day LIBOR plus 250 basis points with an increase of 25
basis points each quarter beginning October 1, 2001 (4.89375% at December
31, 2001). Principal payments of $500,000 were due each quarter and were
scheduled to increase to $750,000 beginning April 1, 2002, with the balance
of $6,500,000 due at maturity of the note on November 1, 2003.

On November 13, 2001, the credit agreement was further amended to change
certain covenants and to provide the following revised principal
amortization schedule: $200,000 upon effectiveness of the amendment on
November 13, 2001; $500,000 on January 2, 2002; and $1,000,000 on the first
day of each calendar quarter thereafter. A $50,000 fee was paid to the bank
for this amendment.

22

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

On February 27, 2002 the Company entered into an amendment to the credit
agreement which cured covenant breaches and provided for principal
prepayments. The Company prepaid $6,100,000 of the indebtedness outstanding
under the credit agreement on March 4, 2002. Several covenants in the
existing credit agreement were eliminated or modified by the amendment and
the interest rate was changed to a base rate (which approximates prime)
plus 175 basis points (6.50% at March 31, 2002). The principal amortization
schedule was amended such that the remaining $4,200,000 principal balance
under the credit agreement is payable in 2003.

The Company recorded interest expense of $68,063 and $186,359 for the three
months ended September 30, 2002 and 2001, respectively, and $246,692 and
$698,243 for the nine months ended September 30, 2002 and 2001,
respectively. The Company paid interest expense of $91,249 and $204,539 for
the three months ended September 30, 2002 and 2001, respectively, and
$290,736 and $767,673 for the nine months ended September 30, 2002 and
2001. The Company made unscheduled principal prepayments of $2,500,000,
$500,000 and $200,000 in the first, third and fourth quarters of 2001,
respectively, and scheduled principal payments of $500,000 in January,
April, July and October of 2001 and in January 2002.

(4) Redeemable Preferred Stock and Shareholders' Equity

The Company has authorized 250,000,000 shares of common stock, par value
$.10 per share (the "Common Stock"). Of the authorized shares of Common
Stock, 22,013,830 were issued as of September 30, 2002 and December 31,
2001, respectively, and 21,169,736 were outstanding as of September 30,
2002 and December 31, 2001, respectively. The Company also has 10,000,000
shares of preferred stock with $100 par value authorized per share of which
none were issued and outstanding as of September 30, 2002 and December 31,
2001, respectively. As a result of the transactions discussed below, the
Company has three series of redeemable preferred stock outstanding which
have mezzanine presentation because they are redeemable at the option of
the holder.

On October 4, 1999 the Company sold to Goff Moore Strategic Partners, L.P.
("GMSP"), for an aggregate purchase price of $31,620,000 (i) 31,620 shares
of Series A Preferred Stock, which are convertible into 6,200,000 shares of
Common Stock at a conversion price of $5.10 per share, (ii) the Series A
Warrant to purchase an aggregate of 1,550,000 shares of Common Stock at an
exercise price of $6.375 per share and expiring October 4, 2004 and (iii)
the Series B Warrant to purchase an aggregate of 1,550,000 shares of Common
Stock at an exercise of $8.50 per share and expiring October 4, 2006. As a
result of the value attributable to the Common Stock purchase warrants
issued with the Series A Preferred Stock, the Series A Preferred Stock was
issued at a discount which is being amortized over a five year period using
the effective interest method. Proceeds were allocated based upon the
relative fair values of the Series A Preferred Stock, and the Series A
Warrants and the Series B Warrants. The Series A Warrants and the Series B
Warrants are anti-dilutive.

On March 23, 2001, the Company consummated another transaction (the "2001
GMSP Transaction") with GMSP pursuant to which, among other things, the
Company issued shares of its newly created Series C Preferred Stock to GMSP
in exchange for an aggregate purchase price of $3.0 million in cash.

The annual dividend rate on the Series C Preferred Stock is 10% during the
first three years and 20% thereafter. Unpaid dividends are cumulative and
compounded. The Series C Preferred Stock is redeemable at the Company's
option after five years and at the option of the majority holders after six
years at a price of $1,000 per share plus accrued and unpaid dividends. The
Series C Preferred Stock is not convertible into Common Stock.

23

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

The agreement with GMSP in connection with the 2001 GMSP Transaction was
conditioned upon the following changes in the securities currently held by
GMSP. The exercise prices of the Series A Warrant and the Series B Warrant
held by GMSP were amended to equal $2.25 and $2.5875 per share,
respectively. Each of these warrants provides for the purchase of 1,550,000
million shares of Common Stock, subject to adjustment. Further, the Company
is required to redeem the outstanding shares of its Series A Preferred
Stock on January 1, 2006, subject to certain conditions, at a price of
$1,000 per share plus accrued and unpaid dividends. Any Series A Preferred
Stock unredeemed for any reason after that date would accrue interest,
payable quarterly at a rate equal to eight percent per year with any unpaid
interest compounded annually.

On March 23, 2001, the Company consummated a transaction with Robert W.
Stallings (the "Stallings Transaction") pursuant to which, among other
things, the Company issued shares of its newly created Series B Preferred
Stock and a warrant to purchase an aggregate of 1,050,000 shares of Common
Stock at $2.25 per share and expiring March 23, 2006 in exchange for an
aggregate purchase price of $3.0 million in cash. The annual dividend
provisions and the redemption provisions of the Series B Preferred Stock
are the same as those for the Series C Preferred Stock. The Series B
Preferred Stock is convertible into Common Stock at $2.25 per share.
Subject to adjustment for certain events, the Series B Preferred Stock is
convertible into a maximum of 1,333,333 shares of Common Stock.

The 2001 GMSP Transaction and the Stallings Transaction results in all
preferred stock being redeemable. The discount on the preferred stock is
being amortized over the period until redemption using the effective
interest method. At September 30, 2002 and December 31, 2001, there was
$11,091,000 and $13,051,000, respectively, in unaccreted discount on the
preferred stock and $958,160 and $461,344, respectively, in accrued
dividends on the Series B and Series C Preferred Stock.

As of September 30, 2002 there were 587,065 options outstanding to purchase
common stock ("options") at an average exercise price of $8.94 per share
that had been granted to officers and directors of the Company under the
1995 Stock Option Plan; 424,450 options, at an average exercise price of
$5.58 per share, that had been granted to officers, directors and employees
of the Company under the 1998 Long-Term Incentive Plan; and 579,710
options, at an exercise price of $5.75 per share, that had been granted to
Glenn W. Anderson under an employment agreement.

Cash dividends of $478,971 ($.0175 per share) were paid during the first
quarter of 2001. The Board of Directors discontinued quarterly dividends on
the common stock in February 2001.

The Company's Common Stock commenced trading on the OTC Bulletin Board on
April 15, 2002 under the ticker symbol "GNAC". The OTC Bulletin Board is a
regulated quotation service that displays real-time quotes, last sale
prices, and volume information in over-the-counter equity securities.

The New York Stock Exchange ("NYSE") suspended trading of the Company's
Common Stock prior to the opening on April 15, 2002 and delisted the Common
Stock. This action was taken by the NYSE because the Company had fallen
below the NYSE's continued listing standards with regard to market
capitalization, stockholders' equity and the price of the Common Stock.

(5) Segment Reporting

On February 7, 2002, the Company announced its decision to discontinue
writing commercial lines insurance business due to continued adverse claims
development and unprofitable results.

24

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

During 2001 the Company made operating decisions and assessed performance
for the commercial lines segment and the personal lines segment. The
commercial lines segment wrote primarily commercial auto, garage, general
liability and property. The personal lines segment writes primarily
nonstandard personal auto coverages.

The Company considers many factors including the nature of the insurance
product and distribution strategies in determining how to aggregate
operating segments.

The Company has elected not to allocate assets to the commercial lines or
personal lines segments for management reporting purposes.

The following tables present a summary of segment profit (loss) for the
three months and nine months ended September 30, 2002 and 2001:

25

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

26

GAINSCO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

27

GAINSCO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations

BUSINESS OPERATIONS

Discontinuance of Commercial Lines

On February 7, 2002, the Company announced its decision to cease writing
its primary line of business, commercial insurance, due to continued
adverse claims development and unprofitable results. As a result of this
decision, approximately $68.5 million of unprofitable commercial business
premium is being eliminated over the course of 2002 and 2003, with
continuing reductions in the cost structure of the Company. Due to
the long tail nature of these claims, the Company anticipates it will take
a substantial number of years to complete an orderly adjustment and
settlement process with regard to these claims and any additional claims it
receives in the future from its past business writings.

Changes in Personal Lines

On August 12, 2002, the Company announced its decision to put itself in a
position to exit its remaining active insurance business, personal auto, in
as orderly and productive a fashion as possible. In June 2002 the Company
entered into a letter of intent to sell its Miami, Florida based operation,
the Lalande Group, to an unaffiliated party. In September 2002 negotiations
in respect of the possible transaction were terminated. Operationally, the
Company is currently implementing another round of rate increases, along
with other measures to enhance the profit potential of this business in
2003 and related strategic options.

Also, as a result of this process, the Company evaluated the related
goodwill and recorded an impairment of approximately $2.9 million during
the second quarter 2002. The remaining goodwill as of September 30, 2002 is
$.6 million dollars and is related to the 1998 acquisition of the Lalande
Group.

28

Redeployment of Capital

The Company anticipates a lengthy period of transition as it exits from its
insurance business. During the transition process, the Company may consider
the sale of additional subsidiaries associated with that business.
Ultimately, the Company intends to redeploy the capital now required by its
insurance business, once it becomes available, to pursue other
opportunities in the future that offer a better prospect for profitability.
The Company believes that suitable capital redeployment opportunities
should be available after its insurance capital becomes available, but
cannot predict the amount of capital that will ultimately be available for
redeployment, the timing or the nature of the opportunities that may be
available at the time capital becomes available. The opportunities may be
outside of the insurance business and could be in the financial services
business.

Sale of GAINSCO County Mutual

On August 12, 2002, the Company entered into a definitive acquisition
agreement to sell and transfer a management contract controlling GAINSCO
County Mutual Insurance Company ("GCM") to Berkeley Management Corporation
("Berkeley"), an affiliate of Liberty Mutual Insurance Company ("Liberty"),
for a purchase price of up to $10.0 million, of which $1.0 million is
payable upon closing and the balance in contingent payments through
September 2009. The $9.0 million total of future payments would be payable
$3 million in September 2003 and $1 million each year thereafter through
September 2009 and each payment is contingent on there being no materially
adverse change in the regulatory treatment of GCM specifically, or county
mutuals generally, from legislative or regulatory administrative actions
prior to the applicable payment date. Following the closing, the surplus of
GCM which is approximately $3,574,000 will remain as a part of the combined
statutory policyholders' surplus of the Company. The obligation of Berkeley
to make the contingent payments in accordance with the acquisition
agreement is guaranteed by Liberty. Pursuant to a 100% quota share
reinsurance agreement (the "GAIC Reinsurance Agreement") to be entered into
at closing among GCM and GAINSCO's subsidiaries, General Agents Insurance
Company of America, Inc. ("GAIC") and MGA Agency, Inc., and certain other
arrangements, the Company will retain all assets and liabilities associated
with GCM's past, present and runoff commercial insurance business. The
Company makes a number of representations, warranties and covenants in the
acquisition agreement and generally indemnifies Berkeley and Liberty for
any losses incurred resulting from (i) breaches of representations,
warranties or covenants of the Company; (ii) employee benefit plan
obligations of GCM relating to pre-closing periods; (iii) tax obligations
of GCM relating to pre-closing periods; (iv) all liabilities of GCM, to the
extent that they result from conditions or circumstances arising or events
occurring before the closing, subject to certain exceptions; (v) all
insurance claims, liabilities and obligations of GCM that are not reinsured
pursuant to the GAIC Reinsurance Agreement or certain insurance fronting
programs between GCM and Metropolitan Property & Casualty Insurance Company
and Omni Insurance Company, respectively; and (vi) any and all insurance
claims, liabilities and obligations of GAIC under the GAIC Reinsurance
Agreement. GCM does not have any employees or employee benefit plans. The
closing of the transaction is subject to receipt of regulatory approvals
from the Texas, Oklahoma and North Dakota Departments of Insurance and to
approval by GAINSCO's bank and other conditions. The Company ultimately
expects to record a gain from this transaction.

Sale of Office Building; New Office Leases

The Company sold the office building at 500 Commerce Street in Fort Worth,
Texas, where the Company's principal executive offices and commercial
insurance operations were located, to an unaffiliated third party for $5
million on August 30, 2002. The Company recorded a gain of $402,629 from
this transaction. As a result, the Company leased new office space to house
its principal executive offices and commercial insurance operations. In
August 2002, the Company entered into an office lease for approximately
8,352 square feet of space in Fountain

29

Place, 1445 Ross Avenue, Suite 5300, Dallas, Texas, to house the Company's
executive offices. This address is the Company's new registered address.
The lease is for a term of four years, although the Company has the right
to terminate the lease at its option at the end of 2005 upon payment of a
termination fee equal to approximately $29,000. The annual rental expense
is equal to approximately $175,500. The lessor is Crescent Real Estate
Funding X, L.P., an affiliate of Crescent Real Estate Equities Company, a
Texas real estate investment trust f/k/a Crescent Real Estate Equities,
Inc. ("Crescent"). Robert W. Stallings, GAINSCO's Chairman of the Board,
became a member of the Board of Trust Managers of Crescent in May 2002 and
John C. Goff, a member of GAINSCO's Board, is the Chief Executive Officer
and Vice Chairman of the Board of Trust Managers of Crescent. Mr. Goff is
deemed to be the beneficial owner of 3,630,248 common shares of Crescent,
comprising 3.4% of the beneficial ownership of such shares. Mr. Stallings
is deemed to be the beneficial owner of 22,000 common shares of Crescent,
comprising less than 1% of the beneficial ownership of such shares. The
management of the Company believes that the terms of the Company's lease
with Crescent are no less favorable to GAINSCO than those offered to other
tenants by Crescent or than GAINSCO could obtain for comparable space from
unaffiliated parties.

In July 2002, the Company also entered an office lease with an unaffiliated
third party for 10,577 square feet of space at 5400 Airport Freeway, Suite
A, Fort Worth, Texas, to house the Company's commercial insurance
operations. The lease is for a term of five years, although the Company may
terminate the lease at its option after the expiration of three years. The
annual base rental expense is equal to $105,770.

Executive Severance Agreements

Because of their importance to the Company, in August 2002 the Company
entered into executive severance agreements with three senior executives,
Richard M. Buxton, Daniel J. Coots and Rick Laabs. The agreements generally
provide that the Company shall pay the executive, upon termination of the
employment of the executive by the Company without cause or by the
executive with good reason during the term of the agreement, a lump sum
severance amount equal to the base annual salary of the executive as of the
date that the executive's employment with the Company ends. The current
base annual salaries of Messrs. Buxton, Coots and Laabs are $170,000,
$155,000 and $150,000, respectively. The executive severance agreements do
not supersede the change in control agreements or any other severance
agreements the employees may have with the Company.

Retention Incentive Agreements

The Company entered into Retention Incentive Agreements with sixteen of its
officers and other employees (none of whom are among the five most highly
compensated employees of the Company as of the most recent proxy statement
sent to shareholders). Each of the Retention Incentive Agreements generally
requires that the Company pay the applicable employee an amount based upon
the employee's annual base salary, less amounts owed by the Company to the
employee pursuant to any change in control or severance agreements the
employee may have with the Company. The Company's obligation to make
payments under each Retention Incentive Agreement is conditioned upon the
employee remaining in the employ of the Company through a specified date,
unless terminated earlier by the Company without cause or by the employee
with good reason. The Company could be obligated to make up to an aggregate
of approximately $793,000 in payments under the Retention Incentive
Agreements.

30

Amendment to Investment Management Agreements

In August 2002, the Company entered into an amendment to its Investment
Management Agreements with Goff Moore Strategic Partners, L.P. ("GMSP")
(See "Transactions with Goff Moore Strategic Partners, L.P. - 1999 GMSP
Transaction"). The amendment reduces, effective as of October 1, 2002, the
minimum aggregate monthly payment owed by the Company to GMSP from $75,000
to $63,195 (with respect to each calendar month from October 2002 through
September 2003), $53,750 (with respect to each calendar month from October
2003 through September 2004), and $45,417 (with respect to each calendar
month after September 2004). The amendment also changes the date upon which
either party to each of the investment management agreements can terminate
the agreement at its sole option from October 4, 2002 to September 30,
2005. The amendment was approved by each of the required applicable State
insurance departments.

Tri-State Acquisition and Sale

On January 7, 2000, the Company expanded its personal lines business
conducted through the Lalande Group through the acquisition of Tri-State,
an insurance operation specializing in underwriting, servicing and claims
handling of nonstandard personal auto insurance in Minnesota, North Dakota
and South Dakota. Tri-State owned and operated a managing general agency, a
motor vehicle driving records service company and an insurance subsidiary,
Midwest Casualty Insurance Company ("MCIC") that had policyholders' surplus
of approximately $3,034,000. The purchase price consideration consisted of
$6,000,000 in cash at closing plus additional cash payments of $1,200,000
and $1,600,000 paid in July 2000 and January 2001, respectively. On August
31, 2001, the Company sold all of the stock of Tri-State to Herbert A. Hill
for a cash price of $935,000. Mr. Hill is the President and a former owner
of Tri-State. The Company retained MCIC, which had policyholders' surplus
of approximately $3,078,000 at December 31, 2001 and $3,056,000 at
September 30, 2002.

Transactions with Goff Moore Strategic Partners, L.P.

1999 GMSP Transaction. On October 4, 1999, the Company sold to GMSP, for an
aggregate purchase price of $31,620,000, (i) 31,620 shares of Series A
Preferred Stock, which are convertible into 6,200,000 shares of Common
Stock at a conversion price of $5.10 per share (subject to adjustment for
certain events), (ii) the Series A Warrant to purchase an aggregate of
1,550,000 shares of Common Stock at an exercise price of $6.375 per share
and expiring October 4, 2004 and (iii) the Series B Warrant to purchase an
aggregate of 1,550,000 shares of Common Stock at an exercise of $8.50 per
share and expiring October 4, 2006. At closing the Company and its
insurance company subsidiaries entered into Investment Management
Agreements with GMSP, pursuant to which GMSP manages their respective
investment portfolios. Completion of these transactions (the "1999 GMSP
Transaction") concluded the strategic alternatives review process that the
Company initiated in 1998. Proceeds from the 1999 GMSP Transaction were
available for acquisitions, investments and other corporate purposes.

31

2001 GMSP Transaction. On March 23, 2001, the Company consummated a
transaction with GMSP (the "2001 GMSP Transaction") pursuant to which,
among other things, the Company issued shares of its newly created Series C
Preferred Stock to GMSP in exchange for an aggregate purchase price of $3.0
million in cash.

The annual dividend rate on the Series C Preferred Stock is 10% during the
first three years and 20% thereafter. Unpaid dividends are cumulative and
compounded. The Series C Preferred Stock is redeemable at the Company's
option after five years and at the option of the majority holders after six
years at a price of $1,000 per share plus accrued and unpaid dividends. The
Series C Preferred Stock is not convertible into Common Stock.

The agreement with GMSP in connection with the 2001 GMSP Transaction was
conditioned upon the following changes in the securities currently held by
GMSP. The exercise prices of the Series A Warrant and the Series B Warrant
held by GMSP were amended to $2.25 per share and $2.5875 per share,
respectively. Each of these warrants provides for the purchase of 1,550,000
million shares of Common Stock, subject to adjustment. Further, the Company
is required to redeem the outstanding shares of its Series A Preferred
Stock on January 1, 2006, subject to certain conditions, at a price of
$1,000 per share plus accrued and unpaid dividends. Any Series A Preferred
Stock unredeemed for any reason after that date would accrue interest,
payable quarterly at a rate equal to eight percent per year with any unpaid
interest compounded annually. The Series A Preferred Stock is convertible
into 6,200,000 shares of Common Stock at a conversion price of $5.10 per
share.

The agreement with GMSP provided an opportunity to convert the Company's
illiquid investments with a cost of $4.2 million to cash as of November
2002, as follows: the Company could at its option require GMSP to purchase
the illiquid investments for $2.1 million, less any future cash received
prior to November 2002 from the investments. GMSP could at its option
require the Company to sell the illiquid investments to GMSP for $4.2
million, less any future cash received prior to November 2002 from the
investments. During the second quarter of 2001, the Company recognized a
permanent impairment of these investments and wrote down the carrying value
to the amount recoverable from GMSP under the put option. In February 2002,
GMSP consented to the early exercise of the Company's option, and the
Company exercised its option to require GMSP purchase the illiquid
investments for approximately $2.1 million.

Transactions with Robert W. Stallings

On March 23, 2001, the Company consummated a transaction with Mr. Stallings
(the "Stallings Transaction") pursuant to which, among other things, the
Company issued shares of its newly created Series B Preferred Stock and a
warrant to purchase an aggregate of 1,050,000 shares of Common Stock at
$2.25 per share and expiring March 23, 2006 in exchange for an aggregate
purchase price of $3.0 million in cash. The annual dividend provisions and
the redemption provisions of the Series B Preferred Stock are the same as
those for the Series C Preferred Stock. The Series B Preferred Stock is
convertible into Common Stock at $2.25 per share. Subject to adjustment for
certain events, the Series B Preferred Stock is convertible into a maximum
of 1,333,333 shares of Common Stock. Mr. Stallings was elected
non-executive Vice Chairman of the Board and a director of the Company. On
September 6, 2001, Mr. Stallings was elected non-executive Chairman of the
Board of Directors of the Company.

32

Reinsurance Transactions

Effective December 31, 2000, the Company entered into a quota share
reinsurance agreement whereby the Company ceded 100% of its commercial auto
liability unearned premiums and 50% of all other commercial business
unearned premiums at December 31, 2000 to a non-affiliated reinsurer. For
policies with an effective date of January 1, 2001 through December 31,
2001, the Company entered into a quota share reinsurance agreement whereby
the Company ceded 21.03% of its commercial business to a non-affiliated
reinsurer. Also effective December 31, 2000, the Company entered into a
reserve reinsurance cover agreement with a non-affiliated reinsurer. This
agreement reinsures the Company's ultimate net aggregate liability in
excess of $32,500,000 up to an aggregate limit of $89,650,000 for net
commercial auto liability losses and loss adjustment expense incurred but
unpaid as of December 31, 2000. The Company established a reinsurance
balance receivable and a liability for funds held under reinsurance
agreements for the reserves transferred at December 31, 2001. Also in
connection with this agreement, the Company was required to maintain assets
in a trust fund with a fair value at least equal to the funds held
liability. The trust fund was established during the third quarter of 2001
and at December 31, 2001 the assets in the trust had a fair value of
$49,553,698. Because the Company's statutory policyholders' surplus fell
below certain levels specified in the agreement, the reinsurer had the
option to direct the trustee to transfer the assets of the trust to the
reinsurer. In March of 2002, the reinsurer exercised this option and the
trust assets were transferred to the reinsurer. As a result, investments
and funds held under reinsurance agreements were reduced by approximately
$44,000,000. The Company recorded a realized gain of approximately $486,000
as a result of the transfer. The reinsurer continues to be responsible for
reimbursing the Company for claim payments covered under this agreement.

RESULTS OF OPERATIONS

Gross premiums written for the third quarter of 2002 decreased 67% from the
comparable 2001 period. Commercial lines premiums were negative as a result
of cancellations and the Company's decision to discontinue writing
commercial lines business. Personal lines decreased 2% as a result of the
decision to discontinue writing all personal lines other than Florida
personal auto. For the first nine months of 2002, gross premiums written
have decreased 60% from the comparable 2001 period which is primarily
attributed to the decision to discontinue writing commercial lines and all
personal lines other than Florida personal auto.

The following table compares the major lines between the periods for gross
premiums written.

33

COMMERCIAL LINES accounted for 66 percentage points ("points") of the
decrease in gross premiums written for the third quarter of 2002 and 46
points of the decrease for the first nine months of 2002 versus the
comparable 2001 periods. All of the major products recorded negative
premiums for the third quarter of 2002. For the first nine months of 2002
the contributions to the decrease for the major products are as follows:
commercial auto 18 points, general liability 13 points and auto garage 9
points. The GAAP combined ratio for the commercial lines segment was 144.0
% in the first nine months of 2002 versus 170.2% for the first nine months
of 2001. The Company decided to discontinue writing commercial lines during
the first quarter of 2002.

PERSONAL LINES accounted for 1 point of the decrease for the third quarter
of 2002 and 14 points of the decrease for the first nine months of 2002
versus the comparable 2001 periods. Florida personal auto writings account
for 7 points of the decrease and umbrella liability writings account for 4
points of the decrease for the first nine months of 2002 versus the
comparable 2001 periods. The GAAP combined ratio for the personal lines
segment was 109.3% for the first nine months of 2002 versus 104.8% for the
first nine months of 2001. The Company decided in the second quarter of
2002 to put itself in a position to exit personal auto through a possible
sale of the Lalande Group.

Net premiums earned decreased 21% for the third quarter and decreased 6%
for the first nine months of 2002 versus the comparable 2001 periods
primarily as a result of the decreases in commercial lines written
premiums.

Net investment income decreased 22% and 49% for the third quarter and first
nine months of 2002 versus the comparable 2001 periods, respectively. These
decreases were primarily due to the decline of fixed maturity investments
as a result of negative cash flows from operations and the general decline
in interest rates.

During the first six months of 2002, the Company reduced the carrying value
of a non-rated commercial mortgage backed security to $0 resulting in a
write down of $2,010,670 (recorded as a realized loss in the statement of
operations) as a result of a significant increase in the default rate in
the underlying commercial mortgage portfolio, which has disrupted the cash
flow stream sufficiently to make future cash flows unpredictable. This
write-down was offset by net realized gains of $2,655,515 recorded from the
sale of various bond securities and other investments for the first nine
months of 2002 and the gain of $402,629 recognized from the sale of the
home office building.

Insurance services revenues increased $1,025,896 and $3,984,607 in the
third quarter and first nine months of 2002 over the comparable 2001
periods, respectively primarily as a result of amortization of deferred
reinsurance recoveries from claim payments under the reserve reinsurance
cover agreement mentioned previously. For the third quarter and the first
nine months of 2002, $922,618 and $3,386,708 has been recorded in other
income which represents the reserve development under the reserve
reinsurance cover agreement. No amounts were recognized for the third
quarter and the first nine months of 2001 under the reserve reinsurance
agreement. Amortization is based upon claims recovered from the reinsurer
in relation to the amount of the reinsured layer under the reserve
reinsurance cover agreement.

Claims and claims adjustment expenses ("C & CAE") decreased $5,439,990 and
$4,251,513 in the third quarter and first nine months of 2002 from the
comparable 2001 periods. The C & CAE ratio was 101.3% in the third quarter
of 2002 versus 110.9% in the third quarter of 2001. The C & CAE ratio was
97.0% in the first nine months of 2002 versus 99.3% in the first nine
months of 2001. The decreases in the C & CAE ratios in 2002 were primarily
due to smaller increases in estimated ultimate liabilities recorded in the
2002 periods for commercial lines than was recorded in the 2001 periods.
The Company recorded a net increase in estimated ultimate liabilities
during the third quarter of 2002 of approximately $2.1 million primarily
for commercial lines; the increase in the third quarter of 2001 was
approximately $6.7 million. For the first nine months of 2002, the net
increase in estimated ultimate liabilities for commercial lines was
approximately $7.2 million versus $10.4 million for the comparable 2001
period.

The ratio of commissions plus the change in deferred policy acquisition
costs and deferred ceding commission income to net premiums earned was 14%
for the third quarter of 2002 versus 15% for the third quarter of 2001.
This ratio was 18% for the first nine months of 2002 and 2001. The decrease
in the ratio for the third quarter was primarily due to the change in the
mix of business as a result of exiting commercial lines.

34

Interest expense from the note payable decreased in the third quarter and
first nine months of 2002 from the comparable 2001 periods primarily due to
the decrease in the outstanding note payable balance as a result of
principal payments.

Underwriting and operating expenses were down 25% and 41% in the third
quarter and first nine months of 2002 from the comparable 2001 periods,
respectively, primarily as a result of cost reductions implemented in the
latter part of 2001 and in the current periods and decreases in premium
taxes as a result of the commercial lines run off. A decrease in the
reserve for reinsurance recoverables during the second quarter of 2002 also
contributed to the decrease for the nine month period comparison. This
decrease was the result of recovering a ceded paid claim that had
previously been reserved as uncollectible.

There is no amortization expense in the 2002 periods due to the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (see Note 1(g) of Notes to Consolidated Financial
Statements). As a result of the decision to position the Company for an
exit from personal auto, as previously discussed, the Company evaluated the
related goodwill and recorded an impairment of $2,859,507 in the second
quarter of 2002. The remaining goodwill as of September 30, 2002 is
$609,000 and is related to the 1998 acquisition of the Lalande Group.

The Company recognized a current tax benefit of $2,607,796 during the third
quarter of 2002 as a result of a carry back of alternative minimum tax
losses. A change in the tax law during 2002 extended the carry back period
for losses to offset income in earlier periods. As a result, the Company
was entitled to a tax refund which it received in October 2002.

LIQUIDITY AND CAPITAL RESOURCES

Parent Company

GAINSCO, INC. ("GNA") is a holding company that provides administrative and
financial services for its wholly owned subsidiaries. GNA needs cash for:
(1) principal and interest on its bank note payable, (2) administrative
expenses, and (3) investments. The primary sources of cash to meet these
obligations are statutory permitted payments from its insurance
subsidiaries, including (1) dividend payments, (2) surplus debenture
interest payments, and (3) tax sharing payments. Statutes in Oklahoma and
North Dakota restrict the payment of dividends by the insurance company
subsidiaries to the available surplus funds derived from their realized net
profits. The maximum amount of cash dividends that each subsidiary may
declare without regulatory approval in any 12-month period is the greater
of net income for the 12-month period ended the previous December 31 or ten
percent (10%) of policyholders' surplus as of the previous December 31. On
February 28, 2002, General Agents (the Oklahoma subsidiary) paid dividends
to GNA of $7,238,000. Generally without prior regulatory approval, on or
after March 1, 2003, General Agents may declare dividends to GNA of up to
the greater of net income for the 12-month period ended December 31, 2002
or ten percent (10%) of policyholders' surplus as of December 31, 2002. In
2002 MCIC (the North Dakota subsidiary) may declare dividends to GNA of up
to approximately $300,000. GNA believes the cash dividends from its
insurance subsidiaries should be sufficient to meet its expected
obligations for the next twelve months.

The Company had Federal income tax loss carry forward tax benefits at
September 30, 2002 of $23,321,758 that could be applied against any future
earnings of the Company, subject to certain limitations. Thus, the Company
does not currently require funds to satisfy Federal income tax obligations.

GNA entered into an amendment dated as of February 27, 2002 to its bank
credit agreement which cured GNA's covenant breaches and provided for
additional principal prepayments. Pursuant to the amendment, GNA prepaid

35

$6,100,000 of the indebtedness outstanding under the credit agreement.
Several covenants in the existing credit agreement were eliminated or
modified by the amendment and the interest rate was changed to a base rate
(which approximates prime) plus 175 basis points. The major financial
covenant of the amended credit agreement requires the statutory surplus of
General Agents to be at a minimum of the lesser of $20,000,000 or five
times the unpaid principal balance. General Agents' statutory surplus at
September 30, 2002 was approximately $33,484,000 which is 67% above the
minimum threshold. The remaining $4,200,000 principal balance under the
credit agreement is payable in 2003 which the Company intends to fund with
dividends from General Agents and short term investments. The credit
agreement requires a note prepayment equal to 50% of any dividends from
General Agents. The credit agreement, among other things, precludes payment
of dividends on common or preferred stock and restricts the kinds of
investments that GNA may make.

Subject to bank credit agreement restrictions, GNA may also obtain cash
through the sale of subsidiaries or assets and through the issuance of
common or preferred stock. The bank credit agreement generally requires a
note prepayment in the event of the sale by GNA of any subsidiary or assets
(except certain ordinary course of business sales), or any issuance of
stock, equal to 50% of the proceeds received.

The Company will be in a lengthy period of transition as it exits from its
insurance business. During the transition process, the Company may consider
the sale of additional subsidiaries associated with that business. See
"Business Transactions - Changes in Personal Lines" and "Business
Transactions - Sale of GAINSCO County Mutual" above.

Subsidiaries, Principally Insurance Operations

The primary sources of the insurance subsidiaries' liquidity are funds
generated from insurance premiums, net investment income and maturing
investments. The short-term investments and cash are intended to provide
adequate funds to pay claims without selling the fixed maturity
investments. The Company has short-term investments and cash that the
Company believes are adequate liquidity for the payment of claims and other
short-term commitments.

With regard to long term liquidity, the average maturity of the investment
portfolio is 2.2 years. The fair value of the fixed maturity portfolio at
September 30, 2002 was $3,976,506 above amortized cost.

Investments decreased primarily due to a nonaffiliated reinsurer exercising
its option, during the first quarter of 2002, to take possession of
approximately $44,000,000 in investments, mentioned previously. The
remaining decrease is attributable to principal payments on the note
payable of $6,600,000 and negative cash flows from operations.

Premiums receivable decreased primarily as a result of the Company's
decision in the first quarter of 2002 to discontinue writing commercial
lines business. Reinsurance balances receivable decreased primarily due
recoveries received under the reserve reinsurance cover agreement. Ceded
unpaid claims and claim adjustment expenses decreased primarily due to the
discontinuance of commercial lines writings in 2002 and the run-off of the
commercial lines and personal lines quota share reinsurance treaties in
2002. Ceded unearned premiums decreased primarily as a result of the
run-off of the commercial lines and personal lines quota share reinsurance
treaties in 2002. Property and equipment decreased primarily as a result of
the sale of the former home office building during the third quarter of
2002. Current Federal income taxes receivable increased as a result of a
carry back of alternative minimum tax losses mentioned previously. Other
assets increased primarily as a result of funds put on deposit with a
nonaffiliated reinsurer in the second quarter to collateralize balances due
to the reinsurer. As mentioned previously, the Company recorded an
impairment to goodwill in the second quarter of 2002 which accounts for the
decrease in this item.

Unpaid claims and claims adjustment expenses and unearned premiums
decreased primarily due to the run-off of commercial business. Accounts
payable decreased primarily due to the payment of premiums to a
non-affiliated insurer on business produced by the personal auto agency.
Reinsurance balances payable decreased primarily due

36

to settlements made during the first nine months of 2002 from various quota
share reinsurance agreements for the 2001 year. Deferred revenue decreased
primarily as a result of the reinsurance recoveries under the reserve
reinsurance cover agreement mentioned previously. Drafts payable decreased
and will continue to decrease since the Company began to pay claims with
checks instead of drafts during the third quarter of 2002. The note payable
decreased primarily due to a prepayment of $6,100,000 made during the first
quarter of 2002 in conjunction with an amendment to the credit agreement
(see Note (3) of Notes to Consolidated Financial Statements). Funds held
under reinsurance agreements were eliminated due to a non-affiliated
reinsurer's decision to take possession of investments, mentioned
previously, which reduced the Company's liability to this non-affiliated
reinsurer.

Accumulated other comprehensive income, net of tax of $2,624,494 was
recorded at September 30, 2002 as a result of the unrealized gains on bonds
available for sale. The increase in retained deficit is primarily
attributable to the net loss recorded during the first six months of 2002.

The tragic events of September 11, 2001 did not impact the Company's
financial results for the first nine months of 2002.

Regulatory Scrutiny

Because of the continued period of transition and diminished capital
levels, the Company is experiencing increased scrutiny from the principal
state insurance departments which regulate the Company. The increased
scrutiny the Company is experiencing is resulting in requests from
regulators for additional information concerning the adequacy of the
Company's loss reserves and other matters. The enhanced regulatory scrutiny
may have an adverse impact on the ability of the Company to receive
approval of future actions that the Company may seek to take in the course
of exiting its insurance business and redeploying its capital. Also
impacted could be certain internal matters, such as changes in pooling and
reinsurance arrangements and the amount of dividends which the insurance
subsidiaries may declare and pay to the holding company.

Liquidation Value

At September 30, 2002, total assets less total liabilities (excluding
redeemable preferred stock) of the Company was $42,806,513 and there were
outstanding three series of preferred stock with an aggregate liquidation
value of $38,578,161 ($37,620,000 stated value plus accrued dividends of
$958,161). In the event of a liquidation of the Company (which is not
contemplated) based upon consolidated shareholders' equity at September 30,
2002 there would be $4,228,352 available for distribution to the holders of
common stock ($.20 per common share) after the payment of creditors and the
liquidation value of the preferred stock. The amount ultimately available
to the shareholders would vary with changes in the assets and liabilities
of the Company.

37

GAINSCO, INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures
About Market Risk

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of economic losses due to adverse changes in the
estimated fair value of a financial instrument as the result of changes
in equity prices, interest rates, foreign exchange rates and commodity
prices. The Company's consolidated balance sheets include assets whose
estimated fair values are subject to market risk. The primary market risk
to the Company is interest rate risk associated with investments in fixed
maturities. The Company has no foreign exchange, commodity or equity
risk.

INTEREST RATE RISK

The Company's fixed maturity investments are subject to interest rate
risk. Increases and decreases in interest rates typically result in
decreases and increases in the fair value of these investments.

Most of the Company's investable assets are in the portfolios of the
insurance company subsidiaries and come from premiums paid by
policyholders. These funds are invested predominately in high quality
bonds with relatively short durations. The fixed maturity portfolio is
exposed to interest rate fluctuations; as interest rates rise, fair
values decline and as interest rates fall, fair values rise. The changes
in the fair value of the fixed maturity portfolio are presented as a
component of shareholders' equity in accumulated other comprehensive
income, net of taxes.

The effective duration of the fixed maturity portfolio is managed with
consideration given to the estimated duration of the Company's
liabilities. The Company has investment policies that limit the maximum
duration and maturity of the fixed maturity portfolio.

The Company uses the modified duration method to estimate the effect of
interest rate risk on the fair values of its fixed maturity portfolio.
The usefulness of this method is to a degree limited, as it is unable to
accurately incorporate the full complexity of market transactions.

FORWARD LOOKING STATEMENTS

Statements made in this report that are not strictly historical may be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that important
factors, representing certain risks and uncertainties, could cause actual
results to differ materially from those contained in the forward-looking
statements. These factors include, but are not limited to, (a) the
Company's ability to effect the successful exit from unprofitable lines
and businesses that the Company believes cannot be counted on to produce
future profit, (b) heightened competition from existing competitors and
new competitor entrants into the Company's markets, (c) the extent to
which market conditions firm up, the acceptance of higher prices in the
market place and the Company's ability to realize and sustain higher
rates, (d) contraction of the markets for the Company's business, (e)
acceptability of the Company's A.M. Best rating to its end markets and
the Company's ability to meet its obligations under its capital and debt
agreements, (f) the ongoing level of claims and claims-related expenses
and the adequacy of claim reserves, (g) the effectiveness of investment
strategies implemented by the Company's investment manager, (h) continued
justification of recoverability of goodwill in the future, (i) the
availability of reinsurance and the ability to collect reinsurance
recoverables, (j) the Company's ability to invest in new endeavors that
are successful, (k) the limitation on the Company's ability to use net
operating loss carry forwards as a result of constraints caused by

38

ownership changes within the meaning of Internal Revenue Code Section 382,
(l) the Company's ability to consummate the sale of the Company's
management agreement with GAINSCO County Mutual Insurance Company, (m) the
Company's ability to negotiate and consummate a sale of the Lalande Group
on satisfactory terms, and (n) general economic conditions including
fluctuations in interest rates. A forward-looking statement is relevant as
of the date the statement is made. The Company undertakes no obligation to
update any forward-looking statements to reflect events or circumstances
arising after the date on which the statements are made.

39

GAINSCO, INC. AND SUBSIDIARIES
Controls and Procedures

CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the Company's disclosure controls and procedures (as defined in
Rule 13a-14(c) and Rule 15d-14(c) under the Exchange Act) as of September
30, 2002 and concluded that those disclosure controls and procedures are
effective.

There have been no changes in the Company's internal controls or in other
factors known to the Company that could significantly affect these
controls subsequent to their evaluation, nor any corrective actions with
regard to significant deficiencies and material weaknesses.

While the Company believes that its existing disclosure controls and
procedures have been effective to accomplish these objectives, the
Company intends to continue to examine, refine and formulize its
disclosure controls and procedures and to monitor ongoing developments in
this area.

40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of its operations, the Company has been
named as defendant in various legal actions seeking payments for
claims denied by the Company and other monetary damages. In the
opinion of the Company's management, the ultimate liability, if
any, resulting from the disposition of these claims will not
have a material adverse effect on the Company's consolidated
financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.31 Office Lease dated August 19, 2002 between Crescent
Real Estate Funding X, L.P. and the Registrant.(1)

15. Awareness Letter of KPMG LLP(1)

99.1 Certificate Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Chief Executive Officer(1)

99.2 Certificate Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Chief Financial Officer(1)

-------------

(1) Filed herewith.

(b) Reports on Form 8-K

A report on Form 8-K was dated September 4, 2002 reporting
the election of Hugh M. Balloch to the Board of Directors of
the Company to replace the vacancy left by the resignation
of J. Randall Chappel. No financial statements were filed
with this report.

41

SIGNATURE

Pursuant to the requirements 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 to sign on behalf of the Registrant as
well as in his capacity as Chief Financial Officer.

GAINSCO, INC.

Date: November 12, 2002 By: /s/ Daniel J. Coots
------------------------------------
Daniel J. Coots
Senior Vice President, Treasurer and
Chief Financial Officer

42

CERTIFICATION

I, Glenn W. Anderson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GAINSCO, INC.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 12, 2002 Signature: /s/ Glenn W. Anderson
-----------------------
Chief Executive Officer

43

CERTIFICATION

I, Daniel J. Coots, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GAINSCO, INC.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 12, 2002 Signature: /s/ Daniel J. Coots
--------------------------------
Daniel J. Coots
Senior Vice President, Treasurer
and Chief Financial Officer

44

INDEX OF EXHIBITS

- -------
(1) Filed herewith.