10-K 1 gncannual03.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _______________ FORM 10K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended..................................Commission File March 31, 2003...........................................Number 0-1587 GNC ENERGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-1050549 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 8235 Douglas Avenue Suite 1201 Dallas, Texas 75225 (Address of principal executive offices) (Zip Code) (214)691-9436 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock - Par Value $0.40 per share None Securities registered pursuant to Section 12(b) 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________ On March 31, 2003, there were 5,203,706 shares of the registrant's common stock issued and outstanding. The aggregate market value of the registrant's common stock held by non-affiliates of the registrant (computed by reference to the closing sale price in the over-the-counter market) on 3/31/95 was approximately $325,231.63. GNC ENERGY CORPORATION 2002 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I. Page Item 1. Business................................................ 3 Item 2. Properties.............................................. 3 Item 3. Legal Proceedings....................................... 4 Item 4. Submission of Matters to a Vote of Security Holders............................................ 5 PART II. Item 5. Market for the Registrant's Securities and Related Stockholder Matters................................ 6 Item 6. Selected Financial Data................................. 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 7 Item 8. Financial Statements and Supplementary Data............. 8 Item 9. Disagreements on Accounting and Financial Disclosure.... 8 PART III. Item 10. Directors and Executive Officers of the Registrant...... 8 Item 11. Management Remuneration................................. 9 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 9 Item 13. Certain Relationships and Related Transactions.......... 10 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 10 PART I Items 1. and 2. BUSINESS AND PROPERTIES (a) General Development of Business GNC Energy Corporation was incorporated in Delaware in 1954. Its principal executive offices are located at 8235 Douglas Ave., Suite 1201, Dallas, Texas 75225. The term "GNC" or "Company" as used herein refers to GNC Energy Corporation except as the context may otherwise indicate. The Company was engaged in various segments of the energy industry. In 1987 its wholly-owned subsidiary, Plateau Supply, Inc., was sold. Its coal business had not operated since 1985 and was sold in 1987. This left a small oil and gas producing division. The Company was incorporated in 1954 under the name of American Tidelands, Inc. In 1959, American Tidelands, Inc., was merged and changed its corporate name to Marine Drilling, Inc. The company changed its name to Great National Corporation in 1964 and in August, 1981, changed its name to GNC Energy Corporation. Due to the economic conditions in the oil and gas and coal mining industries, the curtailment of the Company's operations and other factors, including the disposal of the majority of the Company's income-producing properties in satisfaction of debt, the Company feels that it is unable to absorb the expense of an audit at this time. Therefore, the consolidated financial statements included herein for the year ended March 31, 2003, are unaudited. (b) Financial Information about Industry Segments Financial data for the last three fiscal years with respect to sales, income (loss) from operations, identifiable assets and capital expenditures attributable to each business segment appears in Note 6 to the financial statements. (c) Narrative Description Supply and Equipment The construction, mining and industrial supply business was sold on February 12, 1987. Coal Mining The coal mining subsidiaries were sold on September 30, 1987. Oil and Gas The company maintains a small oil and gas production and exploration effort. The Ohio oil and gas properties were sold in satisfaction of debt. Employees As of March 31, 2003, the Company had no employees. Item 3. LEGAL PROCEEDINGS The following judgments are taken against the company as of this filing: Judgment Creditors Judgment Amount D. W. Campbell, T. J. Fouts, Jr., George Bristol, Charles Kuhn, A. Gary Muir, and Larvena Investments, Inc. 571,362 Rocanville Corp. (formerly held by Halliburton ) 247,631 Rocanville 147,321 Hudson trust (formerly held by Aetna) 207,800 Total Judgment Creditors $1,174,114 No bonds have been filed by the Company to preclude judgment creditors from exercising their rights to writs of execution, garnishment, etc. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matter during the fiscal year covered by this report to a vote of security holders, through solicitation of proxies or otherwise. Executive Officers of the Registrant The following is a list of the Company's executive officers, their ages, and their positions and offices as of March 31, 2003. Name of Officer Age Position W. H. Hudson 73 Chairman of the Board of Directors President and Chief Executive Officer Andrew C. Hudson 42 Secretary The following is a summary of the business background of the executive officers of the Company for the past several years: Mr. W. H. Hudson was elected Chairman of the Board, President and Chief Executive Officer of the Company in March 1979. During the past twenty-four years, in addition to his activities with the Company, his principal business has been the management of his personal investments in real estate and oil and gas properties. Mr. Andrew Hudson was elected Secretary of the Company in 1988. Since that time he has devoted part of his business time to the activities of the Company. PART II Item 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS (a) Principal Market The Company's common stock was listed and began trading on the American Stock Exchange during September, 1981. Effective December 3, 1985, the Company's common stock was delisted from the American Stock Exchange and since such date has been trading in the over-the-counter market. (b) Stock Price and Dividend Information The table below presents the range of high and low prices on the over-the- counter market as quoted in the "pink sheets" from April 1, 1991, through March 31, 1993. Quarter Ended Fiscal 1992 Fiscal 1993 High Low High Low June 30 $1/16 $ 1/32 $ 1/4 $ 1/32 September 30 1/16 1/32 1/4 1/32 December 31 1/16 1/32 1/4 1/32 March 31 1/16 1/32 1/4 1/32 The Company has not and does not contemplate the payment of cash dividends with respect to its common stock. The Company intends to utilize any profits it might generate in its business operations. (c) Approximate Number of Holders of Common Stock The approximate number of holders of record of the Company's common stock as of March 31, 2003, is 3,861. Item 6. SELECTED FINANCIAL DATA The following table presents a five-year summary of selected financial data for the years ended March 31: 2003 2002 2001 2000 1999 (in thousands except per share amounts) Revenues $ 0 $ 6 $ 18 $ 15 $ 13 Income (Loss) from operations 0 2 9 0 1 Extraordinary Income (Loss) 339 50 20 16 18 Interest Expense 126 141 141 141 155 Net Income (Loss) 199 (102) (128) (139) (152) Weighted average number of common shares outstanding 5,204 5,204 5,204 5,204 5,204 Earnings (Loss) per common share .04 (.02) (.02) (.03) (.03) Working capital (deficit) (7,120) (7,319) (7,217) (7,090) (6,951) Long-term debt - - - - - Stockholders' equity (deficit) (7,120) (7,319) (7,217) (7,090) (6,950) Total Assets - - - - - Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources At March 31, 2003, the Company had a working capital deficit of $7,120,041 and no long-term obligations. No new oil and gas wells were drilled in fiscal 2003. There were no capital expenditures. The Company does not have sufficient liquid resources to meet the present judgment creditor claims against the Company. Results of Operations Declining demand seriously impacted the supply business in 1987, resulting in a sale of the division. Plateau Supply Company filed for reorganization under Chapter 11 of the Bankruptcy Act. No recovery was made on the $3,479,580 note receivable resulting from the sale of that company. Coal mining operations ceased in 1985 and were sold in September 1987. The remaining oil and gas properties were not profitable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this report (page 11). Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE An attempt was made to update and correctly record the Company's assets and liabilities during the fiscal year ended 3-31-91. This accounts for the extraordinary income and other changes to Retained Earnings that year. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors Common Served As Shares Director Beneficially Percent Name Age Position Since Owned of Class W. H. Hudson 73 Chairman of the 1979 576,878* 11.09 Board of Directors, President and Chief Executive Officer of the Company, Dallas, Texas R. H. Rosen 65 President, Advanced 1981 12,000 0.23 Energy Technology, Inc., Cambridge, Massachusetts _______________________ *See "Principal Stockholders." Unless otherwise indicated, the nominees have sole voting and investment power with respect to their shares of the Company's Common Stock listed hereinabove. As of March 31, 2003, the directors and officers of the Company, as a group, (2 persons) held an aggregate of 588,878 shares of Common Stock, or 11.32% of the outstanding shares of that class. Mr. W. H. Hudson was elected Chairman of the Board, President and Chief Executive Officer of the Company in March, 1979. During the past twenty-four years, in addition to his activities with the Company, his principal business has been the management of his personal investments in real estate and oil and gas properties. Dr. Rosen has been President of Advanced Energy Technology, Inc., since 1982. He was President, Chief Executive Officer and a Director of Energy 1983. Resources Co., Inc., from 1974 to 1982. He has also been President 1984. and Chairman of the Board of Texas Resources, Inc., since 1980. Executive Officers The listing of executive officers included in this report is shown at Part I, Item 4. Item 11. MANAGEMENT REMUNERATION There was no remuneration accrued by the Company and its subsidiaries to individual executive officers of the Company for fiscal year ended 3-31-03. Profit-Sharing Plan At March 31, 2003, there were no outstanding stock options, under the Company's 1974 Qualified Stock Option Plan. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The listing of security ownership of certain beneficial owners and management in this Report is shown at Part III, Item 10. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company reimburses W. H. Hudson, Chairman of the Board, President and Chief Executive Officer of the Company a portion of certain overhead expenses incurred in its day-to-day operations. The Company paid Mr. Hudson a total of approximately $4,575 during the year ended March 31, 2003, for these services. The Board of Directors believes that this billing arrangement is advantageous to the Company and offers an economical office operation. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K Financial Statements and Financial Statement Schedules The Consolidated Financial Statements and Financial Statement Schedules of the Company included in this Report are listed at Part II, Item 8. Exhibits The listing of previously filed exhibits has been excluded from this annual report to stockholders. Such listing will be furnished upon request and payment of the Company's reasonable copying and mailing expenses. Reports on Form 8-K There were no reports filed on Form 8K for the fiscal year ended March 31, 2003. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. GNC ENERGY CORPORATION Date: ______________ 2003 W. H. Hudson, Chairman of the Board President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Titles Date W. H. Hudson Chairman of the Board, __________ 2003 President, Chief Executive Officer and Chief Financial Officer R. H. Rosen Director __________ 2003 ITEM 8 - Financial Statements and Supplementary Data ITEM 8(a) - Index to Financial Statements and Schedules Page Financial statements and supplementary information: Consolidated balance sheets....................................13-14 Consolidated statements of operations............................ 15 Consolidated statements of changes in stockholders' equity (deficit)............................................ 16 Consolidated statements of changes in financial position......... 17 Notes to consolidated financial statements....................... 18 Schedules: Consolidated property, plant and equipment....................... 22 Consolidated accumulated depreciation, depletion and amortization of property, plant and equipment.................. 23 Valuation and qualifying accounts and reserves................... 23 All other schedules have been omitted because they are not required under the instructions or the information requested as set forth in the consolidated financial statements or related notes thereto. GNC ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS March 31 March 31 2003 2002 Current assets: Cash $ - $ - Recoverable deposits - - Prepaid Expenses - - Total current assets - - Property, plant and equipment at cost, substantially pledged: Oil and gas - - Less accumulated depreciation, depletion and amortization - - - - Total Assets $ - $ - GNC ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY March 31 March 31 2003 2002 Current liabilities: Accounts payable 2,863,044 2,995,184 Accrued expenses 2,011,726 2,011,726 Accrued interest expense 2,245,271 2,312,554 Total current liabilities 7,120,041 7,319,464 Stockholders' equity (deficit): Common stock, $.40 par value Authorized - 10,000,000 shares Issued and outstanding - 5,203,706 shares in 1989 and 1988 2,081,482 2,081,482 Capital in excess of par value 17,000,421 17,000,421 Accumulated deficit (26,201,944) (26,401,367) (7,120,041) (7,319,464) $ 0 $ 0 GNC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Years Ended March 31, 2003 2002 2001 Net Sales $ - $ 6,292 $ 17,866 Costs and Expenses Cost of sales 308 1,602 8,534 General, administrative, other 13,544 15,881 15,539 Depreciation, depletion, amort. - 17 45 Total Costs and Expenses (13,852) 17,500 24,118 Income (loss) from operations (13,852) (11,208) (6,252) Other Income (Expense) Interest (126,161) (140,770) (140,770) Gain (loss) on debt write-off 339,542 - - Miscellaneous Income - - - Other - - - Taxes and penalties (107) (62) (172) Extraordinary Income - 50,011 19,526 Total Other Income (Loss) 213,274 (90,821) (121,416) Gain (Loss) 199,422 (102,029) (127,668) Gain (Loss) per share $ .04 $ (.02) $ (.02) GNC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) Capital in Common Stock excess of Accumulated Shares Amount par value deficit Balance at March 31, 1999 5,203,706 $2,081,482 $17,000,421 $(26,032,284) Adjustments - Net Gain(loss) (139,385) Balance at March 31, 2000 5,203,706 $2,081,482 $17,000,421 $(26,171,669) Adjustments - Net Gain(Loss) (127,669) Balance at March 31, 2001 5,203,706 $2,081,482 $17,000,421 $(26,299,338) Adjustments - Net Gain(Loss) (102,029) Balance at March 31, 2002 5,203,706 $2,081,482 $17,000,421 $(26,401,367) Adjustments - Net Gain(Loss) 199,422 Balance at March 31, 2003 5,203,706 $2,081,482 $17,000,421 $(26,201,944) GNC ENERGY CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED) Years Ended March 31, 2003 2002 2001 Financial resources were applied to: Net (loss) before extraordinary item $ (140,120) (152,040) $ (147,194) Fixed Assets - - Items not affecting working capital: Depreciation, depletion, and amortization - 17 45 Working capital applied to (provided by) operations (140,120) (152,023) (147,149) Extraordinary items: Gain/Loss on disposition of assets - 50,012 19,526 Gain on expired debt 339,542 - - - 199,422 (102,011) (127,623) Leasehold Costs - - - 199,422 (102,011) (127,623) Financial resources were provided by: Sales and retirements of property, plant and equipment, net of accum. depreciation, depletion - 92 - Decrease in liabilities - - - Decrease in tar sands value - - - Decrease in other assets - - - - 92 - Increase (decrease) in working capital $ 199,422 $ (101,919) $ (127,623) Increase (decrease) in elements of working capital: Cash $ - $ - $ - Recoverable deposits - - - Prepaid Expenses - - - Notes payable and current maturities on long-term debt - - - Accounts payable and accrued expenses 132,139 38,851 13,147 Accrued interest expense 67,283 (140,770) (140,770) Increase (decrease) in working capital $ 199,422 $ (101,919) $ (127,623) GNC ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003, 2002 AND 2001 (UNAUDITED) 1. Summary of significant accounting policies This summary of significant accounting policies of GNC Energy Corporation (Company) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles applied on a consistent basis. Principles of consolidation The consolidated financial statements include the accounts of GNC Energy Corporation. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. Property, plant and equipment Property, plant and equipment is carried at cost and includes expenditures for new facilities and those which substantially increase the useful lives of existing property, plant and equipment. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and any gain or loss on disposition is credited or charged to operations. The Company follows the full-cost method of accounting for its oil and gas operations. Under the full-cost method, all productive and nonproductive acquisition, exploration, and development costs are capitalized as incurred. Capitalized costs required to develop proved undeveloped reserves are amortized by the unit-of-production method using proved reserves (revenue method). However, reserves have not been audited currently due to the expense involved in doing so. Therefore, depletion as allowed by tax law is used, where applicable. 1. Summary of significant accounting policies (continued) Income taxes No provision has been made for income taxes, as the Company has net operating losses to carry forward, in the amount of $11,435,147, the last of which is due to expire in 2023 if not used prior to that time. 2. Inventories At March 31, 2003, there were no inventories. 3. Notes payable Notes payable include a secured note due on demand, which is included in accounts payable. There are no long-term debts. 4. Information regarding industry segments 2003 2002 2001 (000somitted) Net Sales: Oil and gas $ 0 $ 6 $ 18 Administrative fees on operations - - - $ 0 $ 6 $ 18 Loss (income) from operations: Oil and gas $ 0 $ 5 $ (9) Other Loss - - - Other Gains 339 50 20 339 45 29 General corporate expenses 14 16 16 Interest expense 126 141 141 Net (Gain) Loss $ 199 $ 112 $ 128 Identifiable assets: Oil and gas - - 73 $ - $ - $ 73 Capital expenditures: Oil and gas $ - $ - $ - Depreciation, depletion and amortization: Oil and gas $ - $ 17 $ 72 5. Leases The final combined hydrocarbon lease, which contained tar sands, expired, and the remaining asset value in tar sands was written off. 6. Commitments and contingencies Continuation of the Company as a going concern is dependent upon the Company obtaining additional capital or its ability to attain profitable operations adequate to meet its financial obligations. The Company's consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 7. Profit-sharing plan The Company's profit-sharing plan ceased with the sale of Plateau Supply, Inc., in 1987. 8. Transactions with affiliated parties During the year ended March 31, 2003, the Company incurred overhead allocation fees of approximately $ 8,919 to a corporation controlled by a major stockholder of the Company for the use of office space. Additionally, the Company incurred debt to an entity controlled by major stockholders for approximately $11,726 during the year ended March 31, 2003, for working capital advances to the Company. During 1985, a director of the Company purchased unregistered, restricted stock from the Company. 57,000 and 7,000 shares of the Company's common stock were purchased for $3.50 and $3.00 per share respectively, with the market value on those dates being $5.625 and $4.125 per share, respectively. 9. Income taxes The Company has federal income tax loss carryforwards of approximately $11,435,147 which will expire through 2023. 10. Gain/Loss per share Gain/loss per share has been computed by dividing the net gain/loss for the years ended March 31, 2003, 2002, and 2001, by the weighted average number of shares outstanding of 5,203,706 shares. Shares issuable in connection with employee stock options and convertible debt have not been included in the computation of earnings per share, as their effect is antidilutive. 11. Interest Net interest consists of the following: 2003 2002 2001 Total interest $ 126,161 $ 140,770 $ 140,770 Interest income - - - $ 126,161 $ 140,770 $ 140,770 GNC ENERGY CORPORATION SUPPLEMENTARY INFORMATION ON RESERVES OF OIL AND GAS Years Ended March 31, 2003, 2002 and 2001 (UNAUDITED) Reserves of Oil and Gas The Company's oil and gas interests have been sold in satisfaction of debt. GNC ENERGY CORPORATION SCHEDULE V - CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT Balance at Other Balance at beginning Additions Retire- changes end of Classification of period at cost ments add(deduct) period Year ended March 31, 2003: Oil and gas leasehold & equipment - full cost $ - $ - $ - $ -$ - Tar Sands - - - - $ - $ - $ - $ - $ - Year ended March 31, 2002: Oil and gas leasehold & equipment - full cost $ 72,575$ - $ (72,575) - $ - Tar Sands - - - - - $ 72,575$ - $ (72,575) $ $ - Year ended March 31, 2001: Oil and gas leasehold & equipment - full cost $ 186,406 $ - $(113,831)$ - $ 72,575 Tar Sands - - - - - $ 186,406 $ - $(113,831) $ - $ 72,575 GNC ENERGY CORPORATION SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Additions Balance at Charged to Other Balance at Beginning Costs and Retire- Changes end of Classification of Period Expenses ments Add(Deduct) Period Year ended March 31, 2003: Oil and gas - full cost - - - - - $ - $ - $ - $ - $ - Year ended March 31, 2002: Oil and gas - full cost 72,466 - ( 72,466) - - $ 72,466 $ - $ ( 72,466) $ - $ - Year ended March 31, 2001: Oil and gas - full cost $ 186,252 $ - $ (113,786) $ - $ 72,466 $ 186,252 $ - $ (113,786)$ - $ 72,466 SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES There are no receivables and therefore no allowance for doubtful accounts.