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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 31, 2003

For the transition period from              to             

Commission File No. 333-35083

UNITED REFINING COMPANY

(Exact name of registrant as specified in its charter)

See Table of Additional Subsidiary Guarantor Registrants

(814) 723-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

None

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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12-b – 2).    Yes  ¨    No  x

As of December 1, 2003, 100 shares of the Registrant’s common stock, $0.10 par value per share, were outstanding. All shares of common stock of the Registrant’s are held by an affiliate. Therefore, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant is zero.

Documents Incorporated by Reference: None

TABLE OF ADDITIONAL REGISTRANTS

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ITEM 1.    BUSINESS.

Introduction

United Refining Company (together with its consolidated subsidiaries, collectively herein referred to as the “Company”) is a leading integrated refiner and marketer of petroleum products in its primary market area, which encompasses western New York and northwestern Pennsylvania. The Company owns and operates a medium complexity 65,000 barrel per day (“bpd”) petroleum refinery in Warren, Pennsylvania where it produces a variety of products, including various grades of gasoline, diesel fuel, kerosene, No. 2 heating oil, and asphalt. Operations are organized into two business segments: wholesale and retail. The wholesale segment is responsible for the acquisition of crude oil, petroleum refining, supplying petroleum products to the retail segment and the marketing of petroleum products to wholesale and industrial customers. The Company also sells its petroleum products to long-standing regional wholesale customers.

The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names at a network of Company-operated retail units and convenience and grocery items through Company-owned gasoline stations and convenience stores under the, Red Apple Food Mart^® and Country Fair^® brand names. As of August 31, 2003, the Company operated 372 units, of which, 184 units are owned, 128 units are leased and the remaining stores are operated under a management agreement. Approximately 22% of the gasoline stations within this network are branded Citgo^® pursuant to a license agreement granting the Company the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. For the year ended August 31, 2003 (sometimes referred to as “fiscal 2003”), approximately 87% and 28% of the Company’s gasoline and diesel fuel production, respectively, was sold through this network. These percentage increases from last fiscal year, are primarily attributable to the increased volume needed to supply Country Fair^® locations for an entire year and to reduced yields resulting from the Company’s scheduled maintenance turnaround during late October and early November 2002. For more on the scheduled maintenance turnaround, See Refining Operations—Refinery Turnarounds.

For the fiscal year ended August 31, 2003, the Company had total revenues of approximately $1.3 billion, of which approximately 52% were derived from gasoline sales, approximately 34% were from sales of other petroleum products and approximately 14% were from sales of merchandise and other revenue. The Company’s capacity utilization rates have ranged from approximately 90% to approximately 100% over the last five years. In fiscal 2003, approximately 69% of the Company’s refinery output consisted of higher value products such as gasoline and distillates.

The Company believes that the location of its 65,000 bpd refinery in Warren, Pennsylvania provides it with a transportation cost advantage over its competitors, which is significant within an approximately 100-mile radius of its refinery. For example, in Buffalo, New York over its last five fiscal years, the Company has experienced approximately 1.84 cents per gallon transportation cost advantage over those competitors who are required to ship gasoline by pipeline and truck from New York Harbor sources to Buffalo. The Company owns and operates the Kiantone Pipeline, a 78-mile long crude oil pipeline which connects the refinery to Canadian, U.S. and world crude oil sources through the Enbridge Pipelines Inc. and affiliates (collectively, “Enbridge”) pipeline system. Utilizing the storage facilities of the pipeline, the Company is able to blend various grades of crude oil from different suppliers, allowing it to efficiently schedule production while managing feedstock mix and product yields in order to optimize profitability.

It is the Company’s view that the high construction costs and the stringent regulatory requirements inherent in petroleum refinery operations make it uneconomical for new competing refineries to be constructed in the Company’s primary market area. The nearest fuels refinery is over 160 miles from Warren, Pennsylvania and the Company believes that no significant production from such refinery is currently shipped into its primary market area.

The Company’s primary market area is western New York and northwestern Pennsylvania and its core market area encompasses its Warren County base and the eight contiguous counties in New York and

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Pennsylvania. The Company’s retail gasoline and merchandise sales are split approximately 59% / 41% between rural and urban markets. Margins on gasoline sales are traditionally higher in rural markets, while gasoline sales volume is greater in urban markets. The Company’s urban markets include Buffalo, Rochester and Syracuse, New York and Erie, Pennsylvania.

As of August 31, 2003, the Company operated 372 retail units, of which 177 are located in New York, 182 in Pennsylvania and 13 in Ohio. In fiscal 2003, approximately 87% of the refinery’s gasoline production was sold through the Company’s retail network. In addition to gasoline, all units sell convenience merchandise, 94 are quick serve restaurants (QSR’s) including franchise operations and seven of the units are full-service truck stops. Customers may pay for purchases with credit cards including the Company’s own Kwik Fill^® credit card. In addition to this credit card, the Company maintains a fleet credit card catering to regional truck and automobile fleets. Sales of convenience products, which tend to have constant margins throughout the year, have served to reduce the effects of the seasonality inherent in gasoline retail margins.

Recent Developments

On October 8, 2003, the Pennsylvania Department of Environmental Protection (“DEP”) issued air and water permits to the Company at its Warren, Pennsylvania Refinery authorizing the construction and operation of a delayed coker unit among other refinery upgrades. The coker and other improvements, if financed and constructed, will allow the refinery to increase crude oil throughput to 70,000 bpd and will allow it to meet new low sulfur fuel requirements. On November 7, 2003, an appeal of the October 8, 2003 air permit was filed with the Pennsylvania Environmental Hearing Board. The Company intends to defend the permit in all respects, and presently believes that the appeal will have no material impact on United’s ability to proceed with the project as planned. The Company continues to develop its engineering and developmental plans related to this project.

On March 24, 2003, the Company and the participating banks amended the credit facility (“the facility”), allowing for a temporary increase in the facility commitment from $50,000,000 to $70,000,000. From the effective date of the amendment to and including July 31, 2003, the facility commitment was $70,000,000. From August 1, 2003 through and including September 30, 2003, the facility commitment was $60,000,000. The temporary increase expired as of September 30, 2003. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. The Company is currently negotiating with the Agent Bank to increase the facility commitment to $75,000,000 on a permanent basis; however, there are no assurances that such increase will be granted.

The Company applied for and was granted additional time to reduce the sulfur content of gasoline. This relief was granted in the form of a three-phase compliance approach giving the Company until January 2008 to fully comply with the Industry Standard. The Company successfully produced low sulfur gasoline in mid-October 2003 and is prepared to meet the first of the three-phase compliance requirement to be effective January 2004. See Environmental Considerations—Gasoline and Diesel Fuel Sulfur Content in Item 1, page 9.

Industry Overview

The Company is a regional refiner and marketer located primarily in Petroleum Administration for Defense District I (“PADD I”). As of January 1, 2003, there were 16 refineries operating in PADD I with a combined crude processing capacity of 1.7 million bpd, representing approximately 10% of U.S. refining capacity. Petroleum product consumption during calendar year 2002 in PADD I averaged 5.9 million bpd, representing approximately 30% of U.S. demand based on industry statistics reported by the U.S. Energy Information Administration (the “EIA”). According to the EIA, prime supplier sales volume of gasoline in the region grew by approximately 4.9% during 2002. Refined petroleum production in PADD I is insufficient to satisfy demand for such products in the region, making PADD I a net importer of such products.

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The Company believes that domestic refining capacity utilization is close to maximum sustainable limits because of the existing high throughput coupled with a minimal change in refining capacity. The Company believes that high utilization rates coupled with little anticipated crude capacity expansion is likely to result in improved operating margins in the refining industry over the long term.

Asphalt is a residual product of the crude oil refining process, which is used primarily for construction and maintenance of roads and highways and as a component of roofing shingles. Distribution of asphalt is localized, usually within a distance of 150 miles from a refinery or terminal, and demand is influenced by levels of federal, state, and local government funding for highway construction and maintenance and by levels of roofing construction activities. The Company believes that an ongoing need for highway maintenance and domestic economic growth will sustain asphalt demand.

Business Strategy

The Company’s goal is to strengthen its position as a leading producer and marketer of high quality refined petroleum products within its primary market area. The Company plans to accomplish this goal through continued attention to optimizing the Company’s operations at the lowest possible cost, improving, and enhancing the profitability of the Company. More specifically, the Company intends to:

Refining Operations

The Company’s refinery is located on a 92-acre site in Warren, Pennsylvania. The refinery has a nominal capacity of 65,000 bpd of crude oil processing. The refinery averaged saleable production of approximately 60,300 bpd during fiscal 2003 and approximately 63,000 bpd during fiscal 2002. This decrease is primarily attributable to the Company’s scheduled maintenance turnaround during late October and early November 2002. For more on the scheduled maintenance turnaround, See Refining Operations—Refinery Turnarounds. The Company produces three primary petroleum products: gasoline, middle distillates, and asphalt. The Company believes its geographic location in the product short PADD I is a marketing advantage. The Company’s refinery is located in northwestern Pennsylvania and is geographically distant from the majority of PADD I refining capacity. The nearest fuels refinery is over 160 miles from Warren, Pennsylvania and the Company believes that no significant production from such refinery is currently shipped into the Company’s primary market area. See Footnote 16 to Consolidated Financial Statements, Item 8, for financial information with respect to the Company’s refining operations, or the wholesale segment of the Company, for the three years ended August 31, 2003, 2002, and 2001.

Products

The Company presently produces two grades of unleaded gasoline, 87-octane regular and 93-octane premium. The Company also blends its 87 and 93 octane gasoline to produce a mid-grade 89 octane. In fiscal 2003, approximately 87% of the Company’s gasoline production was sold through its retail network and the remaining 13% of such production was sold to wholesale customers.

Middle distillates include kerosene, diesel fuel, and heating oil (No. 2 oil). In fiscal 2003, the Company sold approximately 79% of its middle distillate production to wholesale customers and the remaining 21% at its retail units, primarily at its seven truck stops.

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The Company optimizes its bottom of the barrel processing by producing asphalt, a higher value alternative to residual fuel oil. Asphalt production as a percentage of all refinery production has increased over the last five fiscal years due to the Company’s ability and decision to process a larger amount of less costly heavy higher sulfur content crude oil in order to realize higher overall refining margins.

Refining Process

The Company’s production of petroleum products from crude oil involves many complex steps, which are briefly summarized below.

The Company seeks to maximize refinery profitability by selecting crude oil and other feedstocks taking into account factors including product demand and pricing in the Company’s market areas as well as price, quality and availability of various grades of crude oil. The Company also considers product inventory levels and any planned turnarounds of refinery units for maintenance. The combination of these factors is optimized by a sophisticated proprietary linear programming computer model, which selects the most profitable feedstock and product mix. The linear programming model is continuously updated and improved to reflect changes in the product market place and in the refinery’s processing capability.

Blended crude is stored in a tank farm near the refinery, which has a capacity of approximately 200,000 barrels. The blended crude is then brought into the refinery where it is first distilled at low pressure into its component streams in the crude and preflash unit. This yields the following intermediate products: light products consisting of fuel gas components (methane and ethane) and LPG (propane and butane), naphtha or gasoline, kerosene, diesel or heating oil, heavy atmospheric distillate, and crude tower bottoms which are further distilled under vacuum conditions to yield light and heavy vacuum distillates and asphalt. The present capacity of the crude unit is 65,000 bpd.

The intermediate products are then processed in downstream units that are blended to produce finished products. A naphtha hydrotreater treats naphtha with hydrogen across a fixed bed catalyst to remove sulfur before further treatment. The treated naphtha is then distilled into light and heavy naphtha at a prefractionator. Light naphtha is then sent to an isomerization unit and heavy naphtha is sent to a reformer in each case for octane enhancement. The isomerization unit converts the light naphtha catalytically into a gasoline component with 83 octane. The reformer unit converts the heavy naphtha into another gasoline component with up to 94 octane depending upon the desired octane requirement for the grade of gasoline to be produced. The reformer also produces as a co-product all the hydrogen needed to operate hydrotreating units in the refinery.

Raw kerosene or heating oil is treated with hydrogen at a distillate hydrotreater to remove sulfur and make finished kerosene and No. 2 fuel oil. A distillate hydrotreater built in 1993 also treats raw distillates to produce low sulfur diesel fuel.

The long molecular chains of the heavy atmospheric and vacuum distillates are broken or “cracked” in the fluidized catalytic cracking unit and separated and recovered in the gas concentration unit to produce fuel gas, propylene, butylene, LPG, gasoline, light cycle oil and clarified oil. Fuel gas is burned within the refinery, propylene is fed to a polymerization unit which polymerizes its molecules into a larger chain to produce an 87 octane gasoline component, butylene is fed into an alkylation unit to produce a gasoline component and LPG is treated to remove trace quantities of water and then sold. Clarified oil is burned in the refinery or sold. Various refinery gasoline components are blended together in refinery tankage to produce 87 octane and 93 octane finished gasoline. Likewise, light cycle oil is blended with other distillates to produce low sulfur diesel and No. 2 fuel oil.

The Company’s refining configuration allows the processing of a wide variety of crude oil inputs. During the past five years the Company’s inputs have been of Canadian origin and range from light low sulfur (38 degrees API, 0.5% sulfur) to high sulfur heavy asphaltic (21 degrees API, 3.5% sulfur). The Company’s ability to market asphalt enables it to purchase selected heavier crude oils at a lower cost.

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Supply of Crude Oil

Even though the Company’s crude supply is currently nearly all Canadian, it is not dependent on this source alone. Within 60 days, the Company could shift up to 80% of its crude oil requirements to some combination of domestic and offshore crude. With additional time, 100% of its crude requirements could be obtained from non-Canadian sources. Eighty percent of the Company’s contracts with its crude suppliers are on a month-to-month evergreen basis, with 30-to-60 day cancellation provisions; twenty percent of the Company’s crude contracts are on an annual basis (with month to month pricing provisions). As of August 31, 2003, the Company had supply contracts with 31 different suppliers for an aggregate of 61,400 bpd of crude oil. The Company has contracts with three vendors amounting to 53% of daily crude oil supply (none more than 16,000 barrels per day). As of such date, the Company had no other contract covering more than 10% of its crude oil supply.

The Company accesses crude through the Kiantone Pipeline, which connects with the Enbridge pipeline system in West Seneca, New York, which is near Buffalo. The Enbridge pipeline system provides access to most North American and foreign crude oils through three primary routes: (i) Canadian crude oils are transported eastward from Alberta and other points in Canada; (ii) various mid-continent crude oils from Texas, Oklahoma and Kansas are transported northeast along the Cushing-Chicago Pipeline (foreign crude oils shipped on the Seaway system can also access this route), which connects to the Enbridge pipeline system at Griffith, Indiana; and (iii) foreign crude oils unloaded at the Louisiana Offshore Oil Port are transported north via the Cap line and Chicago pipelines which connect to the Enbridge pipeline system at Mokena, Illinois.

The Kiantone Pipeline, a 78-mile Company-owned and operated pipeline, connects the Company’s West Seneca, New York terminal at the pipeline’s northern terminus to the refinery’s tank farm at its southern terminus. The Company completed construction of the Kiantone Pipeline in 1971 and has operated it continuously since then. The Company is the sole shipper on the Kiantone Pipeline, and can currently transport up to 70,000 bpd along the pipeline. The Company’s right to maintain the pipeline is derived from approximately 265 separate easements, right-of-way agreements, licenses, permits, leases and similar agreements.

The pipeline operation is monitored by a computer at the refinery. Shipments of crude arriving at the West Seneca terminal are separated and stored in one of the terminal’s three storage tanks, which have an aggregate storage capacity of 485,000 barrels. The refinery tank farm has two additional crude storage tanks with a total capacity of 200,000 barrels. An additional 35,000 barrels of crude can be stored at the refinery.

Refinery Turnarounds

Turnaround cycles vary for different refinery units. A planned turnaround of each of the two major refinery units (the crude unit and the fluid catalytic cracking unit) is conducted approximately every three to five years, during which time such units are shut down for internal inspection and repair. The most recent turnaround occurred in October and November 2002. A turnaround, which generally takes two to four weeks to complete in the case of the two major refinery units, consists of a series of moderate to extensive maintenance exercises. Turnarounds are planned and accomplished in a manner that allows for reduced production during maintenance instead of a complete plant shutdown. The Company defers the cost of turnarounds when incurred and amortizes on a straight-line basis over the period of benefit, which ranges from 3 to 10 years. Thus, the Company charges costs to production over the period most clearly benefited by the turnaround.

The scheduled maintenance turnaround during late October and early November 2002 resulted in an inventory build-up (starting in August 2002) of petroleum products to meet minimum sales demand during the maintenance shutdown period.

Marketing and Distribution

General

The Company has a long history of service within its market area. The Company’s first retail service station was established in 1927 near the Warren refinery, and it has steadily expanded its distribution network over the years.

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The Company maintains an approximate 59% / 41% split between sales at its rural and urban units. The Company believes this to be advantageous, balancing the higher gross margins and lower volumes often achievable due to decreased competition in rural areas with higher volumes and lower gross margins in urban areas. The Company believes that its network of rural convenience store units provide an important alternative to traditional grocery store formats. In fiscal 2003, approximately 87% and 28% of the Company’s gasoline and diesel fuel production, respectively, was sold through this retail network.

The Company also has a 50% interest in a joint venture with an entity for the marketing of asphalt products. This joint venture is accounted for using the equity method of accounting.

Retail Operations

As of August 31, 2003 the Company operated a retail-marketing network (including those stores operated under a management agreement) that includes 372 retail units, of which 177 are located in western New York, 182 in northwestern Pennsylvania and 13 in eastern Ohio. The Company owns 184 of these units. The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names at a network of Company-operated retail units and convenience and grocery items through Company-owned gasoline stations and convenience stores under the Red Apple Food Mart^® and Country Fair^® brand names. The Company believes that Red Apple Food Mart^®, Kwik Fill^®, Country Fair^®, Keystone^® and Citgo^® are well-recognized names in the Company’s marketing areas. Approximately 22% of the gasoline stations within this network are branded Citgo^® pursuant to a license agreement granting the Company the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. The Company believes that the operation of its retail units provides it with a significant advantage over competitors that operate wholly or partly through dealer arrangements because the Company has greater control over pricing and operating expenses, thus establishing a potential for improved margins.

The Company classifies its stores into four categories: convenience stores, limited gasoline stations, truck stop facilities and other stores. Convenience stores have a wide variety of foods, snacks, cigarettes and beverages and self-service gasoline. Ninety-four of such units are QSR’s where food (primarily submarine sandwiches, pizza, chicken and lunch platters) is prepared on the premises for retail sales and also distribution to other nearby Company units which do not have in-store delicatessens. Limited gasoline stations sell gasoline, cigarettes, oil and related car care products and provide full service for gasoline customers. Truckstop facilities sell gasoline and diesel fuel on a self-service and full-service basis. All truckstops include either a full or mini convenience store and one has a truck repair garage.

On December 21, 2001 the Company acquired 100% of the operations and working capital assets of Country Fair. The fiscal year ended August 31, 2003 included the additional sales from Country Fair for the entire period versus the fiscal year ended August 31, 2002 in which Country Fair sales were only included from the acquisition date of December 21, 2001. See Footnotes 5 and 14 to Consolidated Financial Statements, Item 8.

Total merchandise sales for fiscal year 2003 were $182.6 million, with a gross profit of approximately $51.3 million. Fiscal 2002 merchandise sales were $149.8 million, with a gross profit of approximately $42.5 million Gross margins on the sale of convenience merchandise averaged 28.1% for fiscal 2003 and have been between 25% and 28.5% for the last five years and are essentially unaffected by variations in crude oil and petroleum products prices. See Footnote 16 to Consolidated Financial Statements, Item 8, for additional information on the retail segment of the Company for the three years ended August 31, 2003, 2002, and 2001.

Merchandise Supply

The Company’s primary merchandise vendor is Tripifoods, which is located in Buffalo, New York. During fiscal 2003, the Company purchased approximately 84% of its convenience merchandise from this vendor. Tripifoods supplies the Company with tobacco products, candy, deli foods, grocery, health and beauty products, and sundry items on a cost plus basis for resale. The Company also purchases coffee, dairy products, beer, soda,

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snacks, and novelty goods from direct store vendors for resale. The Company annually reviews its suppliers’ costs and services versus those of alternate suppliers. The Company believes that alternative sources of merchandise supply at competitive prices are readily available.

Location Performance Tracking

The Company maintains a store tracking mechanism to collect operating data including sales and inventory levels for the Company’s retail network. Data transmissions are made using personal computers, which are available at each location. Once verified, the data interfaces with a variety of retail accounting systems, which support daily, weekly and monthly performance reports. These different reports are then provided to both the field management and office staff. Upon completion of a capital project, management tracks “before and after” performance, to evaluate the return on investment which has resulted from the improvements.

Wholesale Marketing and Distribution

The Company sold in fiscal year 2003, on a wholesale basis, approximately 42,800 bpd of gasoline, distillate and asphalt products to distributor, commercial and government accounts. In addition, the Company sells approximately 1,000 bpd of propane to liquefied petroleum gas marketers. In fiscal 2003, the Company’s production of gasoline, distillate, and asphalt sold at wholesale was 13%, 79%, and 100%, respectively. The Company sells approximately 98% of its wholesale gasoline and distillate products from its refinery in Warren, PA and its Company-owned and operated product terminals. The remaining 2% are sold through third-party exchange terminals.

The Company’s wholesale gasoline customer base includes 57 branded dealer/distributor units operating under the Company’s proprietary “Keystone^®” (including one Company operated location) and “Kwik Fill^®” brand names. Long-term dealer/distributor contracts accounted for approximately 20% of the Company’s wholesale gasoline sales in fiscal 2003. Supply contracts generally range from three to five years in length, with branded prices based on the prevailing Company wholesale rack price in Warren.

The Company believes that the location of its refinery provides it with a transportation cost advantage over its competitors, which is significant within an approximately 100-mile radius of the Company’s refinery. For example, in Buffalo, New York over its last five fiscal years, the Company has experienced an approximately 1.84 cents per gallon transportation cost advantage over those competitors who are required to ship gasoline by pipeline and truck from New York Harbor sources to Buffalo. In addition to this transportation cost advantage, the Company’s proximity to local accounts allows it a greater range of shipment options, including the ability to deliver truckload quantities of approximately 210 barrels versus much larger 25,000 barrel pipeline batch deliveries, and faster response time, which the Company believes help it provide enhanced service to its customers.

The Company’s ability to market asphalt is critical to the performance of its refinery, since such marketing ability enables the Company to process lower cost higher sulfur content crude oils which in turn affords the Company higher refining margins. Sales of paving asphalt generally occur during the summer months due primarily to weather conditions. In order to maximize its asphalt sales, the Company has made substantial investments to increase its asphalt storage capacity through the installation of additional tanks, as well as through the purchase or lease of outside terminals. Partially mitigating the seasonality of the asphalt paving business is the Company’s ability to sell asphalt year-round to roofing shingle manufacturers. In fiscal 2003, the Company sold 6.7 million barrels of asphalt while producing 6.0 million barrels. This difference is primarily attributed to the Company’s purchasing product for resale.

The Company has a significant share of the asphalt market in the cities of Pittsburgh, Pennsylvania and Rochester and Buffalo, New York. The Company distributes asphalt from the refinery by railcar and truck transport to its owned and leased asphalt terminals in such cities or their suburbs. Asphalt can be purchased in the Gulf Coast area and delivered by barge to third party or Company-owned terminals near Pittsburgh.

The Company also has a 50% interest in a joint venture with an entity for the marketing of asphalt products. This joint venture is accounted for using the equity method of accounting.

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The Company uses a network of six terminals to store and distribute refined products. This network provides gasoline, distillate, and asphalt storage capacities (in thousands of barrels) of approximately 505, 930 and 1,750 barrels, respectively, as of August 31, 2003.

During fiscal 2003, approximately 91% of the Company’s refined products were transported from the refinery via truck transports, with the remaining 9% transported by rail. The majority of the Company’s wholesale and retail gasoline distribution is handled by common carrier trucking companies at competitive costs. The Company also operates a fleet of ten gasoline tank trucks that supply approximately 25% of its Kwik Fill^® retail stations.

Product distribution costs to both retail and wholesale accounts are minimized through product exchanges. Through these exchanges, the Company has access to product supplies at approximately 38 sources located throughout the Company’s retail marketing area. The Company seeks to minimize retail distribution costs through the use of a system wide distribution model.

Environmental Considerations

General

The Company is subject to extensive federal, state and local laws and regulations relating to pollution and protection of the environment such as those governing releases of certain materials into the environment and the storage, treatment, transportation, disposal and clean-up of wastes, including, but not limited to, the Federal Clean Water Act as amended, the Clean Air Act as amended (“CAA”), the Resource Conservation and Recovery Act of 1976 as amended, the Comprehensive Environmental Response Compensation and Liability Act of 1980 as amended (“CERCLA”), and analogous state and local laws and regulations. As with the industry in general, compliance with existing and anticipated environmental laws and regulations increases the overall cost of business, including capital costs to construct, maintain and upgrade equipment and facilities.

The Clean Air Act Amendments of 1990

In 1990, the CAA was amended to greatly expand the role of the government in controlling product quality and air emissions. The legislation included provisions that have significantly impacted the manufacture of both gasoline and diesel fuel including the requirement for significantly lower sulfur content. In regards to emissions, the government has required increasingly stringent emission controls on process equipment. For example, the Company will need to comply with the second phase of regulations establishing Maximum Achievable Control Technologies for petroleum refineries. These regulations, adopted in April 2002, may require additional emission controls on certain refinery units. The Company believes it will be able to satisfy these requirements.

Gasoline and Diesel Fuel Sulfur Content

In February 2000, the United States Environmental Protection Agency (“USEPA”) issued a final rule requiring a phased reduction of the sulfur content in gasoline to ultimately achieve 30 Parts Per Million (“PPM”). Many refiners will have to make this reduction by January 2004, but some smaller refiners and those in certain Western states will be allowed to phase down sulfur more slowly, reaching the 30 PPM level as late as January 2008. Although the Company is of comparable size to some of the small refiners granted more time to comply, the Company was not classified as a small refiner for this purpose, nor are the Company’s operations located in any of the Western states given additional time. However, the rule allows individual refiners to seek additional time to comply on a case-by-case basis at the discretion of the USEPA. The Company applied for and was granted additional time to phase down the sulfur content of gasoline. USEPA granted this relief in the form of a three-phase compliance approach giving the Company until January 2008 to meet the 30 PPM sulfur limit.

The USEPA promulgated another set of regulations under the CAA in January 2001 that limits allowable sulfur content in highway diesel fuel. By June 1, 2006, the sulfur content in highway diesel fuel must be reduced to 15 PPM. Furthermore, USEPA has proposed a comprehensive national program to reduce emissions from non-road diesel engines by forcing the eventual reduction of sulfur in non-road diesel to 15 PPM by 2010.

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The Company anticipates that a material investment of funds will be required before 2008 to comply with the low sulfur fuel requirements for both gasoline and diesel. It is believed that compliance with the low sulfur gasoline and diesel fuel mandates will require an estimated expenditure of approximately $30 million in capital improvements.

Competition

Petroleum refining and marketing is highly competitive. The Company’s major retail competitors include British Petroleum, Amerada Hess, Mobil, Sunoco, Sheetz, Delta Sonic, and Uni-Marts. With respect to wholesale gasoline and distillate sales, the Company competes with Sunoco, Inc., Mobil, and other major refiners. The Company primarily competes with Marathon Oil Company and Ashland Oil Company in the asphalt market. Many of the Company’s principal competitors are integrated multinational oil companies that are substantially larger and better known than the Company. Because of their diversity, integration of operations, larger capitalization and greater resources, these major oil companies may be better able to withstand volatile market conditions, compete on the basis of price and more readily obtain crude oil in times of shortages.

The principal competitive factors affecting the Company’s refining operations are crude oil and other feedstock costs, refinery efficiency, refinery product mix and product distribution and transportation costs. Certain of the Company’s larger competitors have refineries which are larger and more complex and, as a result, could have lower per barrel costs or higher margins per barrel of throughput. The Company has no crude oil reserves and is not engaged in exploration. The Company believes that it will be able to obtain adequate crude oil and other feedstocks at generally competitive prices for the foreseeable future.

The principal competitive factors affecting the Company’s retail marketing network are location of stores, product price and quality, appearance and cleanliness of stores and brand identification. Competition from large, integrated oil companies, as well as from convenience stores which sell motor fuel, is expected to continue. The principal competitive factors affecting the Company’s wholesale marketing business is product price and quality, reliability and availability of supply and location of distribution points.

Employees

As of August 31, 2003 the Company had approximately 4,233 employees; 1,973 full-time and 2,260 part-time employees. Approximately 3,525 persons were employed at the Company’s retail units, 382 persons at the Company’s refinery, Kiantone Pipeline and at terminals operated by the Company, with the remainder at the Company’s office in Warren, Pennsylvania. The Company has entered into collective bargaining agreements with International Union of Operating Engineers Local No. 95, United Steel Workers of America Local No. 2122-A, the International Union of Plant Guard Workers of America Local No. 502 and General Teamsters Local Union No. 397 covering 211, 9, 22 and 19 employees, respectively. The agreements expire on February 1, 2006, January 31, 2006, June 25, 2005 and July 31, 2005, respectively. The Company believes that its relationship with its employees is good.

Intellectual Property

The Company owns various federal and state service and trademarks used by the Company, including Kwik Fill^®, United^®, Country Fair^®, SuperKwik^®, Keystone^®, SubFare^® and PizzaFare^®. The Company, and its subsidiary Country Fair, Inc. (“Country Fair”), licensed from Citgo Petroleum Corporation (“Citgo”) the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification for petroleum products purchased under a distributor franchise agreement.

The Company has obtained the right to use the Red Apple Food Mart^® service mark to identify its retail units under a royalty-free, nonexclusive, nontransferable license from Red Apple Supermarkets, Inc., a corporation which is indirectly wholly owned by John A. Catsimatidis, the indirect sole stockholder, Chairman of

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the Board and Chief Executive Officer of the Company. The license is for an indefinite term. The licensor has the right to terminate this license in the event that the Company fails to maintain quality acceptable to the licensor. The Company licenses the right to use the Keystone^® trademark to approximately 57 independent distributors on a non-exclusive royalty-free basis.

The Company does not own any patents. Management believes that the Company does not infringe upon the patent rights of others, nor does the Company’s lack of patents have a material adverse effect on the business of the Company.

Governmental Approvals

The Company has obtained all necessary governmental approvals, licenses and permits to operate the refinery and convenience stores.

Financing

On June 9, 1997, the Company completed the sale (the “Private Offering”) of $200 million principal amount 10 ³/4% Series A Senior Notes due 2007 to Dillon, Read & Co. Inc. and Bear, Stearns & Co. Inc. in a transaction exempt from registration under the Securities Act of 1933, as amended. Subsequent to this issue, the Company exchanged the Series A Senior Notes for its 10- ³/4% Series B Senior Notes due 2007 which were previously registered under the Securities Act of 1933, as amended. An aggregate of $200 million in principal amount of Series A Senior Notes were exchanged for Series B Senior Notes effective January 16, 1998. The form and terms of the Series B Senior Notes are identical in all material respects to the form and terms of the Series A Senior Notes except that the Series B Senior Notes are registered under the Securities Act and, therefore, do not bear legends restricting the transfer thereof. The Series B Senior Notes do not represent additional indebtedness of the Company and are entitled to the benefits of the Indenture, which is the same Indenture as the one under which the Series A Senior Notes were issued. During the fiscal year ending August 31, 2001, the Company purchased $19,865,000 of these notes for $14,185,000 in cash. A gain of $5,210,000 was recorded as a result of the early retirement of debt, consisting of $5,680,000 less $470,000 of associated debt issuance costs. See Footnote 1 to Consolidated Financial Statements, Item 8.

In July 2002, the Company renewed a $50,000,000 secured revolving credit facility (the “facility”) with a syndicate of banks with PNC Bank, N.A. as Agent Bank. On March 24, 2003, the Company and the participating banks amended the facility, allowing for a temporary increase in the facility commitment from $50,000,000 to $70,000,000. From the effective date of the amendment to and including July 31, 2003, the facility commitment was $70,000,000. From August 1, 2003 through and including September 30, 2003, the facility commitment was $60,000,000. The temporary increase expired as of September 30, 2003. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. The Company is currently negotiating with the Agent Bank to increase the facility commitment to $75,000,000 on a permanent basis; however, there are no assurances that such increase will be granted.

The facility expires on May 9, 2007 and is secured by certain cash accounts, accounts receivable, and inventory. Until maturity, the Company may borrow on a borrowing base formula as set forth in the facility. For Base Rate borrowings, interest is calculated at the greater of the agent bank’s prime rate or federal fund rate plus 1%, plus an applicable margin of .25% to .75%, which was 4.75% and 5.50% at August 31, 2003 and 2002, respectively. For Euro-Rate borrowings, interest is calculated at the LIBOR rate plus an applicable margin of 1.75% to 3.00%. The applicable margin varies with the Company’s facility leverage ratio calculation. As of August 31, 2003, $30,000,000 of Euro-Rate borrowings and $1,500,000 of Base Rate borrowings were outstanding under the agreement. As of August 31, 2002, no Euro-Rate borrowings and $24,314,000 of Base Rate borrowings were outstanding under the agreement. $615,000 and $850,000 of letters of credit were outstanding under the agreement at August 31, 2003 and 2002, respectively. The weighted average interest rate for Base Rate borrowings for the years ended August 31, 2003 and 2002 was 4.8% and 5.5%, respectively. The

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weighted average interest rate for Euro-Rate borrowings was 4.1% for the fiscal year ending August 31, 2003. The Company pays a commitment fee of 3/8% per annum on the unused balance of the facility. See Footnote 8 to Consolidated Financial Statements, Item 8.

ITEM 2.    PROPERTIES.

The Company owns a 92-acre site in Warren, Pennsylvania upon which it operates its refinery. The site also contains an office building housing the Company’s principal executive office.

The Company owns various real property in the states of Pennsylvania, New York, Ohio and Alabama as of August 31, 2003, upon which it operates 184 retail units and two crude oil and six refined product storage terminals. The Company also owns the 78-mile long Kiantone Pipeline, a pipeline which connects the Company’s crude oil storage terminal to the refinery’s tank farm. The Company’s right to maintain the pipeline is derived from approximately 265 separate easements, right-of-way agreements, leases, permits, and similar agreements. The Company also has easements, right-of-way agreements, leases, permits and similar agreements that would enable the Company to build a second pipeline on property contiguous to the Kiantone Pipeline.

The Company also leases an aggregate of 128 sites in Pennsylvania, New York and Ohio upon which it operates retail units. As of August 31, 2003, 67 of these leases had an average remaining term of 55 months, exclusive of option terms, and 61 leased Country Fair locations had terms from 10 to 20 years remaining.

ITEM 3.    LEGAL PROCEEDINGS.

The United States Environmental Protection Agency (“USEPA”) has issued certain Notices of Violation, an Administrative Order, and has asserted certain additional claims arising under federal and state statutory and regulatory law through and including June 2001 (collectively the “Claims”). The Claims arise from allegations that (1) the Company failed in the past to properly and consistently monitor, report and control emissions of Volatile Organic Compounds (“VOCs”) from its refining facility in Warren, Pennsylvania; (2) fuel gas used in the refining process has in the past contained levels of hydrogen sulfide in excess of permitted parameters; (3) the Company in the past has failed to properly calculate and report emissions of benzene from its refining facility; and (4) the Company violated certain statutory and regulatory law in the past in connection with (a) certain construction activities within the Company’s Warren, Pennsylvania physical plant; and (b) operation by the Company of certain equipment within the physical plant. The Claims allege violations of the Federal Clean Air Act, as amended, and associated federal and state regulatory requirements. The Company has been in negotiation with USEPA and believes that the Claims will be resolved on terms that will not have a material adverse effect upon the operations or consolidated financial position of the Company.

In addition to the foregoing proceedings, the Company and its subsidiaries are from time to time parties to various legal proceedings that arise in the ordinary course of their respective business operations. These proceedings include various administrative actions relating to federal, state and local environmental laws and regulations. The Company believes that if these legal proceedings in which it is currently involved are determined against the Company, they would not result in a material adverse effect on the Company’s operations or its consolidated financial condition. In the opinion of management, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involve such amounts that an unfavorable disposition would not have a material adverse effect on the consolidated operations or financial position of the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

NONE

NONE

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ITEM 6.    SELECTED FINANCIAL DATA.

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Forward Looking Statements

This Annual Report on Form 10K includes statements that constitute “Forward Looking Statements” within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 and that are intended to come within the Safe Harbor Protection provided by those sections. By their nature, all Forward Looking Statements involve risk and uncertainties. Actual results may differ materially from those contemplated by the Forward Looking Statements for a number of reasons.

Although the company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge, investors and prospective investors are cautioned that such statements are only projections and that actual events or results may differ materially from those expressed in any such Forward-Looking Statements. In addition to the factors discussed elsewhere in this report, the company’s actual consolidated quarterly or annual operating results have been affected in the past, or could be affected in the future, by additional factors, including, without limitation, general economic, business and market conditions; risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of inefficiencies or shutdowns in refinery operations or pipelines, the availability and cost of financing to the company, environmental, tax and tobacco legislation or regulation; volatility of gasoline prices, margins and supplies; merchandising margins; labor costs; level of capital expenditures; customer traffic; weather conditions; acts of terrorism and war .

Company Background

Critical Accounting Policies

The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are discussed in Footnote 1 to the Consolidated Financial Statements, Item 8. Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities. As such, materially different financial results can occur as circumstances change and additional information becomes known. The policies with the greatest potential effect on our results of operation and financial position include:

Revenue Recognition

Revenues from wholesale sales are recognized upon shipment or when title passes. Retail revenues are recognized immediately upon sale to the customer. Revenue derived from other sources including freight charges are recognized when the related product revenue is recognized.

Collectibility of Accounts Receivable

For accounts receivable we estimate the net collectibility considering both historical and anticipated trends relating to our customers and the possibility of non-collection due to their financial position. While such non- collections have been historically within our expectations and the allowances the Company has established, the Company cannot guarantee that it will continue to experience non-collections rates that it has experienced in the

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past. A significant change in the financial position of our customers could have a material impact on the quality of our accounts receivable and our future operating results.

Goodwill and Other Non-Amortizable Assets

In accordance with SFAS No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. We assess the impairment of goodwill and other indefinite-lived intangible assets annually.

The Company performed separate impairment tests on June 1, 2003 for its tradename and other intangible assets using discounted and undiscounted cash flow methods, respectively. The fair value of the tradename and other intangible assets exceeded their respective carrying values. The Company has noted no subsequent indication that would require testing the tradename and intangible assets for impairment.

There were no changes in the carrying amount of goodwill, tradename, or other intangible assets for the fiscal year ending August 31, 2003.

Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying value of any of these assets may not be recoverable, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts. When any such impairment exists, the related assets will be written down to fair value.

Value of Pension Assets

The Company maintains three noncontributory defined benefit retirement plans for substantially all its employees. The assets of the plans are invested through financial institutions that follow an investment policy drafted by the Company. The investment guidelines provide a percentage range for each class of assets to be managed by the financial institution. The historic performance of these asset classes supports the Company’s expected return on the assets. The asset classes are rebalanced periodically should they fall outside the range allocations.

The percentage of total asset allocation range is as follows:

The discount rate utilized in valuing the benefit obligations of the plans was derived from the rate of return on high quality bonds as of August 31, 2003. Similarly, the rate of compensation utilizes historic increases granted by the Company and the industry as well as future compensation policies. See Footnote 10 to Consolidated Financial Statements, Item 8.

Environmental Remediation and Litigation Reserve Estimations

Management also makes judgments and estimates in recording liabilities for environmental cleanup and litigation. Liabilities for environmental remediation are subject to change because of matters such as changes in laws, regulations and their interpretation; the affect of additional information on the extent and nature of site contamination; and improvements in technology. Likewise, actual litigation costs can vary from estimates based on the facts and circumstance and application of laws in individual cases.

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The above assessment of critical accounting policies is not meant to be an all-inclusive discussion of the uncertainties to financial results that occur from the application of the full range of the Company’s accounting policies. Materially different financial results could occur in the application of other accounting policies as well. Likewise, materially different results can occur upon the adoption of new accounting standards promulgated by the various rule-making bodies.

General

The Company is engaged in the refining and marketing of petroleum products. In fiscal 2003, approximately 87% and 28% of the Company’s gasoline and diesel fuel production, respectively, was sold through the Company’s network of service stations and truck stops. The balances of the Company’s refined products were sold to wholesale customers. In addition to transportation and heating fuels, primarily gasoline and distillate, the Company is a major regional wholesale marketer of asphalt. The Company also sells convenience merchandise at convenience stores located at most of its service stations. The Company’s profitability is influenced by fluctuations in the market prices of crude oils and refined products. Although the Company’s product sales mix helps to reduce the impact of large short-term variations in crude oil price, net sales and costs of goods sold can fluctuate widely based upon fluctuations in crude oil prices. Specifically, the margins on wholesale gasoline and distillate tend to decline in periods of rapidly declining crude oil prices, while margins on asphalt, retail gasoline and distillate tend to improve. During periods of rapidly rising crude oil prices, margins on wholesale gasoline and distillate tend to improve, while margins on asphalt and retail gasoline and distillate tend to decline. Gross margins on the sale of convenience merchandise averaged 28.1% for fiscal 2003 and have been between 25% and 28.5% for the last five years and are essentially unaffected by variations in crude oil and petroleum products prices.

The Company includes in costs of goods sold operating expenses incurred in the refining process. Therefore, operating expenses reflect only selling, general and administrative expenses, including all expenses of the retail network, and depreciation and amortization.

Recent Developments

The Company’s results in fiscal 2003 were impacted by the volatility of worldwide crude oil prices, as indicated by crude oil contracts traded on the New York Mercantile Exchange (NYMEX). Monthly average NYMEX crude prices increased $9.52/BBL from a low of $26.19/BBL in December 2002 to peak in March 2003 at $35.73/BBL and then decreased $7.66/BBL to a near-term low of $28.07/BBL in June 2003. Thus, crude prices have fluctuated as much as +/- 20% to 35% over a 3-month period. Crude oil prices peaked in mid March for April crude delivery just before the start of the Iraqi war before dropping after the start of the Iraqi war. For all of fiscal 2003, NYMEX crude oil prices averaged $29.24/BBL, or 23% higher than fiscal 2002, but trended only 2% lower than the $29.76/BBL for fiscal 2001.

The first several months of fiscal 2004 have seen crude prices drop by 10.4% then increase by approximately 15% to over $33/BBL for December 2003 delivery as of November 18, 2003 due largely to OPEC’s unexpected decision to cut calendar fourth-quarter crude supply. Monthly NYMEX crude prices for December 2003 through February 2004 delivery, average slightly less than $33/BBL and some industry experts expect OPEC to target oil prices closer to $28/BBL to $30/BBL rather than $20/BBL for the next three years. The surprise cut in OPEC crude oil supplies could raise fuel costs this winter and hamper economic growth. However, the situation in Iraq and its effect on oil prices remain unpredictable as some industry experts expect to see the crude price start sliding to about $26/BBL sometime in 2004 when Iraqi oil exports return to their pre-war level.

Although high worldwide crude oil prices have varied significantly this past year, the Company continues to benefit from its ability to process a significant percentage of heavy sulfur grades of crude oil. In fiscal 2003, the price spread between heavy high sulfur crude oils and light low sulfur crude oil was about 8% greater than fiscal 2002, but well below fiscal 2001 levels. However, a widening of light/heavy crude oil differentials is expected in fiscal 2004, which may lead to more normalized margins.

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A comparison of industry-wide margins on gasoline and distillate for fiscal 2003 versus fiscal 2002, as indicated by the difference between the prices of crude oil contracts traded on the NYMEX and the prices of NYMEX gasoline and heating oil contracts, increased 28% for gasoline and increased 37% for heating oil, primarily for February through April. This contributed to higher gross profit, operating income and net income for the Company, as was the case for many petroleum refiners. The higher margins have been attributed to lower than normal product inventory levels, higher than average light to heavy crude differentials, the impact of the Iraqi war and record summer gasoline demand and a drop in gasoline imports.

The Company’s refining margins (gasoline, distillate and asphalt product prices compared to crude costs) for August 2003 through November 2003 are on a pace to be 30% higher than the prior two months and 8% higher compared to the fiscal 2003 average due to a combination of market factors including the blackout in the Northeast and Midwest, unplanned and scheduled refinery maintenance, higher light/heavy crude differential, and a more optimistic outlook for the U.S. economy. The pace of the economic recovery will be an important factor in determining future refinery margins. Fiscal 2004 margins are expected to be better than fiscal 2003.

Distillate inventories have increased steadily and rapidly since early July to the middle of the five-year range indicating that refiners may not realize high distillate margins this winter. Distillate demand could be hampered by fuel switching, as natural gas prices continue to drop and any slowdown in the fragile U.S. economy could impact demand. If we have a repeat of last year’s frigid weather, the distillate situation could change significantly.

Going forward from the tight gasoline supply situation in August 2003 that brought industry-wide inventories to a three year low, the U.S. gasoline market is likely to remain tight. While refined product inventories remain relatively low in the United States, Europe and Asia, demand is rising as economies strengthen. In the United States, compliance with the EPA Tier 2/ Sulfur Gasoline regulations is likely to tighten the nation’s gasoline market even further.

Persistently weak refining margins since late calendar 2001 are putting greater pressure on downstream businesses to meet upcoming tougher requirements to produce low sulfur gasoline and diesel. The EPA has also mandated that refiners produce on-road diesel with no more than 15-ppm sulfur by June 1, 2006. The risk of over-taxing the refining industry’s ability to complete projects to produce both low-sulfur gasoline and low-sulfur diesel within the same time frame has led to concerns for supply disruptions and price spikes. Unanticipated supply disruptions will drive refining margins wider than historical norms and help offset the cost of these capital investments.

Conservative estimates of compliance costs for the U.S. industry are between $15 billion and $17 billion, or $1,000 per barrel of refining capacity. Industry sources estimate that an average of 50,000 to 70,000 B/D of U.S refining capacity will be idled each year through 2007, as some refiners find it uneconomical to comply with the new standards. In addition, some 200,000 B/D of gasoline imports from nontraditional sources will probably not be allowed into the U.S. market. It also remains unclear whether Venezuela, which supplies 10% to 20% of the U.S. gasoline market, will make the investment necessary to comply with the new low-sulfur standards. If it does not, then the United States faces a potential gasoline shortage.

United Refining Company successfully produced low sulfur gasoline in mid-October 2003 and is prepared to meet its compliance requirements starting January 2004. Thus, the Company will be in position to capitalize on any opportunities that may arise concerning gasoline supply. U.S. refiners like the Company are in a position to benefit from the increasingly stringent regulations due to shrinking product supply.

Some industry experts expect that the peaks in refining margins will be higher and the duration will be longer as a result of the new low sulfur low specifications. Problems will likely develop related to transporting clean products due to contamination concerns. Since refiners will be making less product volume to meet the new standards, the financial impact to refiners should be favorable due to the expected product price response during the 2004-2006 periods.

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Results of Operations

The Company is a petroleum refiner and marketer in its primary market area of Western New York and Northwestern Pennsylvania. Operations are organized into two business segments: wholesale and retail.

The wholesale segment is responsible for the acquisition of crude oil, petroleum refining, supplying petroleum products to the retail segment and the marketing of petroleum products to wholesale and industrial customers. The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names at a network of Company-operated retail units and convenience and grocery items through Company-owned gasoline stations and convenience stores under the, Red Apple Food Mart^® and Country Fair^® brand names.

A discussion and analysis of the factors contributing to the Company’s results of operations are presented below. The accompanying Consolidated Financial Statements and related Notes, together with the following information, are intended to supply investors with a reasonable basis for evaluating the Company’s operations, but should not serve as the only criteria for predicting the Company’s future performance.

Retail Operations:

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Net Sales

2003 vs. 2002

Retail sales increased during 2003 by $138.8 million, or 23.9% from $580.1 million to $718.9 million. The retail sales increase was primarily due to a $32.8 million increase in merchandise sales and a $106.0 million increase in petroleum sales. The petroleum sales increase results from a 7% increase in retail petroleum volume (on a same store basis and including the Country Fair locations) and by a 16.5% increase in retail selling prices (on a same store basis and including the Country Fair locations).

On December 21, 2001 the Company acquired 100% of the operations and working capital assets of Country Fair. The fiscal year ended August 31, 2003 was positively impacted by the additional sales from Country Fair for the entire period versus the fiscal year ended August 31, 2002 in which Country Fair sales were only included from the acquisition date of December 21, 2001. See Footnote 5 to Consolidated Financial Statements, Item 8.

2002 vs. 2001

Retail sales increased during 2002 by $63.6 million, or 12% from $516.5 million to $580.1 million. The retail sales increase was primarily due to a $54.5 million increase in merchandise sales and a $9.1 million increase in petroleum sales. The petroleum sales increase results from an 18.3% increase in retail petroleum volume (on a same store basis and including the Country Fair locations) offset by a 13.1% decrease in retail selling prices (on a same store basis and including the Country Fair locations).

Retail sales were increased by the acquisition of Country Fair in December 2001. Since December 22, 2001 (date of acquisition), Country Fair retail sales totaled $121.7 million for the fiscal year ended 2002. Country Fair sales volume contributed 52.6 million gallons to the total retail sales volume of 328.7 million gallons for the fiscal year ended 2002.

Costs of Goods Sold

2003 vs. 2002

Retail costs of goods sold increased during 2003 by $120.0 million or 24.3% from $494.5 million to $614.6 million. On December 21, 2001 the Company acquired 100% of the operations and working capital assets of Country Fair. The fiscal year ended August 31, 2003 was impacted by the additional sales from Country Fair for the entire period versus the fiscal year ended August 31, 2002 in which Country Fair sales were only included from the acquisition date of December 21, 2001. The cost of gasoline increased 28%, on a per gallon basis, over fiscal year 2002. The cost of distillates increased 31%, on a per gallon basis, over the prior fiscal year. This combined with the additional sales volume resulted in an increased costs of goods sold for petroleum purchases of $82.1 million. Other material increases to costs of goods sold were increased fuel taxes of $11.8 million, increased freight costs of $.9 million and increased merchandise purchases of $23.9 million. Costs of goods sold was positively impacted by an approximate $.3 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold. For the fiscal year 2002, costs of goods was positively impacted by an approximately $.3 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold. However, costs of goods sold was increased during fiscal 2003 by the effect of valuing the Company’s inventories under the LIFO cost method, which decreased the value of the Company’s total inventories by $1.4 million than if the FIFO method had been used.

2002 vs. 2001

Retail costs of goods sold increased during 2002 by $44.5 million or 9.9% from $450.0 million to $494.5 million. The increase in retail costs of goods sold is largely attributed to the acquisition of Country Fair. Country

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Fair’s costs of goods sold for the fiscal year 2002 was $97.0 million. Costs of goods sold was positively impacted by an approximate $.3 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold. For the fiscal year 2001, costs of goods was negatively impacted by an approximate $.3 million decrease in the value of the Company’s working inventories on a market valuation basis, which increased costs of goods sold. However, costs of goods sold was increased during fiscal 2002 by the effect of valuing the Company’s inventories under the LIFO cost method, which decreased the value of the Company’s total inventories by $.9 million than if the FIFO method had been used.

Gross Profit/(Loss)

2003 vs. 2002

Retail gross profit increased during 2003 by $18.8 million or 21.9%. Inclusive of Country Fair, the Company increased its petroleum margins by $9.9 million and its merchandise margin by $8.9 million. These margin increases were a result of 23.0 million gallons of additional volume sold and $32.8 million in increased merchandise sales.

2002 vs. 2001

Retail gross profit increased during 2002 by $19.0 million or 29%. Inclusive of Country Fair, the Company increased its petroleum margins by $1.8 million and its merchandise margin by $17.2 million. These margin increases were a result of 46.7 million gallons of additional volume sold and $54.4 million in increased merchandise sales.

Operating Expenses

2003 vs. 2002

Retail operating expenses increased during 2003 by $12.8 million or 15.8%. Retail operations for the fiscal year ended August 31, 2003 included Country Fair for the entire period versus the fiscal year ended August 31, 2002 in which Country Fair operations were only included from the acquisition date of December 21, 2001 which resulted in increased operating expenses of $10.4 million from $20.7 million for the fiscal year ended 2002 to $31.1 million for the fiscal year ended 2003. The remaining increases to operating expenses were due to increased payroll and payroll costs of $1.1 million, increased maintenance costs of $.3 million, increased insurance, utilities and taxes of $.3 million, increased credit/customer service costs of $.7 million and increased depreciation of $.3 million offset by lower legal/professional services costs of $.2 million and lower pension/post retirement costs of $.1 million.

2002 vs. 2001

Retail operating expenses increased during 2002 by $21.4 million or 36%. This increase was primarily due to the acquisition of Country Fair. Country Fair’s operating expenses for the fiscal year ended 2002 were $20.7 million. Country Fair’s operating expenses included $4.2 million of rental expense primarily for the lease of fixed assets from related entities, as well as leases to third parties. The remaining increases to operating expenses were due to increased payroll and payroll costs of $.7 million, increased pension/post retirement costs of $.6 million, increased depreciation of $.2 million and increased advertising costs of $.3 million offset by lower utility costs of $.4 million, lower maintenance costs of $.2 million, and lower utilities, taxes and other of $.5 million. Increased depreciation was primarily due to capital equipment installed as part of the Company’s on-going maintenance and project upgrades.

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Wholesale Operations:

Refinery Product Yield

(thousands of barrels)

Product Sales

(dollars in thousands)

Product Sales

(thousand of barrels)(a)(b)

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Average Prices ($ / gallon)

Net Sales

2003 vs. 2002

Wholesale sales increased during 2003 by $99.5 million or 21.1% from $471.9 million to $571.4 million. The wholesale sales increase was due to a 29.2% increase in wholesale prices offset by a 6.3% decrease in wholesale volume.

2002 vs. 2001

Wholesale sales decreased during 2002 by $120.1 million or 20.3% from $592.0 million to $471.9 million. The wholesale sales decrease was due to a 18.4% decrease in wholesale prices and by a 1.2% decrease in wholesale volume.

Costs of Goods Sold

2003 vs. 2002

Wholesale costs of goods sold increased during 2003 by $71.8 million or 15.2% from $472.2 million to $544.0 million. The increase in wholesale costs of goods was primarily due to the 26.3% increase in the Company’s average crude oil purchase price for the fiscal year ended 2003 as compared to the prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, increased 23.1% as compared to the prior year period. Costs of goods sold was positively impacted by an approximate $2.6 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold. For the fiscal year 2002, costs of goods was positively impacted by an approximately $1.2 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold. However, costs of goods sold was increased during fiscal 2003 by the effect of valuing the Company’s inventories under the LIFO cost method, which decreased the value of the Company’s total inventories by $3.9 million than if the FIFO method had been used.

2002 vs. 2001

Wholesale costs of goods sold decreased during 2002 by $60.0 million or 11.3% from $532.2 million to $472.2 million. The decrease in wholesale costs of goods was primarily due to the 14.4% decrease in the Company’s average crude oil purchase price for the fiscal year ended 2002 as compared to the prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, decreased 20.2% as compared to the prior year period. Costs of goods sold was positively impacted by an approximate $1.2 million increase in the value of the Company’s working inventories on a market valuation basis, which decreased costs of goods sold.

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For the fiscal year 2001, costs of goods was negatively impacted by an approximately $3.6 million decrease in the value of the Company’s working inventories on a market valuation basis, which increased costs of goods sold. However, costs of goods sold was increased during fiscal 2002 by the effect of valuing the Company’s inventories under the LIFO cost method, which decreased the value of the Company’s total inventories by $3.7 million than if the FIFO method had been used.

Gross Profit/(Loss)

2003 vs. 2002

Wholesale gross profit increased $27.6 million from ($.2) million for fiscal year ended 2002 to $27.4 million for the fiscal year ended 2003. This increase was primarily due to the increase in wholesale selling prices and to 7.7% higher discounts on heavy high-sulfur crude oil grades processed by the Company.

2002 vs. 2001

Wholesale gross profit decreased $60.0 million from $59.8 million for fiscal year ended 2001 to ($.2) million for the fiscal year ended 2002. This decrease was primarily due to 37% lower discounts on heavy high-sulfur crude oil grades processed by the Company, the decrease in wholesale volume and the decrease in wholesale selling prices.

Operating Expenses

2003 vs. 2002

Wholesale operating expenses remained relatively consistent between fiscal year ended 2002 and fiscal year ended 2003, decreasing by $.2 million or .8%.

2002 vs. 2001

Wholesale operating expenses increased during 2002 by $.7 million or 3%. The net increase to operating expenses results from increased payroll and payroll costs, increased pension/post retirement costs, increased professional services offset by a reduction in bad debt expense.

Interest Expense

Net interest expense (interest expense less interest income) increased during fiscal 2003 by $1.6 million from $19.7 million for the fiscal year ended 2002 to $21.3 million for the fiscal year ended 2003. The increased net interest expense was due to a $.2 million reduction in interest income earned and $1.2 million increased interest expense for borrowings on the Company’s revolving credit facility.

Net interest expense (interest expense less interest income) increased during fiscal 2002 by $0.3 million from $19.4 million for the fiscal year ended 2001 to $19.7 million for the fiscal year ended 2002. The increased net interest expense was due to a $1.3 million reduction in interest income earned and $0.4 million increased interest expense for borrowings on the Company’s revolving credit facility offset by a $1.4 million interest expense reduction relating to the Company’s outstanding amount of long term Senior Unsecured Notes.

Income Tax Expense/(Benefit)

The Company’s effective tax rate for fiscal 2003 was approximately 39.0% compared to a rate of 38.5% for fiscal 2002.

The Company’s effective tax rate for fiscal 2002 was approximately 38.5% compared to a rate of 40.9% for fiscal 2001.

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Gain on Early Extinguishment of Debt

During the fiscal year ending August 31, 2001, the Company purchased $19,865,000 of the Senior Unsecured Notes for $14,185,000 in cash. A gain of $5,210,000 was recorded as a result of the early retirement of debt, consisting of $5,680,000 less $470,000 of associated debt issuance costs. In accordance with SFAS No. 145, the Company has reclassified this gain from an extraordinary gain to income before income tax expense (benefit).

Liquidity and Capital Resources

The following table summarizes selected measure of liquidity and capital sources (in thousands):

The Company’s cash and cash equivalents consist of bank balances and investments in money market funds. These investments have staggered maturity dates, none of which exceed three months. They have a high degree of liquidity since the securities are traded in public markets. During the fiscal year ended August 31, 2003, significant uses of cash includes $8.0 million for purchases of property, plant and equipment and $5.6 million for additions to refinery turnaround costs.

The Company requires a substantial investment in working capital which is susceptible to large variations during the year resulting from purchases of inventory and seasonal demands. Inventory purchasing activity is a function of sales activity and turnaround cycles for the different refinery units. Maintenance and non-discretionary capital expenditures have averaged approximately $4 million annually over the last three years for the refining and marketing operations. Management does not foresee any increase in maintenance and non-discretionary capital expenditures during fiscal 2004. The Company spent approximately $4 million as part of its Tier 2 Gasoline Sulfur Program under 40 CFR Part 80, Subpart H during fiscal year 2003, and expects to spend approximately $1 million during fiscal 2004, primarily during activities requiring a shutdown of the FCC Unit, which is scheduled for April 2004.

Working capital (current assets minus current liabilities) at August 31, 2003 was $37.6 million and at August 31, 2002 was $42.2 million. The Company’s current ratio (current assets divided by current liabilities) was 1.4:1 at August 31, 2003 and 1.4:1 at August 31, 2002.

Future liquidity, both short and long-term, will continue to be primarily dependent on realizing a refinery margin sufficient to cover fixed and variable expenses, including planned capital expenditures. The Company expects to be able to meet its working capital, capital expenditure, contractual obligations, letter of credit and debt service requirements out of cash flow from operations, cash on hand and borrowings under the Company’s secured revolving credit facility (the “facility”) with PNC Bank, N.A. as Agent Bank. This is a $50,000,000 revolving facility, which was renewed for five years on July 12, 2002 and amended on November 27, 2002 and February 19 and March 24, 2003. At August 31, 2003, there was approximately $27,885,000 unused and available on the facility.

The facility expires on May 9, 2007, and is secured by certain cash accounts, accounts receivable, and inventory. The interest rate on borrowings varies with the Company’s earnings and is based on the higher of the bank’s prime rate or Federal funds rate for base rate borrowings and the LIBOR rate for Euro-Rate borrowings. The Company and the participating banks amended the facility on March 24, 2003, allowing for a temporary increase in the facility commitment from $50,000,000 to $70,000,000. From the effective date of the amendment to and including July 31, 2003, the facility commitment was $70,000,000. From August 1, 2003 through and including September 30, 2003, the facility commitment was $60,000,000. The temporary increase expired as of

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September 30, 2003. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. The Company is currently negotiating with the Agent Bank to increase the facility commitment to $75,000,000 on a permanent basis; however, there are no assurances that such increase will be granted.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of August 31, 2003 and is based on information appearing in the Notes to the Consolidated Financial Statements (in thousands):

In addition to these obligations, the Company had outstanding letters of credit of $615,000 as of August 31, 2003.

Although the Company is not aware of any pending circumstances which would change its expectation, changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may also increase future capital expenditure levels. Future capital expenditures are also subject to business conditions affecting the industry. The Company continues to investigate strategic acquisitions and capital improvements to its existing facilities.

Federal, state and local laws and regulations relating to the environment affect nearly all the operations of the Company. As is the case with all the companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. Future expenditures related to environmental matters cannot be reasonably quantified in many circumstances due to the uncertainties as to required remediation methods and related clean-up cost estimates. The Company cannot predict what additional environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not been previously applied.

Related Party Transactions

See Item 13, Certain Relationships and Related Transactions

Seasonal Factors

Seasonal factors affecting the Company’s business may cause variation in the prices and margins of some of the Company’s products. For example, demand for gasoline tends to be highest in spring and summer months, while demand for home heating oil and kerosene tends to be highest in winter months.

As a result, the margin on gasoline prices versus crude oil costs generally tends to increase in the spring and summer, while margins on home heating oil and kerosene tend to increase in winter.

Inflation

The effect of inflation on the Company has not been significant during the last five fiscal years.

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Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation 45”). Interpretation 45 elaborates on the disclosures that a guarantor should make in its interim and annual financial statements regarding its obligations relating to the issuance of certain guarantees. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation 45 provides specific guidance identifying the characteristics of contracts that are subject to its guidance and it also provides for scope exceptions from the guidance in its entirety and from only the initial recognition and measurement provisions.

The recognition and measurement provisions of Interpretation 45 are effective on a prospective basis for guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year end. Interpretation 45 specifically prohibits the guarantor to revise or restate its previous accounting for guarantees issued prior to December 31, 2002.

The disclosure requirements of Interpretation 45 are effective for interim and annual period financial statements ending after December 15, 2002 and are included in Footnote 17 to the Consolidated Financial Statements, Item 8.

The adoption of Interpretation 45 did not have a material impact on the Company’s financial position or results of operations, as the Company did not issue or modify any guarantees subsequent to December 31, 2002.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”). Interpretation 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Interpretation 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, the provisions of Interpretation 46 are applicable no later than the end of the first reporting period ending after December 15, 2003.

If any entity is determined to be a variable interest entity, it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses if they occur, receives a majority of the entity’s expected residual returns if they occur, or both. Where it is reasonably possible that the enterprise will consolidate or disclose information about a variable interest entity, the enterprise must disclose the nature, purpose, size and activity of the variable interest entity and the enterprise’s maximum exposure to loss as a result of its involvement with the variable interest entity in all financial statements issued after January 31, 2003. On October 9, 2003, the FASB issued FASB Staff Position No. FIN 46-6 “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,” which defers the implementation date for public entities that hold an interest in a variable interest entity or potential variable interest entity from the first fiscal year or interim period beginning after June 15, 2003 to the end of the first interim period or annual period ending after December 15, 2003. This deferral applies only if (1) the variable interest entity was created before February 1, 2003 and (2) the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46, other than disclosures required by paragraph 26 of the FIN 46.

The Company does not expect Interpretation 46 to have a material impact on its consolidated financial position or results of operations.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“Statement 150”). The statement establishes standards for how a company classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities.

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In November 2003, the FASB delayed the effective date for certain mandatorily redeemable noncontrolling interests (that is, minority interests) in consolidated financial statements. The delay applies only to instruments issued by consolidated subsidiaries. The effective date is delayed differently for two types of mandatorily redeemable noncontrolling interests:

The effective date of Statement 150, the first interim period beginning after June 15, 2003, remains unchanged for mandatorily redeemable shares issued by a parent company, written put options on a company’s shares, forward purchase contracts for a company’s shares, and contracts that require the issuance of shares in amounts unrelated to, or inversely related to, the value of the shares.

The Company has not entered into any financial instruments within the scope of Statement 150, nor does it currently hold any financial instruments within its scope.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company uses its revolving credit facility to finance a portion of its operations. These on-balance sheet financial instruments, to the extent they provide for variable rates, expose the Company to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds or LIBOR rate.

The Company has exposure to price fluctuations of crude oil and refined products. The Company does not manage the price risk related to all of its inventories of crude oil and refined products with a permanent formal hedging program, but does manage its risk exposures by managing inventory levels. In anticipation of the war in Iraq and consequent volatility of crude costs, the Company hedged approximately 700,000 bbls of May crude from March 7 through March 20, 2003. As a result of this strategy, the Company benefited from a gain of approximately $1.6 million which was recorded as a reduction of costs of goods sold. The Company has since exited from this strategy, but it remains available should management deem it necessary at a later date. At August 31, 2003, the Company was exposed to the risk of market price declines with respect to a substantial portion of its crude oil and refined product inventories.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholder

United Refining Company

We have audited the accompanying consolidated balance sheets of United Refining Company and subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity and cash flows for each of the three years in the period ended August 31, 2003. These consolidated financial statements are the responsibility of the management of United Refining Company and its subsidiaries. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Refining Company and subsidiaries as of August 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/    BDO Seidman, LLP

New York, New York

October 31, 2003

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UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

See accompanying notes to consolidated financial statements.

30

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

See accompanying notes to consolidated financial statements.

31

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

See accompanying notes to consolidated financial statements.

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UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(in thousands, except share data)