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Index to Financial Statements

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

  For the fiscal year ended September 30, 2002

OR

  For the transition period from                      to                     

Commission file number: 1-9083

TREECON RESOURCES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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Index to Financial Statements

TREECON RESOURCES, INC.

2002 FORM 10-K ANNUAL REPORT

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PART I

ITEM 1. Business.

General

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

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

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

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

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Disposition

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

Business Strategy

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

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

Operating Segments

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

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

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Products and Services

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

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

Sales and Marketing

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

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

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

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

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Backlog

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

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

Product Development

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

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

Competition

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

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

Patents, Trademarks and Copyrights

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

Regulation

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

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

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Employees

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

Overhill Farms - Discontinued Operation

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

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

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

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

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

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

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

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

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

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

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

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Safe Harbor Statement

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

ITEM 2. Properties.

Corporate Headquarters

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

Timberjack

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

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

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

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Overhill Farms – Discontinued Operation

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

ITEM 3. Legal Proceedings.

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

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

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

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

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

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

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PART II

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

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

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

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

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

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ITEM 6. Selected Financial Data

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