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Index to Financial Statements

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

  For the fiscal year ended September 30, 2002

OR

  For the transition period from                      to                     

Commission file number: 1-9083

TREECON RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (936) 634-3365

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨  No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Act of 1934, as amended).    Yes  ¨  No  x.

The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of such stock on the last business day of the registrant’s second fiscal quarter ended March 31, 2002, was approximately $11.1 million. The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of such stock on the last business day of the registrant’s second fiscal quarter ended March 31, 2003, was approximately $140,000. For purposes of these computations, all executive officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors and 10% beneficial owners are affiliates. As of September 29, 2003, the registrant had issued and outstanding 18,615,464 shares of common stock, $.01 par value.

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Index to Financial Statements

TREECON RESOURCES, INC.

2002 FORM 10-K ANNUAL REPORT

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PART I

ITEM 1. Business.

General

TreeCon Resources, Inc., formerly Overhill Corporation and formerly Polyphase Corporation (the “Company”), incorporated in 1963 and now a Nevada corporation, is a holding company that, through its subsidiaries, currently operates in two industry segments: the equipment, parts and service segment, which distributes, leases and provides financing for industrial, construction and logging equipment and the timber and wood products segment, which includes sawmill operations and the treatment and sale of lumber products. The Company’s food segment, which previously had been included as a separate operating segment is classified as a discontinued operation due to the spin-off of its Overhill Farms, Inc. subsidiary (“Overhill Farms”) to the Company’s shareholders, which was completed, with lender consent, effective October 29, 2002.

In June 1994, the Company acquired all of the outstanding capital stock of Texas Timberjack, Inc. (“Timberjack” or “TTI”) from Harold Estes, current President of TTI. Timberjack, with locations in Lufkin, Houston, Jasper, Cleveland and Atlanta, Texas, is a distributor of industrial, construction and logging equipment in East Texas and Western Louisiana. The capital stock of TTI was acquired from Mr. Estes for consideration of approximately $4.0 million in cash, a $10.0 million promissory note payable to the order of Mr. Estes, and 100,000 shares of the Company’s Series A Preferred Stock, which were subsequently converted into 2.0 million shares of common stock. Subsequent to June 1994, the Company and Mr. Estes have modified, renewed and extended the promissory note payable to Mr. Estes. As of September 30, 2002, the promissory note had a balance of approximately $22.3 million (including accrued and unpaid interest) and has a maturity date, as amended in October 2002, of October 31, 2003.

With the exception of the Company’s $22.3 million note payable and accrued interest payable to Mr. Harold Estes described above, the Company believes that the funds available to it from operations and existing capital resources will be adequate for its capital requirements for the next twelve months. Further, the Company intends to seek an extension of its note payable to Mr. Estes prior to its maturity, consistent with multiple extensions successfully received over the past decade, though no assurances can be made that such extension will be granted on favorable terms and conditions, if at all. If the Company is not successful in obtaining an extension of the maturity date of this note payable, the Company does not currently expect to otherwise have the resources necessary to satisfy such obligation on or before October 31, 2003. Accordingly, until there is a satisfactory resolution of this uncertainty, substantial doubt exists with respect to the Company’s ability to continue as a going concern for the next twelve months. Such substantial doubt has been reflected in the Report of Independent Auditors related to the Company’s financial statements for the fiscal years ended September 30, 2002 (See Item 8. “Financial Statements” and Item 15. “Exhibits, Financial Statement Schedules and Reports on Form 8-K”).

In fiscal 1998, TTI acquired an interest in timber and sawmill operations. In fiscal 2000, TTI acquired a non-operating refinery and assumed a note payable to Mr. Estes. In February 2003, TTI exchanged its ownership in the refinery for the remaining minority ownership in the timber and sawmill operation.

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Disposition

Overhill Farms, Inc. In August 2001, the Company’s Board of Directors approved a plan to spin off all of its shares of Overhill Farms to the holders of the Company’s common stock. Overhill Farms, which produces high quality entrees, plated meals, meal components, soups, sauces and poultry, meat and fish specialties, previously comprised the Company’s Food Group. The transaction to effect the spin-off, which is expected to be tax-free, was completed on October 29, 2002 and resulted in the issuance to the Company’s stockholders, of one share of Overhill Farms common stock for every two shares of the Company’s common stock owned on the record date of the transaction as established by the Board. The assets, liabilities and operations of Overhill Farms have been reported as discontinued in the Company’s consolidated financial statements.

Business Strategy

The Company, through Timberjack, continues to operate in a difficult market. In an effort to offset decreased sales in its equipment operations, TTI has continued its efforts to reduce expenses and to seek synergistic opportunities outside of its traditional customer base and geographic territory. The Company will continue to review long-term strategies and alternatives for TTI and its subsidiaries in order to maximize shareholder value.

To achieve future growth within the Company, management has identified the following basic initiatives:

Operating Segments

The following table sets forth business segment information with respect to the percentage of net sales and operating income contributed by each segment for the years ended September 30, 2002, 2001 and 2000.

Reference is made to Note 18 to the Company’s consolidated financial statements for revenues, operating profits or losses and identifiable assets attributable to each industry segment for each of the last three fiscal years.

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Products and Services

The Company, through Timberjack and its majority-owned subsidiaries, is a distributor of construction, industrial and logging equipment with investments in related timber and sawmill operations. TTI has five locations in eastern Texas. TTI’s headquarters are located in Lufkin, with smaller satellite showrooms and repair facilities located in Jasper, Cleveland, Atlanta and Houston, Texas. TTI carries the Timberjack (an unrelated manufacturer) and Blount lines of industrial and logging equipment and the New Holland line of construction equipment. TTI is involved in the sale, leasing and financing of the equipment it distributes as well as the servicing of all major brands of related equipment. TTI’s operations are primarily concentrated in the forested areas of eastern Texas although its market extends into western Louisiana. TTI operates in a fragmented industry where its major competition is from distributors and dealers of Caterpillar and John Deere equipment. TTI estimates that in eastern Texas it currently holds approximately 50% of the market for shears (machines that cut timber), 50% of the market for skidders (machines that transport logs out of the forest onto a loader) and over 80% of the market for loaders (machines that stack trees onto trucks).

TTI, through its subsidiary Southern Forest Products, LLC (“SFP”), produces pine decking lumber and timbers at its sawmill in Bon Wier, Texas. SFP also treats its decking and timbers, as well as other customers’ lumber, at its treating facility in Houston, Texas. SFP’s operations are primarily concentrated in Texas, although its market share extends into the Midwest and Southeast United States. SFP estimates that in Texas, it currently holds approximately 70% of the market for larger, longer length timbers and a negligible share of the market for decking.

Sales and Marketing

Timberjack currently maintains sales and distribution offices in Lufkin, Jasper, Cleveland, Atlanta and Houston, Texas primarily to serve eastern Texas and western Louisiana. Sales are generated through repeat customers, advertisements in various trade publications and direct marketing calls on companies located in the area. A general sales manager and several branch managers supply technical and operational support, while eleven salesmen have direct responsibility for customer relationships. TTI meets customers’ orders for new equipment and replacement parts out of existing inventory or through purchase orders placed with the manufacturers TTI currently represents.

SFP maintains sales offices in Bon Wier and Houston, Texas, primarily to serve Texas, as well as certain parts of the Midwest and Southeast United States. Sales are generated primarily through repeat customers and marketing calls on companies throughout SFP’s market. SFP has one salesperson in Bon Wier and one salesperson in Houston, each of whom have direct responsibility for customer relationships.

Approximately 30% of TTI’s revenues during fiscal 2002 were from new equipment sold to companies involved in the forestry and construction industries. Additional equipment-related revenues are derived from sales of used equipment (11%), servicing of equipment (6%), sales of parts (18%) and financing equipment sales (6%). The remaining 29% of TTI’s revenues is derived from the sale of finished timber products through its timber and sawmill operations. No single customer accounts for more than 10% of TTI’s sales. Equipment sales financed by TTI are typically for periods ranging from 12 to 24 months at interest rates ranging from 10% to 18% per annum.

Approximately 87% of SFP’s revenues during fiscal 2002 were from lumber sales and related by-product sales. The remaining 13% of revenues were from treating sales.

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Backlog

As a dealer, servicer and financier of forestry equipment, TTI does not maintain a backlog of orders. Equipment ordered that is not in inventory takes approximately one to six weeks to be shipped to a customer from the manufacturer or another distributor.

Typically, SFP does not maintain a significant backlog of orders. Decking or timbers that are not in inventory take approximately one week to two weeks to be manufactured and shipped.

Product Development

TTI does not develop products for sale to the public. TTI relies primarily upon its suppliers (Timberjack, Blount and New Holland) for a majority of its new units and parts.

SFP does not develop new products for sale to the public.

Competition

Competition in the forestry industry is highly fragmented in the eastern Texas and western Louisiana areas where TTI principally operates. Because of its lengthy historical presence in these regions, TTI believes it has established a strong local identity in its field with a proven record of delivering equipment on a timely basis, providing satisfactory financing and strong customer support and service. TTI is one of only a few distributors of Timberjack and Blount forestry equipment in its operating areas. TTI has the added advantage of being a leading seller and financier of various makes and models of used logging equipment. Principal competitors include local John Deere and Caterpillar distributors.

SFP’s competition in the decking market is very strong, as several mills in Texas and the Southeastern United States produce this type of lumber. However, SFP’s mill produces a higher quality premium grade decking which has helped it gain market share against its competition. SFP believes it has a distinct advantage in the pine timber market because of the relatively few sawmills in the United States that produce the same type of pine timbers, up to 40 feet in length, that SFP can produce.

Patents, Trademarks and Copyrights

The Company does not have patents or patent applications pending on any of its products, although it may file such patent applications in the future.

Regulation

The Company is required to comply with various governmental regulations and requirements concerning the discharge of materials into the environment or otherwise relating to the protection of the environment. Compliance with the current applicable federal, state and local environmental regulations has not had, and the Company does not believe that in the future such compliance will have, a material effect on its financial position, results of operations, expenditures or competitive position.

The Company takes all reasonable precautions to ensure that its operations and facilities operate in a safe, sanitary and environmentally sound manner. However, events beyond the control of the Company, such as the adoption by the government of more stringent environmental regulations, could adversely affect its operations. Management believes that the Company is in substantial compliance with all applicable laws and regulations relating to the operations of facilities.

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Employees

As of September 30, 2002, the Company had approximately 134 full time employees at TTI and SFP and 3 full time employees in the corporate office. The corporate office was closed in April 2003. TTI presently provides a group health plan for its employees and pays a portion of the costs associated with the plan. TTI also maintains a profit sharing plan for its employees.

Overhill Farms - Discontinued Operation

General - In May 1995, the Company acquired all the operating assets of IBM Foods, Inc. The purchase, which was accomplished through Overhill Farms, a subsidiary of the Company formed for the purchase, provided for a cash payment to the seller of $31.3 million plus the assumption by the Company of certain liabilities of the acquired business. Overhill Farms’ headquarters are located in Vernon, California, where substantially all manufacturing and related operating facilities were consolidated during 2003. During August 2000, Overhill Farms purchased the operating assets and trademarks of the Chicago Brothers food operations from a subsidiary of Schwan’s Sales Enterprises, Inc. for total consideration of $4.2 million.

Products and Services – Overhill Farms is a value-added manufacturer of quality frozen food products including entrees, plated meals, meal components, soups, sauces, poultry, meat and fish specialties. Overhill Farms is positioned as a provider of custom prepared foods to a number of prominent customers such as Albertson’s, Jenny Craig Products, Carl’s Jr., Jack in the Box, Panda Restaurant Group, Schwan’s and Pinnacle Foods, as well as a number of domestic airlines, including American and Delta.

Sales and Marketing - Overhill Farms markets its products through an internal sales force and outside food brokers. Historically, Overhill Farms has served four industries: airlines, weight loss, foodservice and retail. Overhill Farms is currently focusing on the foodservice and retail markets as the two segments with the greatest potential for increased sales. Accordingly, Overhill Farms’ management has realigned its sales force and redirected its marketing efforts to concentrate on these two areas.

Over two-thirds of Overhill Farms’ sales in fiscal 2002 were derived from six customers, Panda Restaurant Group, Jenny Craig Products, Pinnacle Foods, American Airlines, Delta Airlines and Albertson’s representing approximately 21%, 15%, 11%, 9%, 8% and 8% of total sales, respectively. Although Overhill Farms’ relationships with these customers continue to remain strong, there can be no assurance that these relationships will continue. When possible, Overhill Farms makes a concerted effort to sign multi-year supply agreements with its major customers. A decline in sales of Overhill Farms’ products to these customers or the loss of, or a significant change in the relationship between Overhill Farms and any of these key customers, could have a material adverse effect on Overhill Farms’ business and operating results. It is Overhill Farms’ management’s objective to continue to reduce the reliance on a small concentration of accounts by further expansion into custom products for retail and foodservice customers nationwide.

Manufacturing and Sourcing – Overhill Farms’ manufacturing operations, previously consisted of five separate facilities, three in the Los Angeles area and two in the San Diego area. These have now been consolidated into two facilities in Vernon, California, one existing facility and a new facility which houses most of the manufacturing operations, together with all home office, warehousing, product development, marketing and quality control operations. Most operations are labor intensive, generally requiring semiskilled employees.

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Overhill Farms’ ability to economically produce large quantities of its products, while at the same time maintaining a high degree of quality, depends in large part on its ability to procure raw materials on a reasonable basis. Overhill Farms relies on a few large suppliers for its poultry products and purchases the remaining raw materials from suppliers in the open market. Overhill Farms’ management does not anticipate any difficulty in acquiring these materials in the foreseeable future. Raw materials, packaging for production and finished goods are stored on site and, in connection with the plant consolidation, in new on site frozen food storage facilities.

Backlog - Overhill Farms typically delivers products directly from finished goods inventory, and as such does not maintain a large backlog of unfilled purchase orders. While at any given time there may be a small backlog of orders, such backlog is not material in relation to total sales, nor is it necessarily indicative of trends in its business. Most orders are subject to changes in quantities or to cancellation with thirty days’ notice without penalties to customers.

Product Development – Overhill Farms manufactures products in the retail and foodservice areas with branded and private label entrees. It maintains a comprehensive, fully staffed test kitchen, which formulates recipes and upgrades specific products for current customers and establishes production and quality standards. Products are developed based either upon customers’ specifications, conventional recipes or new product developments. Overhill Farms is continuously developing recipes as customers’ tastes and client requirements change. Overhill Farms also maintains a quality control department for testing and quality control.

Competition – Overhill Farms’ food products, consisting primarily of poultry, pasta, beef and assorted related products, compete with products produced by numerous regional and national firms. Many of these companies are divisions of larger fully integrated companies, such as Tyson Foods and ConAgra, which have greater financial, technical, human and marketing resources than Overhill Farms. Competition is intense with most firms producing similar products for the foodservice and retail industries. Competitive factors include price, product quality, flexibility, product development, customer service and, on a retail basis, name recognition. Overhill Farms is competitive in this market by its ability to produce mid-sized/custom product runs, within a short time frame and on a cost-effective basis. There can be no assurance that Overhill Farms will compete successfully against existing companies or new entrants to the marketplace.

Regulation – Food manufacturers are subject to strict government regulation, particularly in the health and environmental areas, by the United States Department of Agriculture, also called the “USDA”, the Food and Drug Administration, or the “FDA”, Occupational Safety and Health Organization, or “OSHA”, and the Environmental Protection Agency, or the “EPA”. Overhill Farms’ food processing facilities are subject to on-site examination, inspection and regulation by the USDA. Compliance with the current applicable federal, state and local environmental regulations has not had, and Overhill Farms does not believe that in the future such compliance will have, a material effect on its financial position, results of operations, expenditures or competitive position. During 1997, Overhill Farms implemented a Hazard Analysis Critical Point Plan to ensure proper handling of all food items. This plan is currently in use.

Employees – As of September 30, 2002, Overhill Farms had approximately 1,000 full-time employees.

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Safe Harbor Statement

The nature of the Company’s operations, and the environment in which it operates, subjects the Company to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company notes the following factors, which among others could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. Forward-looking statements contained in this document include the amount of future capital expenditures and the possible uses of proceeds from any future borrowings under the Company’s currently effective credit facilities. Factors which could cause results to differ include, but are not limited to, changes in the Company’s business environment, including actions of competitors and changes in customer preferences; changes in governmental laws and regulations, including income taxes; market demand for new and existing products; and equipment manufacturers’ and timber pricing.

ITEM 2. Properties.

Corporate Headquarters

The Company, prior to the spin-off of Overhill Farms, leased an approximately 4,000 square foot facility located in Addison, Texas that had served as the corporate headquarters. Effective with the spin-off, the Company’s corporate headquarters have been relocated to the Texas Timberjack facilities in Lufkin, Texas.

Timberjack

TTI owns three buildings in Lufkin, Texas, two buildings in Jasper, Texas and a building in Cleveland, Texas and leases buildings in Atlanta and Houston, Texas. TTI’s largest building in Lufkin has 38,500 square feet, which is used for TTI’s administrative offices, showroom, parts sales and service areas. The remaining buildings have 3,600 and 4,200 square feet, respectively. The Jasper, Cleveland, Atlanta and Houston buildings have approximately 11,000, 6,700, 7,500 and 10,000 square feet, respectively, which are used for sales offices, parts sales and shop areas.

Prior to September 30, 2002, TTI leased six buildings on 68 acres in Bon Wier, Texas for its sawmill operation. The sawmill was leased at a basic rent of $19,000 per month, which included certain equipment, with an option to purchase the land, buildings and equipment. Effective September 30, 2002, TTI exercised its option to purchase the sawmill for total consideration of $856,000, represented by a promissory note in that amount issued jointly by TTI and Mr. Estes. (See Notes 11 and 14 to the Company’s consolidated financial statements.)

As of September 30, 2002, SFP, through its subsidiary Quantum Fuel and Refining, Inc. (“Quantum”), owned a non-operating crude oil refining and blending facility, together with related buildings and administrative office space, situated on approximately 120 acres of land in Egan, Louisiana. Quantum was sold in February 2003 (See Note 3 to the Company’s consolidated financial statements).

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Overhill Farms – Discontinued Operation

At September 30, 2002, Overhill Farms leased three manufacturing facilities in the Los Angeles, California area. Plant No. 1 is located in Inglewood, California and has 39,000 square feet of manufacturing area. Plants No. 2 and No. 3 are located in Vernon, California and have 49,000 and 27,000 square feet of manufacturing area, respectively. In addition to the manufacturing facilities, Overhill Farms also leased two dry goods warehouses of 13,500 and 11,500 square feet, a 7,700 square foot frozen storage facility in Inglewood, California and a 7,900 square foot office in Culver City, California. Overhill Farms’ recently acquired Chicago Brothers operations were conducted in leased facilities in San Diego, California consisting of manufacturing facilities of 33,300 and 30,000 square feet and a 9,400 square foot warehouse/administration facility. In 2003, Overhill Farms completed the consolidation of certain manufacturing and administrative functions into one consolidated facility in order to more efficiently and effectively meet current and future customer requirements.

ITEM 3. Legal Proceedings.

During fiscal 1997, five substantially identical complaints were filed in the United States District Court for the District of Nevada against the Company and certain of its officers and directors. The lawsuits each sought certification as a class action and asserted liability based on alleged misrepresentations that the plaintiffs claimed resulted in the market price of the Company’s stock being artificially inflated. The defendants filed motions to dismiss in each of the lawsuits. Without certifying the cases as class actions, the District Court consolidated several of the cases into a single action.

In March 2000, the District Court dismissed the plaintiffs’ claims against one of the Company’s officers and directors and restricted the plaintiffs from pursuing a number of their claims against the other defendants. In November 2000, the District Court granted motions for summary judgment, disposing of all of the claims asserted by the plaintiffs. The plaintiffs appealed those decisions to the United States Court of Appeals for the Ninth Circuit.

On June 5, 2002, the Ninth Circuit rendered a decision that affirmed several of the trial court’s rulings, but reversed other rulings and remanded portions of the case for further proceedings in the District Court. On remand, the case was set for trial to commence in March 2003. In the days immediately prior to the scheduled trial date, the defendants offered to settle all claims advanced in the litigation in consideration of an aggregate payment of $13,000. In June 2003, the defendants paid $13,000 to the plaintiffs collectively, and the lawsuit was dismissed with prejudice, preventing the plaintiffs from refiling or advancing similar claims in the future.

The Company and its subsidiaries are involved in certain legal actions and claims arising in the ordinary course of business. However, management believes (based, in part, on advice of legal counsel) that such litigation and claims will be resolved without material effect on the Company’s financial condition, results of operations or cash flows.

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

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the Company’s fiscal year ended September 30, 2002.

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PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Prior to October 30, 2002, the Company’s common stock was listed on the American Stock Exchange and traded under the symbol “OVH.” In connection with the spin-off of Overhill Farms, the Company changed its name to TreeCon Resources, Inc., and trading in its common stock on the American Stock Exchange was voluntarily suspended on October 29, 2002. As of October 30, 2002, the Company’s common stock began quotation on the OTC Bulletin Board under the trading symbol “TCRS” until March 2003. There is no current established market for the Company’s common stock. The following table sets forth the range of high and low sales prices for the common stock on the American Stock Exchange for the periods indicated:

The Company has never paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future. Rather, the Company intends to utilize any earnings for the payment of its obligations. Such policy is subject to change based on current industry and market conditions as well as other factors beyond the control of the Company. In addition, the Company’s ability to pay dividends is restricted by the Company’s and TTI’s arrangements with their creditors.

As of September 29, 2003, the Company had 198 stockholders of record.

As of September 30, 2002, the Company did not have any outstanding options to purchase its common stock. As of September 30, 2002, 775,000 shares were available for grant under the Company’s 1994 Employee Stock Option Plan (as amended), which had previously been approved by the Company’s stockholders.

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ITEM 6. Selected Financial Data

The following table sets forth selected financial data for the Company for each of the fiscal years ended September 30, 2002, 2001, 2000, 1999 and 1998. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes included elsewhere herein.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Form 10-K that are not historical facts, including, but not limited to, any projections contained herein, are forward-looking statements and involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this Form 10-K could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are adverse economic conditions, industry competition and other competitive factors, government regulation and possible future litigation.

Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001

Net Revenues - For the year ended September 30, 2002, the Company’s revenues decreased $4,596,000 (10.6%) to $38,700,000 as compared to $43,296,000 for the fiscal year ended September 30, 2001. During the current fiscal year, net revenues from the equipment segment decreased $5,013,000 from 2001 due primarily to a continued softness in the East Texas timber market. Revenues from the timber segment increased $417,000 in 2002 due primarily to increased demand for the Company’s treated timber products and higher overall production at its sawmill operation as compared to the previous fiscal year.

Gross Profit - For the year ended September 30, 2002, the Company’s gross profit decreased $415,000 to $7,485,000 as compared to $7,900,000 for the fiscal year ended September 30, 2001. Gross profit as a percentage of net revenues for the fiscal year ended September 30, 2002 was 19.3% compared to 18.2% in the prior year. The gross profit in the Company’s equipment segment increased to 25.6% of revenues in 2002 from 20.6% in 2001 due primarily to a change in the sales mix from the lower margin sales of major units to the higher margin sales of used equipment. The gross profit in the Company’s timber segment increased to 16.6% of revenues in 2002 from 12.2% in 2001, which is primarily attributable to efficiency and productivity increases in the Company’s timber segment.

Selling, General and Administrative Expenses - Selling general and administrative expenses for the fiscal year ended September 30, 2002 decreased $411,000 (5.1%) to $7,607,000 in 2002 from $8,018,000 in 2001. This decrease is primarily attributable to a decline in salaries and wages due to personnel reductions in the Company’s equipment segment and to the discontinuance of goodwill amortization during 2002 as compared to $283,000 of goodwill amortization recorded in fiscal 2001.

Goodwill Impairment – The Company adopted the provisions of SFAS No. 142, “Goodwill and Intangible Assets” effective October 1, 2001 and, accordingly, ceased amortization of goodwill. In connection with the requirements of SFAS No. 142, the Company performed an annual goodwill impairment test as of September 30, 2002, which primarily due to the continued softness in the East Texas forestry equipment market and the impact of an overall depressed economy resulted in the Company recording an impairment charge to write-off all of its $3.6 million in goodwill during the fourth quarter of the fiscal year ended September 30, 2002.

Other Expenses - Other expenses increased $592,000 to $2,234,000 in 2002 from $1,642,000 in 2001. This increase is primarily attributable to recorded losses of $1,013,000 related to Timberjack’s 49.9% investment in a construction company accounted for on the equity method. The operations of this company were substantially reduced during the latter part of fiscal 2002. See “Item 13—Certain Relationships and Related Transactions.” This loss was partially offset by a $379,000 decrease in interest expense due to a significant reduction in borrowings together with lower interest rates.

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Income Taxes – Income tax expense (benefit) was ($271,000) in 2002 as compared to $860,000 in 2001. The income tax benefit in 2002 was primarily recorded as a result of utilizing net operating loss carryforwards to reduce taxable income generated by discontinued operations. In 2001, taxable income generated by discontinued operations was significantly higher, resulting in an offsetting income tax benefit related to continuing operations being recorded of approximately $1.3 million. However, during the fourth quarter of 2001, in connection with the planned spin-off of its Overhill Farms, Inc. subsidiary, the Company also recorded an additional $2.1 million valuation allowance against its net deferred tax assets, resulting in total net 2001 income tax expense from continuing operations of $860,000.

Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September 30, 2000

Net Revenues - For the year ended September 30, 2001, the Company’s revenues decreased $761,000 (1.7%) to $43,296,000 as compared to $44,057,000 for the fiscal year ended September 30, 2000. During 2001, net revenues from the equipment segment were $2.5 million lower than in 2000 due primarily to continued softness in the East Texas timber market, while net revenues from the timber segment increased $1.7 million in 2001 due primarily to increases in demand for the Company’s treated timber products and higher overall timber shipments as compared to fiscal 2000. The Company continued to diversify its equipment products during 2001 and opened a sales location in Houston, Texas during the fourth quarter in order to expand its marketing and distribution of New Holland construction equipment.

Gross Profit - For the year ended September 30, 2001, the Company’s gross profit increased $578,000 to $7,900,000 as compared to $7,322,000 for the fiscal year ended September 30, 2000. Gross profit as a percentage of net revenues for the fiscal year ended September 30, 2001 was 18.2% compared to 16.6% in the comparable prior year period. The 2001 increase is primarily attributable to efficiency and productivity increases in the Company’s sawmill operations within the timber segment. Gross profit as a percentage of net revenues for the fiscal year ended September 30, 2001 for the equipment segment did not significantly change from 2000 levels.

Selling, General and Administrative Expenses - Selling, general and administrative expenses for the fiscal year ended September 30, 2001 increased $434,000 (5.7%) to $8,018,000 as compared to $7,584,000 for the fiscal year ended September 30, 2000. This increase is primarily attributable to increased operating expenses related to the opening of the new construction equipment sales facility, higher bad debt and warranty related expenses and higher legal expenses offset by a decrease in selling, general and administrative expenses at the Company’s sawmill operations.

Other Expenses - For the fiscal year ended September 30, 2001, net other expenses increased $337,000 from the comparable 2000 period due primarily to a decrease in interest income and other due to lower interest income on notes receivable and the 2000 balance including a $240,000 gain on the sale of land, offset by a decrease in interest expense due primarily to lower interest rates in 2001.

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Income Taxes - For the fiscal year ended September 30, 2001, the Company recorded a net income tax provision of $860,000 compared to a net income tax benefit of $3,330,000 recorded for the fiscal year ended September 30, 2000. During the fourth quarter of 2001, in connection with the planned spin-off of its Overhill Farms, Inc. subsidiary, the Company recorded an additional $2.1 million valuation allowance against its net deferred tax assets. This 2001 provision was offset by a $1.3 million tax benefit taken as a result of the use of its net operating loss carryforward to reduce taxable income generated by Overhill Farms, Inc. For the fiscal year ended September 30, 2000, the $3.3 million income tax benefit was primarily attributable to a $2.1 million decrease in the valuation allowance against the Company’s net deferred tax assets and a $1.2 million income tax benefit taken as a result of the use of its net operating loss carryforward to reduce taxable income generated by Overhill Farms. The results of operations for the Company’s Overhill Farms, Inc. subsidiary are presented within the consolidated financial statements as discontinued operations. For the fiscal year ended September 30, 2001 and 2000, the net results of Overhill Farms’ operations are presented in the consolidated statements of operations net of $1.3 million and $1.2 million in income tax expense, respectively.

Liquidity and Capital Resources

Principal sources of liquidity for the Company are cash flow from operations, cash balances and additional financing capacity. The Company’s cash and cash equivalents increased $1,641,000 to $2,328,000 at September 30, 2002, compared to $687,000 at September 30, 2001.

The Company’s operating activities in 2002 resulted in cash provided of $5,657,000, as compared to a use of cash of $168,000 in 2001. The increase in cash provided during the current year is generally due to cash favorable changes in operations, together with reductions in receivables and inventories occurring as a result of the Company’s continued focus on receivable collection and inventory management initiatives offset somewhat by reductions in trade accounts payable primarily related to the reduction in inventories.

The Company’s investing activities for the year ended September 30, 2002 resulted in cash provided of $2,319,000 in 2002 as compared to a use of cash of $1,791,000 in 2001. The cash provided in 2002 resulted primarily from reductions in Timberjack’s notes and other receivables, cash received from Overhill Farms, Inc., and payments received on notes receivable, all of which were reduced by the Company’s capital expenditures.

The Company’s financing activities for the current year resulted in a use of cash of $6,334,000, as compared to cash provided of $1,681,000 in 2001. The current year results were due primarily to TTI using available cash from operating and investing activities to effect a significant reduction in short-term borrowings under Timberjack’s credit facilities, which were restructured during 2002.

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In connection with the acquisition of TTI in June 1994, the Company initially issued a note to the seller (Mr. Harold Estes) in the amount of $10.0 million, with interest at 8% due October 31, 1994 and collateralized by all the capital stock of TTI. As of each maturity date thereafter, Mr. Estes has entered into agreements with the Company to modify and extend the term of the note. As of September 30, 2002, the note had a total unpaid balance of $22,333,000 (principal of $16,347,000 and accrued interest of $5,986,000), bearing interest at 9% per annum with a maturity date of October 10, 2002. Subsequent to fiscal year end, the Company and Mr. Estes agreed to a further extension of the maturity date of the unpaid balance of $22,333,000 at October 10, 2002, with interest thereon at 9% to maturity on October 31, 2003. The arrangement allows for principal and interest payments to be made with amounts upstreamed to the Company by Timberjack for the payment of taxes (subject to the approval of Timberjack’s Board of Directors and its lenders). Consideration for this extension was a cash payment of $70,000 by the Company to Mr. Estes. As the collateral pledged against the note payable to Mr. Estes represents all of the Company’s ownership of its only continuing operation, Mr. Estes’ foreclosure on such collateral upon maturity or thereafter would be a material adverse effect on the Company’s ability to continue as a going concern.

Quantum Fuel and Refining, Inc. (“Quantum”), when acquired by SFP, had a note payable to Mr. Estes. As of September 30, 2002, the note had a total unpaid balance of $1,596,264 (principal of $1,000,000 and accrued interest of $596,264), bearing interest at 12% per annum with a maturity date of October 31, 2002, and collateralized by the assets of Quantum. In February 2003, SFP exchanged all of its ownership in Quantum to TTI’s minority partner in SFP for the approximate 25% minority position in SFP. Based upon the Company’s estimates as to the values exchanged in the transaction, SFP recorded a $160,000 impairment loss against the Quantum assets held for sale during the fiscal year ended September 30, 2002, which was classified as a component of other income (expenses).

At September 30, 2001, TTI and its subsidiary SFP had notes payable to Bank of America, N.A. (“Bank of America”) totaling approximately $7.8 million. In April 2002, pursuant to borrowings under loan agreements reached with First Bank & Trust East Texas (“FB&T”) and BancorpSouth Bank (“BancorpSouth”), TTI and SFP repaid all amounts due and owing to Bank of America.

The new TTI arrangement with FB&T provides TTI with a $5.0 million line of credit expiring in April 2003, bearing interest at prime (approximately 4.75% at September 30, 2002) and collateralized by certain assets of TTI. At September 30, 2002, the Company had borrowings of $2.2 million and availability for future borrowings of $2.8 million. In June 2003, after receiving a short-term extension of credit past maturity by FB&T, TTI renewed its arrangement with FB&T on substantially the same terms and conditions through April 2004.

TTI has a $1.0 million and a $1.5 million term note payable to BancorpSouth due in monthly installments of $31,000 and $67,000, respectively, including interest at 5.975% and 6.275%, respectively. Amounts payable under these notes are collateralized by a significant portion of TTI’s inventory and real estate and are guaranteed by TreeCon Resources, Inc.

TTI has a floor plan arrangement with New Holland Credit Corporation to finance equipment purchases. At September 30, 2002 borrowings under this arrangement amounted to approximately $2.8 million. The floor plan note accrues no interest provided the equipment financed under the note is sold within a predetermined period, typically nine to twelve months from the time TTI takes delivery of the equipment. If the equipment is not sold within the predetermined time period, interest accrues at prime plus 1.25% (approximately 6.0% at September 30, 2002).

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TTI and Harold Estes, jointly and severally, have a note payable to AgriLand, PCA for $856,000, which was issued in connection with the purchase of certain sawmill property and buildings by SFP. This note is payable in monthly installments of $20,103 and bears interest at a rate of 6.0% per annum. This note matures on October 1, 2006 and is collateralized by the SFP sawmill property and equipment.

With the exception of the Company’s $22.3 million note payable and accrued interest payable to Mr. Harold Estes, the Company believes that the funds available to it from operations and existing capital resources will be adequate for its capital requirements for the next twelve months. Further, the Company intends to seek an extension of its note payable to Mr. Estes prior to its maturity, consistent with multiple extensions successfully received over the past decade, though no assurances can be made that such extension will be granted on favorable terms and conditions, if at all. If the Company is not successful in obtaining an extension of the maturity date of this note, the Company does not currently expect to otherwise have the resources necessary to satisfy such obligation on or before October 31, 2003. Accordingly, until there is a satisfactory resolution of this uncertainty, substantial doubt exists with respect to the Company’s ability to continue as a going concern for the next twelve months.

Contractual Obligations and Commitments

The following table summarizes TreeCon Resources, Inc.’s contractual obligations and commitments at September 30, 2002. For additional information related to these obligations, see the Notes to Consolidated Financial Statements.

TTI relies on three suppliers for the majority of its new units and parts. As of September 30, 2002, TTI had commitments to purchase inventory from these suppliers amounting to $1,267,000.

TTI guarantees on behalf of various customers certain lines of credit with banks and financial institutions. The portion of the credit lines guaranteed ranges from zero to 100% on a customer-by-customer basis. At September 30, 2002, TTI’s guarantees totaled approximately $2,646,000 on total customer indebtedness of approximately $12,270,000. TTI receives a fee, in the form of interest participation, on certain of the notes upon which it is contingently liable. This fee is recognized as interest income on the accrual basis and is usually held by the institution to meet reserve requirements. Funds held in escrow by the lenders amounting to approximately $524,000 at September 30, 2002, are included in the consolidated balance sheet as restricted cash and are fully offset by the Company’s reserve for credit guarantees. The Company has not historically recorded significant losses as a result of its guarantees.

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Critical Accounting Policies

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition. The Company generally recognizes revenue when products are shipped, which is when title and risk of loss pass to the buyer, or when services are performed, and provides for estimated returns and allowances at the time of sale. However, a portion of the Company’s business relates to the sale of equipment through installment sales contracts. Revenue is recognized on these accounts using the installment method due to frequent late payments, periodic repossessions and related uncertainty with respect to ultimate realization at the time of sale. Under the installment method, the Company records at the point of sale both a sale and a cost of sale for the total cost of the unit. Gross profit is initially recorded in a deferred profit account to be recognized as proceeds are received, based on the relative percentage of transaction profit to sales price. Given the uncertainty with respect to ultimate collection, interest on installment contracts is recognized on a cash basis.

Allowance for Doubtful Receivables. The Company accounts for bad debts on accounts receivable using the reserve method. Allowances are established based on a percentage of parts sales, past bad debt experience, the makeup of the current portfolio and current market conditions. Allowances for doubtful notes receivable are established if, at the date of valuation, management believes it is probable that a loss exists in the portfolio based on an evaluation of the individual notes included in the portfolio, payment history, and the expected credit risk based on subject collateral, if any. Bad debts on sales contracts receivable are accounted for using the reserve method. After reviewing economic conditions, as well as historical trends and collateral values, the Company evaluates its allowance for doubtful sales contracts based on the estimated loss exposure at any given time in the portfolio, which has historically not been significant in comparison to the total portfolio amount.

Historically, the Company’s estimates of bad debts related to its various receivables have been adequate to cover actual losses. Uncollectible accounts written off, net of recoveries, were $338,200, $460,252 and $477,247 for the fiscal years ended September 30, 2002, 2001 and 2000, respectively. The Company’s estimates involve a significant amount of judgment, particularly with respect to notes receivable, which are subject to various forms of collateral for which fair value is often not objectively certain. Actual results could differ adversely from management estimates resulting in additional losses on receivables over and above the reserves provided. However, the Company believes its allowances for doubtful receivables are fairly stated as of September 30, 2002.

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Impairment of Long-Lived Assets. When long-lived asset impairment indicators are present, the Company evaluates impairment of long-lived assets in accordance with SFAS No. 144 by projecting undiscounted cash flows of the related assets over the remaining estimated useful lives of such assets. If undiscounted cash flow projections are insufficient to recover the carrying value of the long-lived assets under review, impairment is recorded, if any, for the amount by which the carrying value of such assets exceeds their fair values. Projections of undiscounted cash flows inherently involve management’s subjective estimates and assumptions regarding future expected operating results. Actual results could differ from management estimates. In 2002, the Company recorded an approximate $160,000 impairment related to assets of its Quantum Fuel & Refining, Inc. subsidiary, which were held for sale as of September 30, 2002. No other impairments of long-lived assets were recorded by the Company in fiscal 2002, 2001 or 2000. In 2002, the Company did record an impairment of goodwill recorded as an operating expense of $3.6 million (See Note 2 to the consolidated financial statements).

Income Taxes. Deferred income taxes recorded using the liability method reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances, if any, are established against deferred tax assets based upon whether or not the Company believes such assets are more likely than not to be recovered, which is a subjective determination based upon considerations of available positive and negative evidence. As of September 30, 2002, the Company has recorded a valuation allowance against all of its net deferred tax assets that relate to its continuing operations as it believes such amount is not likely to be recoverable given the Company’s recent history of operating losses. In making this determination, in addition to recent negative evidence of historical cumulative losses, management also considered negative evidence of no carryback period being available and no significant available tax planning strategies that can be used to generate future taxable income sufficient for recovery of its deferred tax assets.

Recent Accounting Pronouncements

On July 30, 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In December 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Interpretation No. 45 clarifies the requirement for recognition of a liability by a guarantor at the inception of the guarantee, based on the fair value of a non-contingent obligation to perform. Interpretation No. 45 must be applied prospectively to guarantees entered into or modified after December 31, 2002. The Company is currently in the process of evaluating the impact, if any, of Interpretation No. 45 on its consolidated financial statements.

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In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Under previous practices, certain entities were included in consolidated financial statements based upon controlling voting interests or in other special situations. Under Interpretation No. 46, certain previously unconsolidated entities will be required to be included in consolidated financial statements of the primary beneficiary, as defined. For variable interest entities, often referred to as special purpose entities, created after January 31, 2003, Interpretation No. 46 is effective immediately. The Company is currently evaluating the impact, if any, of Interpretation No. 46 on its consolidated financial statements.

In November 2001, the FASB issued Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). These rules supersede FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, providing a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale. Statement 144 also supersedes the provisions of APB Opinion 30 with regard to reporting the effects of a disposal of a segment of a business. The Statement is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, although earlier application is encouraged. The Company adopted SFAS 144 as of October 1, 2001 and such adoption did not have a material impact on its financial condition, results of operations and cash flows.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk – Obligations. The Company is subject to interest rate risk on its variable interest rate obligations. Based upon outstanding amounts of variable rate obligations as of September 30, 2002, a hypothetical 10% increase in average market interest rates would increase interest expense on outstanding variable rate debt by approximately $27,000. Additionally, the Company is subject to interest rate risk on its fixed interest rate obligations. Based upon outstanding amounts of fixed rate obligations as of September 30, 2002, a hypothetical 10% decrease in average market interest rates would not significantly increase the fair value of outstanding fixed rate debt.

Interest Rate Risk – Assets. TTI periodically makes advances under promissory notes to certain unrelated individuals and corporations, and sells equipment to individuals under installment sales contracts with terms generally from 12 to 18 months. The Company’s notes and sales contracts receivable generally have fixed interest rates ranging from 8% to 18%, depending upon the nature of the collateral, if any, and the credit worthiness of the related customer. The value of these notes is subject to market risk due to changing interest rates, although such risk is partially mitigated generally by the shorter-term nature of these receivables. Based upon outstanding amounts of notes and sales contracts receivable as of September 30, 2002, a hypothetical 10% increase in average market interest rates would decrease the fair value of these outstanding receivables by an immaterial amount.

The Company does not own, nor does it have an interest in any other market risk sensitive instruments. See Item 1 “Description of Business.”

ITEM 8. Financial Statements.

See Index to Consolidated Financial Statements included in Item 15.

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

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PART III

ITEM 10. Directors and Executive Officers of the Registrant.

The following table sets forth certain information regarding the directors and executive officers of the Company as of September 30, 2002.

James Rudis was elected to the Board of Directors (the “Board”) in December 1992 and has served as Chairman and Chief Executive Officer since February 1998 and President since July 1997. Mr. Rudis has agreed to serve in his current capacity in the transition following the spin-off of Overhill Farms, Inc. and has indicated his intention to resign in the near future. He also served as Executive Vice President of the Company from March 1994 until July 1997. Prior to his employment with the Company, Mr. Rudis was President of Quorum Corporation, a private consulting firm involved in acquisitions and market development. From 1970 until 1984, he held various executive positions in CIT Financial Corporation, including Vice President and Regional Manager of that company’s Commercial Finance Division.

William E. Shatley was named as Senior Vice President of the Company in March 1994 and was elected to the Board in February 1998. He joined the Company in an executive capacity in October 1993, having previously served the Company on an advisory basis since the relocation of its corporate offices to Texas in 1992. Mr. Shatley, a Certified Public Accountant since 1970, previously conducted his own consulting and accounting practice from 1982 to 1993, after having served as Vice President and Chief Financial Officer of Datotek, Inc. from 1977 to 1982 and in an executive capacity with Arthur Andersen from 1968 to 1977. Mr. Shatley resigned from the Company as an officer and director effective upon the spin-off of Overhill Farms, Inc. on October 29, 2002.

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Michael F. Buck, for the last five years, has been President of Mimatian Co., an operations and materials consulting firm. From August 1990 to August 1994, Mr. Buck served as Vice President of Bath Iron Works, Inc., a company engaged in building Aegis Class cruisers and destroyers for the United States Navy. From August 1989 to August 1990, Mr. Buck was a Vice President of Sabreliner Corporation, a company engaged in building, maintaining and overhauling executive jet aircraft. From March 1986 to August 1989, Mr. Buck was Vice President and Director of Procurement for International Telephone and Telegraph. He became a director of the Company in December 1989.

George R. Schrader was appointed as a director in March 1994. For the last five years, he has been a named member of Schrader & Cline, LLC, a financial and governmental management consulting firm. From 1983 to 1993, he was a principal of Schrader Investment Company, whose activities paralleled those of Schrader & Cline, LLC. Mr. Schrader’s additional experience includes ten years as City Manager for the city of Dallas, Texas and a total of nine years experience as City Manager for the Texas cities of Mesquite and Ennis.

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Significant Employees

Mr. Harold Estes, although not an executive officer, is considered to be a key employee of the Company. Mr. Estes, age 63, is the President of Texas Timberjack, Inc., a wholly owned subsidiary of the Company. He was elected as a director in February 1996 and resigned from the Board in April 1997. TTI is a distributor of industrial and commercial timber and logging equipment and is also engaged in certain related timber and sawmill operations. Mr. Estes has been President of TTI since 1984, when he acquired that company from Eaton Corporation.

Mr. Mike S. Boatman, although not an executive officer, is considered to be a key employee of the Company. Mr. Boatman, age 52, is the Vice President and Controller of Texas Timberjack, Inc., a wholly owned subsidiary of the Company. TTI is a distributor of industrial and commercial timber and logging equipment and is also engaged in certain related timber and sawmill operations. Mr. Boatman joined Texas Timberjack in 1986 and was elected to the Texas Timberjack, Inc. Board of Directors in 1992. Mr. Boatman has been a Certified Public Accountant since 1991. As Vice President and Controller of Texas Timberjack, Inc., the only operating subsidiary of TreeCon Resources, Inc., Mr. Boatman is currently acting as the principal financial officer of the Company.

Meetings of the Board of Directors and its Committees

The Board has standing Compensation and Audit Committees. The Compensation Committee is comprised of Messrs. Buck and Schrader. The Compensation Committee did not meet during fiscal 2002 and met one time during fiscal 2001. The Compensation Committee (i) administers the Company’s employee stock option plans and approves the granting of stock options and (ii) approves compensation for officers.

The Audit Committee is comprised of Messrs. Buck and Schrader. The Audit Committee met one time during fiscal 2002 and one time during fiscal 2001. The Audit Committee operates pursuant to a Charter approved by the Company’s Board of Directors. Its functions are to (i) monitor the Company’s financial reporting process and internal control system; (ii) review and appraise the audit efforts of the Company’s independent accountants; and (iii) provide an avenue of communication among the Company’s independent accountants, financial and senior management and the Board of Directors.

The full Board of Directors met one time during fiscal 2002 and four times during fiscal 2001. On several other occasions during each fiscal year, the Board acted by the execution of unanimous written consents in lieu of meetings. Each director attended all meetings of the Board of Directors and each Committee on which such director served.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires the Company’s directors, officers and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”) and the American Stock Exchange. Directors, officers and greater than 10 percent beneficial owners of the Company’s equity securities are required by applicable regulations to furnish the Company with copies of all forms they file with the Commission pursuant to Section 16(a).

Based upon (i) a review of the copies of forms furnished to the Company pursuant to the requirements of Section 16(a) and (ii) information received by the Company in connection with various purchases and sales of the Company’s equity securities, the Company believes that, during fiscal 2002, with the exception of Mr. Harold Estes, all filing requirements applicable to its directors, executive officers and greater than 10 percent beneficial owners were satisfied.

ITEM 11. Executive Compensation.

The following table sets forth for fiscal 2002, 2001 and 2000 compensation awarded or paid to Mr. James Rudis, the Company’s Chairman and Chief Executive Officer and Mr. William E. Shatley, the Company’s Former Senior Vice President, Secretary, Treasurer and Chief Financial Officer (collectively the “Named Executive Officers”), and other significant employees Mr. Harold Estes, President of Texas Timberjack, Inc. and Mr. Mike S. Boatman, Vice President and Controller of Texas Timberjack, Inc. and acting as principal financial officer of TreeCon Resources, Inc. Other than as indicated in the table below, no executive officer of the Company or Texas Timberjack, Inc. received salary plus bonus in excess of $100,000 for the year ended September 30, 2002.

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Summary Compensation Table

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Compensation Committee Report on Executive Compensation

The Board of Directors has established a Compensation Committee to review and approve the compensation levels of executive officers of the Company, evaluate the performance of the executive officers and consider senior management succession issues and any related matters for the Company. The Compensation Committee is charged with reviewing with the Board of Directors in detail all aspects of cash compensation for the executive officers of the Company. Stock option compensation for the executive officers is also considered by the Compensation Committee.

The philosophy of the Company’s compensation program is to employ, retain and reward executives capable of leading the Company in achieving its business objectives. These objectives include achieving a strong financial posture, increasing the assets of the Company, positioning the Company’s assets and business operations in geographic markets and industry segments offering long term growth opportunities, enhancing shareholder value and ensuring the survival of the Company. The accomplishment of these objectives is measured against conditions prevalent in the industries within which the Company operates. In recent years these conditions reflect a highly competitive market environment and rapidly changing regional, geographic and overall industry market conditions.

The available forms of executive compensation include base salary, cash bonus awards and incentive stock options. Performance of the Company is a key consideration (to the extent that such performance can fairly by attributed or related to such executive’s performance), as well as the nature of each executive’s responsibilities and capabilities. The Company’s compensation policy recognizes, however, that stock price performance is only one measure of performance and, given industry business conditions and the long term strategic direction and goals of the Company, it may not necessarily be the best current measure of executive performance. Therefore, the Company’s compensation policy also gives consideration to the Company’s achievement of specified business objectives when determining executive officer compensation. Compensation paid to executive officers is based upon a Company-wide salary structure consistent for each position relative to its authority and responsibility compared to industry peers.

Based on comparative industry data, and after due consideration to the factors mentioned above, the Compensation Committee set Mr. Rudis’ salary at $230,000 for fiscal 2002. The Compensation Committee believes that the compensation of the Company’s other executive officer and that of the other significant employees was reasonably related to the performance of the Company and of those individuals during fiscal 2002.

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Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries or had any relationship requiring disclosure pursuant to Item 404 of Commission Regulation S-K. No executive officer of the Company served as a member of a compensation committee of another corporation (or other board committee of such company performing similar functions or, in the absence of any such committee, the entire board of directors of such corporation), one of whose executive officers served on the Compensation Committee. No executive officer of the Company served as a director of another corporation, one of whose executive officers served on the Compensation Committee. No executive officer of the Company served as a member of a compensation committee of another corporation (or other board committee of such corporation performing similar functions or, in the absence of any such committee, the entire board of directors), one of whose executive officers served as a director of the Company.

Director Compensation

Directors who are also employees of the Company receive no additional compensation for services as directors. Nonemployee directors receive an annual fee of $8,500, with additional fees of $2,500 and $1,500 for service on the Audit Committee and Compensation Committee, respectively, plus additional fees of $500 to $750 per Board and Committee meeting attended. Directors are also reimbursed for all expenses incident to their service on the Board of Directors.

During March 1998, Mr. Michael F. Buck and Mr. George R. Schrader were granted options to purchase 30,000 and 50,000 shares, respectively, of Common Stock, exercisable at $0.75 per share (the fair market value at the date of grant) in whole or in part, expiring in March 2008. During the year ended September 30, 2001, the exercise price of options covering 60,000 shares (30,000 shares for Mr. Buck and 30,000 shares for Mr. Schrader) which had been granted in 1996, was reduced to $.75 per share from $2.00 per share.

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Common Stock Performance Table

The following performance table compares the five-year cumulative return of the Common Stock with that of a Broad Market Index (American Stock Exchange) and a Published Industry Index (MG Industry Group 342 - Food and Beverage - Processed and Packaged Goods). Each index assumes $100 invested at September 30, 1997, and is calculated assuming quarterly reinvestment of dividends and quarterly weighting by market capitalization. For the periods following the spin-off of Overhill Farms, the Company will utilize a new Published Industry Index (MG Industry Group 752 – Industrial Equipment Wholesale) to reflect the Timberjack business.

Comparative Five-Year Total Returns

TreeCon Resources, Inc., Broad Market and Peer Group

(Performance Results Through 9/30/02)

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth information regarding the beneficial ownership of Common Stock as of the September 29, 2003 by each person or group who owned, to the Company’s knowledge, more than five percent of the Common Stock, each of the Company’s directors, the Company’s Chief Executive Officer, the Company’s former Chief Financial Officer, certain significant employees and all of the Company’s directors and executive officers as a group.

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ITEM 13. Certain Relationships and Related Transactions.

Notes Payable and Accrued Interest to Related Party

In connection with the acquisition of TTI in June 1994, the Company initially issued a note to the seller (Mr. Harold Estes, President of TTI) in the amount of $10.0 million, with interest at 8% due October 31, 1994 and collateralized by all the capital stock and certain assets of TTI. As of each maturity date thereafter, Mr. Estes has entered into subsequent agreements with the Company to modify and extend the term of the note. As of September 30, 2002, the note had a total unpaid balance of $22,332,614 (principal of $16,347,191 and accrued interest of $5,985,423), bearing interest at 9% per annum with a maturity date of October 10, 2002. The Company and Mr. Estes, subsequent to September 30, 2002, agreed to a further extension of the maturity date to October 31, 2003, under substantially the same terms and conditions. Consideration for this extension was a cash payment of $70,000 by the Company to Mr. Estes, which will be amortized over the period from the extension to October 31, 2003 as additional financing costs.

Quantum Fuel and Refining, Inc. (“Quantum”), when acquired by SFP, had a note payable to Mr. Estes. As of September 30, 2002, the note had a total unpaid balance of $1,596,264 (principal of $1,000,000 and accrued interest of $596,264), bearing interest at 12% per annum with a maturity date of October 31, 2002, and collateralized by the assets of Quantum. In February 2003, SFP exchanged all of its ownership in Quantum to TTI’s minority partner in SFP for the approximate 25% minority position in SFP. Prior to the transaction, as of September 30, 2002, an impairment loss of $160,000 was recorded to reduce the carrying value of the assets held for sale.

Advances to Related Parties

In September 2000, in exchange for approximately $400,000 of raw timber inventory and the assumption of certain liabilities, SFP acquired all of the outstanding common stock of Quantum Fuel & Refining, Inc. (“Quantum”) from TTI’s minority partner in SFP. Quantum’s assets primarily consist of a non-operating refinery in Egan, Louisiana. Liabilities assumed included a $1.0 million note payable to Harold Estes, President of TTI, along with accrued interest payable to Mr. Estes thereon. SFP acquired the assets of Quantum for resale and has classified the assets as held for sale since the date of acquisition. In February 2003, SFP sold 100% of the common stock of Quantum back to TTI’s minority partner in SFP, and received in exchange the aforementioned minority partner’s 24.95% ownership interest in SFP, which then became a wholly-owned subsidiary of TTI. The transaction is retroactive to each party as of September 30, 2002.

TTI’s 25% minority partner in SFP was a guarantor of TTI’s and SFP’s note payable to, and SFP’s revolving line of credit facility with, Bank of America, N.A. The father of TTI’s 25% minority partner in SFP is a former officer of SFP. As of September 30, 2002 and 2001, the Company has total receivables of $683,000 and $685,000, respectively, from this former officer of SFP or from companies owned or controlled by such officer, of which approximately $186,000 and $188,000, respectively, are unsecured.

During the fiscal years ended September 30, 2002, 2001 and 2000, TTI recorded sales of approximately $0, $517,000 and $722,000, respectively, to Tony Currie Construction, LLC, of which TTI is a 49.9% owner. TTI accounts for this investment under the equity method. Additionally, during the fiscal years ended September 30, 2002, 2001 and 2000, TTI recorded income from the sale of equipment to and interest income on receivables from the partnership of $0, $94,000 and $150,000, respectively.

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The Company has an ownership interest in two unconsolidated real estate partnerships. In prior years the Company has guaranteed the debt of these partnerships, which was collateralized by assets of the partnerships. At September 30, 2002, no guarantees were in effect for these partnership debts.

In connection with the purchase of TTI, the Company acquired a note receivable from an officer of TTI. The note has been renewed and extended each year since issuance, is currently due in 2007 and is collateralized by marketable securities. As of September 30, 2002 and 2001, the balance outstanding was $374,533 and $363,234, respectively, and the note has been classified as a noncurrent related party receivable. Unsecured receivables from other employees totaled $77,877 at September 30, 2002.

As of September 30, 2002, the Company had an unsecured note receivable of $92,368 from a former officer of SFP; a note receivable of $404,507 from a company owned by the aforementioned former officer which is secured by the assets of that company; and an unsecured note receivable of $185,823 from another company owned by the aforementioned former officer.

As of September 30, 2002 and 2001, approximately $683,000 and $497,000, respectively, of related party receivables are represented by notes which are no longer accruing interest as the Company believes the interest is not collectible. As of September 30, 2002 and 2001, the Company has provided allowances for doubtful accounts of approximately $345,000 against all related party receivables as of those dates. The Company expects remaining amounts due under related party receivables to be realized either through collection or receipt of related collateral.

Other assets include an insurance premium receivable from Mr. Harold Estes representing insurance premiums paid by TTI on his behalf. As of September 30, 2002 and 2001, the insurance premium receivable was approximately $600,000.

TTI and Harold Estes, President of TTI and a significant stockholder of the Company, jointly and severally, have a note payable to AgriLand, PCA for $856,000 related to the purchase of the SFP sawmill property and buildings. The note is payable in monthly installments of $20,103, and bears interest at a rate of 6.0%. This note matures on October 1, 2006 and is collateralized by the SFP sawmill property and certain assets of TTI.

During the year ended September 30, 2001, the exercise price of options granted in 1996 under the Company’s 1994 Employee Stock Option Plan (the “Plan”) to purchase an aggregate 290,000 shares of the Company’s common stock was reduced to $0.75 per share from $2.00 per share. Of these options,

No compensation expense was recorded in connection with these repricings, as the options were repriced above fair market value. All of these repriced options were exercised in September 2001.

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In addition to the repriced options, Mr. Buck and Mr. Schrader also exercised options to purchase 30,000 and 50,000 shares of the Company’s common stock, respectively, granted under the Plan in 1998; and Mr. Rudis and Mr. Shatley each also exercised options to purchase 146,500 shares which were granted under individual option plans in 1993. These option exercises by each of Mr. Rudis, Mr. Buck, Mr. Schrader and Mr. Shatley in September 2001 were exercised with the issuances of 2-year promissory notes to the Company in an aggregate amount of $497,250, bearing interest at 3.82% and collateralized by the shares issued. The outstanding principal amounts of the notes were, at September 30, 2002:

In connection with the spin-off in October 2002, the Company assigned the notes receivable from Messrs. Rudis and Shatley to Overhill Farms, Inc.

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PART IV

ITEM 14. Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer of the Company and Vice President and Controller of Texas Timberjack, Inc., acting as principal financial officer of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to cause material information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, except as described further below. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

The Company’s evaluation, carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer of the Company and Vice President and Controller of Texas Timberjack, Inc., acting as principal financial officer of the Company, concluded that the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 were not effective to cause the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002, and Current Reports on Form 10-Q for the quarterly periods ended December 31, 2002, March 31, 2003 and June 30, 2003, to be reported within the time periods specified in the Commission’s rules and forms. The Company is currently in the process of restructuring its financial reporting functions and implementing new disclosure controls and procedures.

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ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) 1. and 2. Financial Statements and Financial Statement Schedules.

All other schedules for which provision is made in the applicable rules and regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

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3. Exhibits

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35

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(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Registrant during the last quarter of the fiscal year ended September 30, 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TREECON RESOURCES, INC.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

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TREECON RESOURCES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

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Index to Financial Statements

Report of Independent Auditors

To the Board of Directors and Stockholders of

TreeCon Resources, Inc.

We have audited the accompanying consolidated balance sheets of TreeCon Resources, Inc. and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2002. Our audits also include the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TreeCon Resources, Inc. and subsidiaries at September 30, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

The accompanying financial statements have been prepared assuming that TreeCon Resources, Inc. will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company has a note payable and accrued interest payable to a related party, which matures October 31, 2003, and may not have sufficient assets or access to capital necessary to satisfy such obligation. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill.

/s/    Ernst & Young LLP

June 20, 2003

Dallas, Texas

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Index to Financial Statements

TREECON RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Assets

The accompanying notes are an integral part

of these consolidated financial statements

F-3

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Index to Financial Statements

TREECON RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

Liabilities and Stockholders’ Equity

The accompanying notes are an integral part

of these consolidated financial statements

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TREECON RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS