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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 31, 2004

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 November 24, 2004, 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

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TABLE OF ADDITIONAL REGISTRANTS

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ITEM 1.    BUSINESS.

Introduction

We are the leading integrated refiner and marketer of petroleum products in our primary market area, which encompasses western New York and northwestern Pennsylvania. We own and operate a medium complexity 65,000 barrel per day (“bpd”) petroleum refinery in Warren, Pennsylvania where we produce 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 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, 2004, we operated 372 units, of which, 185 units are owned, 127 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 us the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. For the year ended August 31, 2004 (sometimes referred to as “fiscal 2004”), approximately 81% and 19% of our gasoline and distillate production, respectively, was sold through our retail network.

For the fiscal year ended August 31, 2004, we had total net sales of $1.5 billion, of which approximately 54% were derived from gasoline sales, approximately 34% were from sales of other petroleum products and 12% were from sales of merchandise and other revenue. Our capacity utilization rates have ranged from approximately 90% to approximately 100% over the last five years.

We believe that the location of our 65,000 bpd refinery in Warren, Pennsylvania provides us with a transportation cost advantage over our competitors, which is significant within an approximately 100-mile radius of our refinery. For example, in Buffalo, New York over our last five fiscal years, we have experienced approximately 1.82 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. For the fiscal year ended August 31, 2004, our transportation cost advantage was approximately 1.95 cents per gallon. We own and operate 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 capability of the pipeline, we are able to blend various grades of crude oil from different suppliers, allowing us to efficiently schedule production while managing feedstock mix and product yields in order to optimize profitability.

It is our 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 our primary market area. The nearest fuels refinery is over 160 miles from Warren, Pennsylvania and we believe that no significant production from such refinery is currently shipped into our primary market area.

Our primary market area is western New York and northwestern Pennsylvania and our core market area encompasses our Warren County base and the eight contiguous counties in New York and Pennsylvania. Our 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. Our urban markets include Buffalo, Rochester and Syracuse, New York and Erie, Pennsylvania.

As of August 31, 2004, 175 of our retail units were located in New York, 184 in Pennsylvania and 13 in Ohio. In fiscal year 2004, approximately 81% of the refinery’s gasoline production was sold through our retail network. In addition to gasoline, all units sell convenience merchandise, 103 are QSRs including franchise

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operations and seven of the units are full-service truck stops. Customers may pay for purchases with credit cards including our own Kwik Fill^® credit card. In addition to this credit card, we maintain 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.

We intend to commence our delayed Coker and related infrastructure project in the first quarter of 2005, at which time we plan to raise the necessary financing and commence construction. We expect an approximate three-year construction and start-up period, with commercial operations commencing in the first quarter of 2008.

A delayed Coker converts the heaviest portion of crude oil that would otherwise produce asphalt or residual fuel oil into lighter material which can be blended into higher priced gasoline and distillate. This will allow us to take advantage of significant discounts for heavy grades of crude oil versus lighter grades by purchasing a higher percentage of these discounted heavy grades without uneconomically increasing our asphalt production or decreasing our gasoline and distillate production.

We anticipate that this project will be financed through a newly formed project company by way of a combination of senior tax-exempt debt, subordinated debt, and/or equity totaling approximately $400 million to $450 million. This project company will own the delayed Coker and related infrastructure and lease them to us on a fully net basis. The availability of future borrowings and access to the capital markets for equity financing for this project depends on prevailing market conditions and the acceptability of financing terms offered to us. There can be no assurance that future borrowings or equity financing will be available to us, or available on acceptable terms, in amounts sufficient to fund the needs of the delayed Coker and related infrastructure project.

In connection with this project, we are currently negotiating with Canadian crude oil suppliers to provide a long-term crude oil supply agreement, contribute equity or subordinated debt, and provide a floor on the differential between light and heavy crude oil. We expect this project to position us to be able to process a heavier sour crude slate and thereby maximize the benefit of a favorable light/heavy crude differential.

On October 8, 2003, the Pennsylvania Department of Environmental Protection (“DEP”) issued air and water permits to us at our 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 process a 100% heavy, sour crude slate, increase crude oil throughput to 70,000 bpd and will allow it to meet new low sulfur fuel requirements.

As used herein, the term “The Company” refers to United Refining Company together with its consolidated subsidiaries.

Recent Developments

The annual shut down of the refinery’s reformer unit was completed in November 2004 to regenerate the reformer catalyst. The reformer unit was shut down for 9 days from November 2 to November 11. We also decided to shut down the crude unit for minor maintenance during the period of the reformer unit shutdown, at which time crude oil throughput would have been otherwise restricted. The crude unit was shut down for 5 days from November 3 to November 8. The crude unit maintenance enables us to defer the crude units major turnaround from October 2005 to October 2006.

On August 6, 2004, we completed a private placement offering of $200,000,000 in Senior Notes due 2012 which bear an interest rate of 10.5%. The notes were issued at 98.671% of par to yield 10 ³/4% to maturity, resulting in a debt discount of $2,658,000, which will be amortized over the life of the notes using the interest method. The net proceeds of the offering of $191,600,000 were used to retire all of our outstanding 10 ³/4% Senior Unsecured Notes due 2007, Series B, pay accrued interest of $3,700,000 and a redemption premium related thereto and to pay a dividend of $5,000,000 to the Company’s stockholder. A loss of $6,770,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $3,228,000, a write-off of

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deferred financing costs of $1,990,000 and additional interest paid of $1,552,000. Such notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company’s subsidiaries (see Notes 9 and 17 to Consolidated Financial Statements, Item 8). The notes will be eligible for resale under Rule 144A of the Securities Act of 1933.

Industry Overview

We are a regional refiner and marketer located primarily in PADD I. As of January 1, 2004, there were 16 operable 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 2003 in PADD I averaged 6.25 million bpd, representing approximately 31% of U.S. demand based on industry statistics reported by the EIA. According to the EIA, prime supplier sales volume of gasoline in the region grew by approximately 7.7% during the five-year period ending December 2003. 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.

We believe 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. We believe that high utilization rates coupled with little anticipated crude capacity expansion is likely to result in sustainable current 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. We believe that an ongoing need for highway maintenance and domestic economic growth will sustain asphalt demand.

Refining Operations

Our 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 and averaged saleable production of approximately 65,200 bpd during fiscal 2004.

The West End of the refinery consisting of the FCC Unit, polymerization unit, alkylation unit and sulfur recovery unit-2 was shut down April 4, 2004 for a scheduled 26-day turnaround. The FCC had been on-stream for 41 months between turnarounds.

The major activity in addition to normal shutdown maintenance was the replacement of FCC regenerator cyclones and expansion joints which were original equipment having functioned for 23 years. Metallurgical testing during prior turnarounds enabled us to extend the useful life of this equipment beyond a normal life expectancy of 15 years. For more on the scheduled maintenance turnaround, see “Refining Operations—Refinery Turnarounds.”

We believe our geographic location in the product short PADD I is a significant marketing advantage. Our 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 we believe that no significant production from such refinery is currently shipped into our primary market area (see Note 16 to Consolidated Financial Statements, Item 8).

Products

We produce three primary petroleum products: gasoline, middle distillates, and asphalt. We presently produce two grades of unleaded gasoline, 87-octane regular and 93-octane premium. We also blend our 87 and

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93 octane gasoline to produce a mid-grade 89-octane. In fiscal year 2004, approximately 81% of our gasoline production was sold through our retail network and the remaining 19% of such production was sold to wholesale customers.

Middle distillates include kerosene, diesel fuel, and heating oil (No. 2 oil). For the fiscal year ended August 31, 2004, approximately 81% of our distillate production was sold to wholesale customers and the remaining 19% through our retail network.

We optimize our 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 exceeded 22% over the last five fiscal years due to our 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

Our production of petroleum products from crude oil involves many complex steps, which are briefly summarized below.

We seek to maximize refinery profitability by selecting crude oil and other feedstocks taking into account factors including product demand and pricing in our market areas as well as price, quality and availability of various grades of crude oil. We also consider 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 fluid catalytic cracking (FCC) 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

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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. A portion of the FCC gasoline is hydrotreated in order to meet new more stringent legally mandated limits on gasoline sulfur content which took effect January 1, 2004.

Our refining configuration allows the processing of a wide variety of crude oil inputs. During the past five years our 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). Our ability to market asphalt on a year round basis enables us to purchase selected heavier crude oils at higher differentials and thus at a lower cost.

Supply of Crude Oil

Even though our crude supply is currently nearly all Canadian, it is not dependent on this source alone. Within 90 days, we could shift up to 80% of our crude oil requirements to some combination of domestic and offshore crude. With additional time, 100% of our crude requirements could be obtained from non-Canadian sources. 86% of our contracts with our crude suppliers are on a month-to-month evergreen basis, with 60-to-90 day cancellation provisions; 14% of our crude contracts are on an annual basis (with month to month pricing provisions). As of August 31, 2004, we had supply contracts with approximately 30 different suppliers for an aggregate of 58,000 bpd of crude oil. We have contracts with four vendors amounting to 69% of daily crude oil supply (none more than 16,000 barrels per day). None of the remaining suppliers accounted for more than 10% of our crude oil supply.

We access 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 Ozark, Woodpat and Chicap Pipelines (foreign crude oils shipped on the Seaway system can also access this route), which connects to the Enbridge pipeline system at Mokena, Illinois; and (iii) foreign crude oils unloaded at the Louisiana Offshore Oil Port are transported north via the Capline and Chicap pipelines which connect to the Enbridge pipeline system at Mokena, Illinois.

The Kiantone Pipeline, a 78-mile Company-owned and operated pipeline, connects our West Seneca, New York terminal at the pipeline’s northern terminus to the refinery’s tank farm at its southern terminus. We completed construction of the Kiantone Pipeline in 1971 and have operated it continuously since then. We are the sole shipper on the Kiantone Pipeline, and can currently transport up to 70,000 bpd along the pipeline. Our 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 turnarounds occurred in October and November 2002 at our crude unit and its related processing equipment and in April 2004, at our FCC unit and its related processing equipment. 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

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maintenance exercises. Turnarounds are planned and accomplished in a manner that allows for reduced production during maintenance instead of a complete plant shutdown. We defer the cost of turnarounds when incurred and amortized on a straight-line basis over the period of benefit, which ranges from 3 to 10 years. Thus, we charge costs to production over the period most clearly benefited by the turnarounds.

The scheduled maintenance turnarounds during late October and early November 2002 and during April 2004 resulted in an inventory build-up (starting in August 2002 and February 2004, respectively) of petroleum products to meet minimum sales demand during the maintenance shutdown periods.

Marketing and Distribution

General

We have a long history of service within our market area. Our first retail service station was established in 1927 near the Warren refinery, and we have steadily expanded our distribution network over the years.

We maintain an approximate 59% / 41% split between sales at our rural and urban units. We believe 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. We believe that our network of rural convenience store units provide an important alternative to traditional grocery store formats. In fiscal year 2004, approximately 81% and 19% of our gasoline and distillate production, respectively, was sold through this retail network.

We also have a 50% interest in a joint venture with an unrelated 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, 2004, we operated a retail-marketing network (including those stores operated under a management agreement) that includes 372 retail units, of which 175 are located in western New York, 184 in northwestern Pennsylvania and 13 in eastern Ohio. We own 185 of these units. The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names and grocery items under the Red Apple Food Mart^® and Country Fair^® brand names. We believe that Red Apple Food Mart^®, Kwik Fill^®, Country Fair^®, Keystone^® and Citgo^® are well-recognized names in our marketing areas. Approximately 22% of the gasoline stations within this network are branded Citgo^® pursuant to a license agreement granting us the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. We believe that the operation of our retail units provides us with a significant advantage over competitors that operate wholly or partly through dealer arrangements because we have greater control over pricing and operating expenses.

We classify our retail stores into four categories: convenience stores, limited gasoline stations, truck stop facilities, and other stores. Convenience stores sell a wide variety of foods, snacks, cigarettes, and beverages and also provide self-service gasoline. One hundred and three of our 372 retail outlets include QSRs where food is prepared on the premises for retail sales and also distribution to our other nearby 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.

Total merchandise sales for fiscal year 2004 were $180.7 million, with a gross profit of approximately $51.7 million. Gross margins on the sale of convenience merchandise averaged 28.6% for fiscal 2004 and have been between 25% and 28.6% for the last five years, (see Note 16 to Consolidated Financial Statements, Item 8). In our experience, these sales are essentially unaffected by variations in crude oil and petroleum products prices.

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Merchandise Supply

Our primary merchandise vendor is Tripifoods, which is located in Buffalo, New York. During fiscal year 2004, we purchased approximately 87% of our convenience merchandise from this vendor. Tripifoods supplies us with tobacco products, candy, deli foods, grocery, health and beauty products, and sundry items on a cost plus basis for resale. We also purchase coffee, dairy products, beer, soda, snacks, and novelty goods from direct store vendors for resale. We annually review our suppliers’ costs and services versus those of alternate suppliers. We believe that alternative sources of merchandise supply at competitive prices are readily available.

Location Performance Tracking

We maintain a store tracking mechanism to collect operating data including sales and inventory levels for our 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 administrative personnel. 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

We sold in fiscal year 2004, on a wholesale basis, approximately 48,200 bpd of gasoline, distillate and asphalt products to distributor, commercial, and government accounts. In addition, we sell approximately 1,000 bpd of propane to liquefied petroleum gas marketers. In fiscal year 2004, our production of gasoline, distillate, and asphalt sold at wholesale was 19%, 81%, and 100%, respectively. We sell approximately 98% of our wholesale gasoline and distillate products from our refinery in Warren, PA, and our Company-owned and operated product terminals. The remaining 2% are sold through third-party exchange terminals.

Our wholesale gasoline customer base includes 54 branded dealer/distributor units operating under our proprietary “Keystone^®” (including one Company-operated location) and “Kwik Fill^®” brand names. Long-term dealer/distributor contracts accounted for approximately 19% of our wholesale gasoline sales in fiscal 2004. Supply contracts generally range from three to five years in length, with branded prices based on our prevailing wholesale rack price in Warren.

We believe that the location of our refinery provides us with a transportation cost advantage over our competitors, which is significant within an approximately 100-mile radius of our refinery. For example, in Buffalo, New York over our last five fiscal years, we have experienced an approximately 1.82 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. For the fiscal year ended August 31, 2004, our transportation cost advantage was approximately 1.95 cents per gallon. In addition to this transportation cost advantage, our 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 10,000 barrel pipeline batch deliveries, and faster response time, which we believe helps us provide enhanced service to our customers.

Our ability to market asphalt is critical to the performance of our refinery, since such marketing ability enables us to process lower cost higher sulfur content crude oils which in turn affords us higher refining margins. Sales of paving asphalt generally occur during the summer months (May 31 to October 31) due primarily to weather conditions. In order to maximize our asphalt sales, we have made substantial investments to increase our 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 our ability to sell asphalt year-round to roofing shingle manufacturers. In fiscal year 2004, we sold 7.7 million barrels of asphalt while producing 6.4 million barrels. This difference is primarily attributed to us purchasing product for resale.

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We have a significant share of the asphalt market in the cities of Pittsburgh, Pennsylvania and Rochester and Buffalo, New York. We distribute asphalt from the refinery by railcar and truck transport to our 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.

We also have 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.

We use a network of six terminals to store and distribute refined products. This network provides gasoline, distillate, and asphalt storage capacities of approximately 505,000, 770,000 and 1,750,000 barrels, respectively, as of August 31, 2004.

During fiscal 2004, approximately 93% of our refined products were transported from the refinery via truck transports, with the remaining 7% transported by rail. The majority of our wholesale and retail gasoline distribution is handled by common carrier trucking companies at competitive costs. We also operate a fleet of ten tank trucks that supply approximately 25% of our Kwik Fill^® retail stations.

Product distribution costs to both retail and wholesale accounts are minimized through product exchanges. Through these exchanges, we have access to product supplies at approximately 31 sources located throughout our retail marketing area. We seek to minimize retail distribution costs through the use of a system wide distribution model.

Environmental Considerations

General

We are 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, we will need to comply with the second phase of regulations effective April 2005, establishing Maximum Achievable Control Technologies for petroleum refineries. These regulations, which became effective in April 2002, may require additional emission controls on certain refinery units.

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 had to make this reduction beginning in 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 we are of comparable size to some of the small refiners granted more time to comply, we

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were not classified as a small refiner for this purpose, nor are our 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. We applied for and were 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 us until January 2008 to meet the 30 PPM sulfur limit. We made the initial required sulfur reduction on January 1, 2004 by modifying the refinery kerosene hydrotreater to allow it to hydrotreat gasoline as well as kerosene.

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.

We anticipate 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 $15 to $30 million in capital improvements.

Competition

Petroleum refining and marketing is highly competitive. Our major retail competitors include British Petroleum, Amerada Hess, Mobil, Sunoco, Sheetz, Delta Sonic, and Uni-Marts. With respect to wholesale gasoline and distillate sales, we compete with Sunoco, Inc., Mobil, and other major refiners. We primarily compete with PetroCanada and Marathon Ashland Petroleum in the asphalt market. Many of our principal competitors are integrated multinational oil companies that are substantially larger and better known than us. 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 our refining operations are crude oil and other feedstock costs, refinery efficiency, refinery product mix and product distribution and transportation costs. Certain of our 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. We have no crude oil reserves and are not engaged in exploration. We believe that we will be able to obtain adequate crude oil and other feedstocks at generally competitive prices for the foreseeable future.

The principal competitive factors affecting our 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 our wholesale marketing business are quality and price of our products, reliability and availability of supply and location of distribution points.

Employees

As of August 31, 2004, we had approximately 4,173 employees; 1,961 full-time and 2,212 part-time employees. Approximately 3,536 persons were employed at our retail units, 397 persons at our refinery, Kiantone Pipeline and at terminals operated by us, with the remainder at our office in Warren, Pennsylvania. We have 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 215, 9, 23 and 20 employees, respectively. The agreements expire on February 1, 2006, January 31, 2006, June 25, 2005 and July 31, 2005, respectively. We believe that our relationship with our employees is good.

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Intellectual Property

We own various federal and state service and trademarks used by us, including Kwik Fill^®, United^®, Country Fair^®, SuperKwik^®, Keystone^®, SubFare^® and PizzaFare^®. Our subsidiary, Country Fair, along with us, have licensing agreements with Citgo Petroleum Corporation (“Citgo”) for 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.

We have obtained the right to use the Red Apple Food Mart^® service mark to identify our 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 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 we fail to maintain quality acceptable to the licensor. We license the right to use the Keystone^® trademark to approximately 54 independent distributors on a non-exclusive royalty-free basis.

We currently do not own any material patents. Management believes that it does not infringe upon the patent rights of others, nor does our lack of patent ownership impact our business in any material manner.

Governmental Approvals

We believe we have obtained all necessary governmental approvals, licenses, and permits to operate the refinery and convenience stores.

Financing

On August 6, 2004, we completed a private placement offering of $200,000,000 in Senior Notes due 2012 which bear an interest rate of 10.5%. The notes were issued at 98.671% of par to yield 10 ³/4% to maturity, resulting in a debt discount of $2,658,000, which will be amortized over the life of the notes using the interest method. The net proceeds of the offering of $191,600,000 were used to retire all of our outstanding 10 ³/4% Senior Unsecured Notes due 2007, Series B, pay accrued interest of $3,700,000 and a redemption premium related thereto and to pay a dividend of $5,000,000 to the Company’s stockholder. A loss of $6,770,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $3,228,000, a write-off of deferred financing costs of $1,990,000 and additional interest paid of $1,552,000. Such notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company’s subsidiaries (see Notes 9 and 17 to Consolidated Financial Statements, Item 8). The notes will be eligible for resale under Rule 144A of the Securities Act of 1933.

Effective January 27, 2004, the Company amended its secured credit facility to increase the maximum facility commitment from $50,000,000 to $75,000,000 on a permanent basis. 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 5.00% at August 31, 2004. 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, 2004, $0 of Euro-Rate borrowings and $13,000,000 of Base Rate borrowings were outstanding under the agreement. The Company pays a commitment fee of 3/8% per annum on the unused balance of the facility.

We had outstanding letters of credit of $385,000 as of August 31, 2004.

As of August 31, 2004 the outstanding borrowings under the Revolving Credit Facility was $13,385,000 resulting in net availability of $61,615,000. The corresponding balance of cash and cash equivalents as of August 31, 2004 was $11,552,000.

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ITEM 2.    PROPERTIES.

We own a 92-acre site in Warren, Pennsylvania upon which we operate our refinery. The site also contains an office building housing our principal executive office.

We own various real property in the states of Pennsylvania, New York, Ohio, and Alabama as of August 31, 2004, upon which we operate 185 retail units and two crude oil and six refined product storage terminals. We also own the 78-mile long Kiantone Pipeline, a pipeline which connects our crude oil storage terminal to the refinery’s tank farm. Our right to maintain the pipeline is derived from approximately 265 separate easements, right-of-way agreements, leases, permits, and similar agreements. We also have easements, right-of-way agreements, leases, permits, and similar agreements that would enable us to build a second pipeline on property contiguous to the Kiantone Pipeline.

We also lease an aggregate of 127 sites in Pennsylvania, New York, and Ohio upon which we operate retail units. As of August 31, 2004, 66 of these leases had an average remaining term of 52 months, exclusive of option terms, and 61 leased Country Fair locations had terms from 10 to 20 years remaining.

ITEM 3.    LEGAL 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 as well as civil matters before various courts seeking money damages. The Company believes that if these legal proceedings in which it is currently involved were determined against the Company, there would be no 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.

The following table sets forth certain historical financial and operating data (the “Selected Information”) as of the end of and for each of the years in the five-year period ended August 31, 2004. The selected income statement, balance sheet, financial and ratio data as of and for each of the five years ended August 31, 2004 has been derived from our audited consolidated financial statements. The operating information for all periods presented has been derived from our accounting and financial records. The Selected Information set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and Notes thereto in Item 8 and other financial information included elsewhere herein.

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Forward Looking Statements

This Annual Report on Form 10-K contains certain statements that constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements may include, among other things, United Refining Company and its subsidiaries current expectations with respect to future operating results, future performance of its refinery and retail operations, capital expenditures and other financial items. Words such as “expects”, “intends”, “plans”, “projects”, “believes”, “estimates”, “may”, “will”, “should”, “shall”, “anticipates”, “predicts”, and similar expressions typically identify such forward looking statements in this Annual Report on Form 10-K.

By their nature, all forward looking statements involve risk and uncertainties. All phases of the Company’s operations involve risks and uncertainties, many of which are outside of the Company’s control, and any one of which, or a combination of which, could materially affect the Company’s results of operations and whether the forward looking statements ultimately prove to be correct. Actual results may differ materially from those contemplated by the forward looking statements for a number of reasons.

Although we believe our 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 depending on a variety of factors described in greater detail in the Company’s filings with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, reports on Form 8-K, etc. In addition to the factors discussed elsewhere in this Annual Report 10-K, 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:

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All subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any such forward looking statements that may be made to reflect events or circumstances that occur, or which we becomes aware of, after the date of this Annual Report on Form 10-K.

Business Strategy and Overview

Our strategy is to strengthen our position as a leading producer and marketer of high quality refined petroleum products within our market area. We plan to accomplish this strategy through continued attention to optimizing our operations, resulting in the lowest possible crude and overhead costs, and continuing to improve and enhance our retail and wholesale positions. More specifically, we intend to:

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 Note 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

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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-collection rates that it has experienced in the 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, 2004 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 material changes in the gross carrying amounts of goodwill, tradename, or other intangible assets for the fiscal year ended August 31, 2004.

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, 2004. Similarly, the rate of compensation utilizes historic increases granted by the Company and the industry as well as future compensation policies. See Note 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 effect 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 2004, approximately 81% and 19% of the Company’s gasoline and distillate 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 28.6% for fiscal 2004 and have been between 25% and 28.6% 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 2004 were impacted by high and rising worldwide crude oil prices, as indicated by crude oil contracts traded on the New York Mercantile Exchange (NYMEX). Monthly average NYMEX crude prices increased $9.21/BBL from $31.60/BBL in September 2003, the first month of the fiscal year, to $40.81/BBL in August 2004, the final month of the fiscal year. For all of fiscal 2004, NYMEX crude oil prices averaged approximately $35/BBL, or 18% higher than the approximate $30/BBL average for fiscal 2003.

The first several months of fiscal 2005 have seen a continuation of the increases in worldwide crude oil prices, with prices for September and October 2004 NYMEX contracts averaging more than $45/BBL, while October trading in November NYMEX contacts closed higher than $50/BBL on several individual trading days.

Industry-wide margins on gasoline and distillate for fiscal 2004 versus fiscal 2003, 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 21% for gasoline and 13% for heating oil, as increases in gasoline and distillate prices more than kept pace with rising crude oil prices. This contributed to higher gross profit, operating income and net income for the Company.

We continue to benefit from our ability to process a significant percentage of heavy, high sulfur grades of crude oil. In fiscal 2004, the price spread between heavy high sulfur crude oils and light low sulfur crude oil was about 35.6% greater than fiscal 2003. This resulted in a decrease in our average crude cost relative to the NYMEX average crude cost of $1.48/barrel for fiscal 2004 versus fiscal 2003. The benefit of increased crude oil

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price discounts out weighed reduced margins on associated asphalt production, such that the net benefit of heavy crude processing increased significantly. This pattern has continued into the early months of fiscal 2005, with further increases in crude price discounts offsetting lower asphalt margins.

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 (see Item 8), 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

2004 vs. 2003

Retail sales increased during 2004 by $58.7 million, or 8.2% from $718.9 million to $777.6 million. The retail sales increase was a result of a $60.6 million increase in petroleum sales, offset by a reduction of $1.9 million in merchandise sales. The petroleum sales increase is due to a 13.9% increase in retail selling prices offset by a 2.3% decrease in retail petroleum volume. The merchandise sales decrease was attributable to reduced tobacco related 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 Note 5 to Consolidated Financial Statements, Item 8.

Costs of Goods Sold

2004 vs. 2003

Retail costs of goods sold increased during 2004 by $59.4 million or 9.7% from $614.6 million to $674.0 million. The cost of gasoline increased 25%, on a per gallon basis, over fiscal year 2003. The cost of distillates increased 14%, on a per gallon basis, over the prior fiscal year. These cost increases, offset by sales volume declines, resulted in an increased costs of goods sold for petroleum purchases of $61.5 million. Other material increases to costs of goods sold were increased freight costs of $.3 million and $.9 million for the year-end impact of valuing the Company’s inventories under the LIFO cost method. Reductions in retail costs of goods sold were $.6 million in fuel taxes, $2.2 million in merchandise purchases and $.5 million in other sundry costs.

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. 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

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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.

Gross Profit/(Loss)

2004 vs. 2003

Retail gross profit decreased during 2004 by $.8 million or .8%. Petroleum margins decreased $1.1 million and merchandise margin increased by $.3 million. The merchandise margin increased despite a reduction in merchandise sales. This margin increase was due to a renegotiated supply contract with a major vendor. Petroleum margins were impacted by the 2.3% decrease in petroleum volume and per gallon cost increases.

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.

Operating Expenses

2004 vs. 2003

Retail operating expenses increased during 2004 by $4.7 million or 5.0%. Operating expenses increased due to increased payroll and payroll costs of $2.4 million, increased maintenance costs of $.3 million, increased advertising costs of $.3 million, increased credit/customer service costs of $.6 million, increased legal/professional services costs of $.2 million, increased pension/post retirement costs of $.2 million, increased insurance, utilities and taxes of $.2 million, increased rent expenses of $.1 million and increased miscellaneous sundry items of $.4 million. The largest increase, payroll and payroll costs, was due primarily to $.9 million workers compensation costs of which approximately $.6 million was related to prior period workers compensation claim balances and increased costs in health insurance of $1.1 million.

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.

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Wholesale Operations:

Refinery Product Yield

(thousands of barrels)

Product Sales

(dollars in thousands)(a)

Product Sales

(thousand of barrels)(a)

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Net Sales

2004 vs. 2003

Wholesale sales increased during 2004 by $139.9 million or 24.5% from $571.4 million to $711.3 million. The wholesales increase was due to a 12.1% increase in wholesale volume and a 11.1% increase in wholesale prices.

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.

Costs of Goods Sold

2004 vs. 2003

Wholesale costs of goods sold increased during 2004 by $98.1 million or 18.0% from $544.0 million to $642.1 million. The increase in wholesale costs of goods sold was primarily due to the 10.1% increase in the Company’s average crude oil purchase price for fiscal 2004 as compared to the prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, increased 17.9% as compared to the prior year period. Additionally, crude throughput increased 8.3% over the prior year, which is attributable to the Company’s scheduled maintenance turnaround of late October and early November 2002. Costs of goods sold increased $13.3 million during fiscal 2004 by the year-end impact of valuing the Company’s inventories under the LIFO cost method.

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. 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.

Gross Profit/(Loss)

2004 vs. 2003

Wholesale gross profit increased $41.8 million from $27.4 million for fiscal year ended 2003 to $69.2 million for the fiscal year ended 2004. This increase is due to the increases in wholesale selling prices and wholesale sales volume.

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.

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Operating Expenses

2004 vs. 2003

Wholesale operating expenses increased during 2004 by $.9 million or 3.6%. For 2004 operating expenses were $25.8 million, or 3.6% of net wholesale sales, compared to $24.9 million or 4.4% of net wholesale sales for 2003.

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%.

Interest Expense

Net interest expense (interest expense less interest income) increased during fiscal 2004 by $.1 million from $21.3 million for the fiscal year ended 2003 to $21.4 million for the fiscal year ended 2004. The increased net interest expense was primarily due to an increase in borrowings on our revolving credit facility throughout the fiscal year.

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 our revolving credit facility.

Income Tax Expense/(Benefit)

Our fiscal 2004 effective tax remained relatively consistent with that for fiscal 2003 which was approximately 39%.

Our fiscal 2003 effective tax rate remained relatively consistent with that for fiscal 2002 which was approximately 39%.

Liquidity and Capital Resources

On August 6, 2004, we completed a private placement offering of $200,000,000 in Senior Notes due 2012 which bear an interest rate of 10.5%. The notes were issued at 98.671% of par to yield 10 ³/4% to maturity, resulting in a debt discount of $2,658,000, which will be amortized over the life of the notes using the interest method. The net proceeds of the offering of $191,600,000 were used to retire all of our outstanding 10 ³/4% Senior Unsecured Notes due 2007, Series B, pay accrued interest of $3,700,000 and a redemption premium related thereto and to pay a dividend of $5,000,000 to the Company’s stockholder. A loss of $6,770,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $3,228,000, a write-off of deferred financing costs of $1,990,000 and additional interest paid of $1,552,000. Such notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company’s subsidiaries (see Notes 9 and 17 to Consolidated Financial Statements, Item 8). The notes will be eligible for resale under Rule 144A of the Securities Act of 1933.

We operate in an environment where our liquidity and capital resources are impacted by changes in the price of crude oil and refined petroleum products, availability of credit, market uncertainty and a variety of additional factors beyond our control. Included in such factors are, among others, the level of customer product demand, weather conditions, governmental regulations, worldwide political conditions and overall market and economic conditions.

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

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Primary sources of liquidity have been cash and cash equivalents, cash flows from operations and borrowing availability under a revolving line of credit. We believe available capital resources will be adequate to meet our working capital, debt service, and capital expenditure requirements for existing operations.

Our 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, 2004, significant uses of cash include $181.0 million to pay off 10 ³/4% Notes due 2007, $10.0 million for purchases of property, plant and equipment, which includes $1.7 million for USEPA low sulfur gasoline compliance, $2.8 million for FCC regenerator cyclone replacement and related equipment, and $5.5 million for other general repair and maintenance. Also, $5.4 million for additions to refinery turnaround costs $18.5 million of reductions to borrowings on the Revolving Credit Facility an increase in cash used by working capital items including $6.9 million for prepaid expenses and $6.4 million for accounts payable, both related primarily to increased crude oil costs.

We require 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 year 2004.

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. We expect to be able to meet our 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 our Revolving Credit Facility with PNC Bank, N.A. as Agent Bank. This is a $75,000,000 revolving facility, which expires May 9, 2007. The Revolving Credit Facility is secured primarily by certain cash accounts, accounts receivable, and inventory. Until maturity, we 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 5.00% at August 31, 2004. 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 our facility leverage ratio calculation. As of August 31, 2004, $0 of Euro-Rate borrowings and $13,000,000 of Base Rate borrowings were outstanding under the agreement.

We had outstanding letters of credit of $385,000 as of August 31, 2004.

As of August 31, 2004 the outstanding borrowings under the Revolving Credit Facility was $13,385,000 resulting in net availability of $61,615,000.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of August 31, 2004 and is based on information appearing in the Notes to the Consolidated Financial Statements in Item 8:

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Although we are not aware of any pending circumstances which would change our 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. We continue to investigate strategic acquisitions and capital improvements to our existing facilities.

Federal, state and local laws and regulations relating to the environment affect nearly all of our operations. As is the case with all the companies engaged in similar industries, we face 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. We 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.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities” and in December 2003, a revised interpretation was issued (“FIN 46(R)”). In general, a variable interest entity (“VIE”) is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46(R) requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. The interpretation applies to VIEs created after January 31, 2003, and for all financial statements issued after December 15, 2003 for VIEs in which an enterprise held a variable interest that is acquired before February 1, 2003. The adoption of FIN 46(R) did not have any effect on the Company’s financial position or results of operations.

In December 2003, the FASB issued a revision to Statement No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (Statement 132”). The revision to Statement 132 requires additional

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disclosures relating to the description of the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit costs of defined benefit pension plans and other defined postretirement benefit plans recognized during interim periods. These disclosure requirements are effective for all of the Company’s future quarterly and annual reports. Disclosures required under Statement 132 are included in Note 5 to the Consolidated Financial Statements, Item 8.

In May 2004, the FASB released Staff Position No. 106-2, “Accounting and Disclosure Requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”), which supersedes Staff Position No. 106-1. FSP 106-2 addresses the accounting and disclosure implications that are expected to arise as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 enacted on December 8, 2003. FSP 106-2 is effective for interim or annual periods beginning after June 15, 2004. The Company adopted the provisions of FSP 106-2 for the year ended August 31, 2004.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides a three-step impairment model for determining whether an investment is other-than-temporarily impaired and requires the Company to recognize such impairments as an impairment loss equal to the difference between the investment’s cost and fair value at the reporting date. The guidance is effective for the Company during the first quarter of fiscal 2005. The Company does not believe that the adoption of EITF 03-1 will have a material effect on its financial position or results of operations.

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

We use our Revolving Credit Facility to finance a portion of our operations. These on-balance sheet financial instruments, to the extent they provide for variable rates, expose us to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds rate or the LIBOR rate.

We have exposure to price fluctuations of crude oil and refined products. We do not manage the price risk related to all of our inventories of crude oil and refined products with a permanent formal hedging program, but we do manage our risk exposures by managing inventory levels. During the fiscal years ended August 31, 2004 and 2003, the Company realized net gains from its trading activity of $400,000 and $1,600,000, respectively, which is included as a reduction of costs of goods sold. At August 31, 2004, the Company had net open futures positions of 750,000 barrels of crude oil that will expire during the first quarter of 2005. The unrealized loss associated with the open future positions amounted to $299,000 at August 31, 2004.

At August 31, 2004, we were exposed to the risk of market price declines with respect to a substantial portion of our crude oil and refined product inventories.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder

United Refining Company

Warren, Pennsylvania

We have audited the accompanying consolidated balance sheets of United Refining Company and subsidiaries as of August 31, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/    BDO Seidman, LLP

New York, New York

October 29, 2004

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UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

See accompanying notes to consolidated financial statements.

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UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

See accompanying notes to consolidated financial statements.

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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)