UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
COMMISSION FILE NUMBER 0-6247
ARABIAN AMERICAN DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175 75231
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 692-7872
Former name, former address and former fiscal year, if
changed since last report.
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [ ] NO [X]
Number of shares of the Registrant's Common Stock (par value $0.10 per share),
outstanding at March 31, 2005: 22,731,994.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 256,996 $ 623,202
Trade Receivables, Net 3,147,571 3,198,081
Financial Contracts 1,032,320 --
Inventories 2,579,044 1,243,693
------------ ------------
Total Current Assets 7,015,931 5,064,976
PLANT, PIPELINE AND EQUIPMENT 15,336,936 14,536,618
Less: Accumulated Depreciation (9,193,615) (9,044,884)
------------ ------------
Net Plant, Pipeline and Equipment 6,143,321 5,491,734
AL MASANE PROJECT 36,474,352 36,420,565
OTHER INTERESTS IN SAUDI ARABIA 2,431,248 2,431,248
MINERAL PROPERTIES IN THE UNITED STATES 1,058,525 1,058,102
OTHER ASSETS 718,484 581,258
------------ ------------
TOTAL ASSETS $ 53,841,861 $ 51,047,883
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 2,180,640 $ 2,649,899
Accrued Interest 4,013,592 4,133,964
Accrued Liabilities 1,326,717 1,145,399
Accrued Liabilities in Saudi Arabia 2,499,157 2,749,128
Notes Payable 11,025,833 11,025,833
Notes Payable to Stockholders 818,000 718,000
Current Portion of Long-Term Debt 3,071,161 3,071,161
------------ ------------
Total Current Liabilities 24,935,100 25,493,384
LONG-TERM DEBT 4,341,763 4,915,534
DEFERRED REVENUE 163,436 175,141
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 814,781 816,879
STOCKHOLDERS' EQUITY
COMMON STOCK-authorized 40,000,000
shares of $.10 par value; issued and
outstanding, 22,431,994 shares in 2005
and 2004 2,243,199 2,243,199
ADDITIONAL PAID-IN CAPITAL 36,512,206 36,512,206
ACCUMULATED DEFICIT (15,168,624) (19,108,460)
------------ ------------
Total Stockholders' Equity 23,586,781 19,646,945
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,841,861 $ 51,047,883
============ ============
See notes to consolidated financial statements.
1
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2005 2004
------------ ------------
REVENUES
Petrochemical Product Sales $ 17,682,776 $ 10,109,715
Processing Fees 1,034,714 805,872
------------ ------------
18,717,490 10,915,587
OPERATING COSTS AND EXPENSES
Cost of Petrochemical Product Sales and Processing 13,189,369 10,263,926
General and Administrative 1,364,891 958,864
Depreciation 148,732 333,647
------------ ------------
14,702,992 11,556,437
------------ ------------
OPERATING INCOME (LOSS) 4,014,498 (640,850)
OTHER INCOME (EXPENSE)
Interest Income 8,611 7,388
Interest Expense (376,942) (397,770)
Minority Interest 2,099 2,484
Foreign Exchange Transaction Gain (Loss) 269,187 (24,143)
Miscellaneous Income (Expense) 22,383 29,942
------------ ------------
(74,662) (382,099)
------------ ------------
NET INCOME (LOSS) $ 3,939,836 $ (1,022,949)
============ ============
Basic and Diluted Net Income (Loss)
per Common Share $ 0.17 $ (0.05)
============ ============
Basic and Diluted Weighted Average Number
of Common Shares Outstanding 22,731,994 22,731,994
============ ============
See notes to consolidated financial statements.
2
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
DECEMBER 31, 2004 22,431,994 $ 2,243,199 $ 36,512,206 $(19,108,460) $ 19,646,945
Net Income -- -- -- 3,939,836 3,939,836
------------ ------------ ------------ ------------ ------------
MARCH 31, 2005 22,431,994 $ 2,243,199 $ 36,512,206 $(15,168,624) $ 23,586,781
============ ============ ============ ============ ============
See notes to consolidated financial statements.
3
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2005 2004
----------- -----------
OPERATING ACTIVITIES
Net Income (Loss) $ 3,939,836 $(1,022,949)
Adjustments to Reconcile Net Income (Loss)
To Net Cash Provided by Operating Activities:
Depreciation 148,732 333,647
Decrease in Deferred Revenue (11,705) (15,705)
Unrealized Gain on Financial Contracts (1,217,120) (280,182)
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Trade Receivables 50,510 (317,812)
Increase in Inventories (1,335,351) (385,186)
Increase in Other Assets (137,226) (58,321)
Increase (Decrease) in Accounts Payable and Accrued Liabilities (103,141) 1,813,630
Increase (Decrease) in Accrued Interest (120,372) 235,898
Increase (Decrease) in Accrued Liabilities in Saudi Arabia (249,971) 94,073
Other (2,099) (8,269)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 962,093 388,824
----------- -----------
INVESTING ACTIVITIES
Additions to Al Masane Project (53,787) (158,347)
Additions to Plant, Pipeline and Equipment (800,318) (131,747)
(Additions to) Reduction in Mineral Properties in the United States (423) 625
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (854,528) (289,469)
----------- -----------
FINANCING ACTIVITIES
Additions to Notes Payable and Long-Term Obligations 100,000 17,957
Reduction of Notes Payable and Long-Term Obligations (573,771) --
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (473,771) 17,957
----------- -----------
NET INCREASE (DECREASE) IN CASH (366,206) 117,312
CASH AT BEGINNING OF PERIOD 623,202 177,716
----------- -----------
CASH AT END OF PERIOD $ 256,996 $ 295,028
=========== ===========
See notes to consolidated financial statements.
4
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements reflect all adjustments (consisting
only of normal and recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of Arabian American Development
Company and Subsidiaries financial position and operating results for the
interim period. Interim period results are not necessarily indicative of the
results for the calendar year. For additional information please refer to the
consolidated financial statements and footnotes thereto and to Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's December 31, 2004 Annual Report on Form 10-K.
These financial statements include the accounts of Arabian American
Development Company (the "Company") and its wholly-owned subsidiary, American
Shield Refining Company (the "Petrochemical Company"), which owns all of the
capital stock of Texas Oil and Chemical Company II, Inc. ("TOCCO"). TOCCO
owns all of the capital stock of South Hampton Refining Company ("South
Hampton"), and approximately 99.9% of the capital stock of Productos Quimicos
Coin, S.A. de. C.V. ("Coin"), a specialty petrochemical products company
located near Coatzacoalcos, Mexico. South Hampton owns all of the capital
stock of Gulf State Pipe Line Company, Inc. ("Gulf State"). The Company also
owns approximately 55% of the capital stock of a Nevada mining company,
Pioche-Ely Valley Mines, Inc. ("Pioche"), which does not conduct any
substantial business activity. The Petrochemical Company and its subsidiaries
constitute the Company's Specialty Petrochemicals Segment. Pioche and the
Company's mineral properties in Saudi Arabia constitute its Mining Segment.
2. INVENTORIES
Inventories include the following:
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Feedstock $1,062,312 $ --
Petrochemical products 1,516,732 1,243,693
---------- ----------
$2,579,044 $1,243,693
========== ==========
Inventories are recorded at the lower of cost, determined on the last-in,
first-out method (LIFO), or market, for inventory in the United States, and
on the average cost method, or market, for inventory held in Mexico. At March
31, 2005, current cost exceeded LIFO value by approximately $452,000. At
December 31, 2004, current cost exceeded the LIFO value by approximately
$344,000.
3. NET INCOME (LOSS) PER COMMON SHARE
The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted net income (loss) per share for the three
months ended March 31, 2005 and 2004, respectively.
THREE MONTHS ENDED
MARCH 31,
----------------------
2005 2004
-------- --------
Net Income (Loss) $ 3,940 $ (1,023)
======== ========
Weighted Average Shares Outstanding:
Basic and Diluted 22,732 22,732
======== ========
Net Income (Loss) Per Share:
Basic and Diluted $ 0.17 $ (0.05)
======== ========
5
For the three months ended March 31, 2005 and 2004, options for 400,000
shares and 445,000, respectively, were excluded from diluted shares
outstanding because their effect was antidilutive.
4. SEGMENT INFORMATION
As discussed in Note 1, the Company has two business segments. The Company
measures segment profit or loss as operating income (loss), which represents
income (loss) before interest, minority interest, miscellaneous income and
foreign exchange transaction gain or loss. Information on the segments is as
follows:
THREE MONTHS ENDED MARCH 31, 2005 PETROCHEMICAL MINING TOTAL
- --------------------------------- ------------- ------------ ------------
Revenue from external customers $ 18,717,490 $ -- $ 18,717,490
Depreciation 148,732 -- 148,732
Operating income (loss) 4,137,135 (122,637) 4,014,498
Total assets $ 13,707,032 $ 40,134,829 $ 53,841,861
THREE MONTHS ENDED MARCH 31, 2004 PETROCHEMICAL MINING TOTAL
- ---------------------------------- ------------- ------------ ------------
Revenue from external customers $ 10,915,587 $ -- $ 10,915,587
Depreciation 333,545 102 333,647
Operating loss (463,413) (177,437) (640,850)
Total assets $ 13,766,707 $ 40,026,210 $ 53,792,917
Information regarding foreign operations for the three months ended March 31,
2005 and 2004 follows (in thousands). Revenues are attributed to countries
based upon the origination of the transaction.
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
------- -------
REVENUES
United States $17,385 $10,624
Mexico 1,332 292
Saudi Arabia -- --
------- -------
$18,717 $10,916
======= =======
LONG-LIVED ASSETS
United States $ 7,201 $ 5,282
Mexico -- 4,479
Saudi Arabia 38,906 38,755
------- -------
$46,107 $48,516
======= =======
5. LEGAL PROCEEDINGS
South Hampton is presently a defendant in eight lawsuits. The suits, seven of
which are filed in Madison County, Illinois, and which include up to 70 other
defendants, primarily claim illness and disease resulting from alleged
exposure to chemicals, including benzene, butadiene and/or isoprene, during
their employment at various occupations. The plaintiffs claim that the
companies engaged in the business of manufacturing, selling and/or
distributing these chemicals in a manner which subjected them to liability
for unspecified actual and punitive damages. South Hampton does not believe
the plaintiffs in the Illinois lawsuits ever came in contact with its
products and is vigorously defending itself against these claims. The Company
also believes it has adequate insurance coverage to protect it financially
from any damage awards that might be incurred.
South Hampton is a defendant in one lawsuit filed in Jefferson County, Texas.
The lawsuit was filed on September 2001, and alleges that the plaintiff
became ill from exposure to asbestos while employed by South Hampton from
1961 through 1975. Mediation occurred during 2003 in which the plaintiff made
a financial offer. South Hampton counter-offered a structured
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settlement. The plaintiff has rejected the counter-offer and has maintained
their settlement offer. The case is currently on the September 2005 court
docket. Due to the time period in which the claimant was allegedly injured,
the Company has not been able to locate insurance coverage for this
particular suit. The Company plans on continuing negotiations in an attempt
to settle the case. The consolidated financial statements do not include any
amounts related to this case.
A second lawsuit filed on May 29, 2003 alleges that the plaintiff was exposed
to asbestos containing products in his duties as a welder, pipefitter
assistant, laborer, floor hand and mud hand/derrick hand from 1950 - 1984. A
notice of non-suit was filed in April of 2005 by the Plaintiff's attorney.
In August 1997, the Executive Director of the Texas Commission on
Environmental Quality (TCEQ), filed a preliminary report and petition with
the TCEQ alleging that South Hampton violated various TCEQ rules, TCEQ
permits issued to South Hampton, a TCEQ order issued to South Hampton, the
Texas Water Code, the Texas Clean Air Act and the Texas Solid Waste Disposal
Act. The violations generally relate to the management of volatile organic
compounds in a manner that allegedly violates the TCEQ's air quality rules
and the storage, processing and disposal of hazardous waste in a manner that
allegedly violates the TCEQ's industrial and hazardous waste rules. The
TCEQ's Executive Director recommended that the TCEQ enter an order assessing
administrative penalties against South Hampton in the amount of $709,408 and
order South Hampton to undertake such actions as are necessary to bring its
operations at its facility and its bulk terminal into compliance with Texas
Water Code, the Texas Health and Safety Code, TCEQ rules, permits and orders.
Appropriate modifications were made by South Hampton where it appeared there
were legitimate concerns. A preliminary hearing was held in November 1997,
but no further action was taken at that time.
On February 2, 2000, the TCEQ amended its pending administrative enforcement
action against South Hampton to add allegations dating through May 21, 1998
of 35 regulatory violations relating to air quality control and industrial
solid waste requirements. The TCEQ proposed that administrative penalties be
increased to approximately $765,000 and that certain corrective action be
taken.
For comparison purposes, in the only settlement by the Company in recent
history, the TCEQ notified South Hampton on December 13, 2001 that it found
several alleged violations of TCEQ rules during a record review in October
2001 and proposed a settlement for $59,375. South Hampton settled this
particular claim in April 2002 for approximately $5,900. There is no
assurance the outcome of this incident is reflective of the potential outcome
of the currently outstanding allegation issues.
In April 2003 South Hampton received a revised Notice of Violation from the
TCEQ. Various claims of alleged violation were dropped, modified and added in
the revised report and the total dollar amount of the proposed administrative
penalty was reduced to approximately $690,000. On May 25, 2003, a settlement
hearing with the TCEQ was held and additional information was submitted on
June 2, 2003, October 2, 2003 and November 4, 2003. South Hampton believes
that the revised notice contains incorrect information and erroneously
delineates as ongoing problems matters that were corrected immediately upon
discovery several years ago. South Hampton has continued to communicate with
the TCEQ concerning ongoing emission control facility upgrades which are
being implemented independently of this action and the Company intends to
continue to vigorously defend itself against the outstanding Notice of
Violation. Negotiations between South Hampton and the TCEQ are expected to
continue in order to reach a final settlement.
On February 23, 2004, by court order, a creditor was awarded Coin's plant
facilities as a result of a mortgage foreclosure proceeding. The foreclosure
proceedings were brought about by the lack of activity at the facility during
the 2000-2003 time period when market conditions did not allow the Coin
facility to be competitive. When the market appeared to be changing in early
2004, the Company immediately took legal steps to delay and, if possible,
prevent seizure of the plant. The Company has remained in control of the
facility and has continued its legal challenge to the foreclosure. As a
result of the matters discussed in Note 8, management recorded a loss on the
foreclosure of the facility with a charge to consolidated operations of
$2,900,964 during the fourth quarter of 2004. Also see Note 9.
6. LONG-TERM DEBT
The Company has an interest-free loan of $11,000,000 from the Saudi Arabia
Ministry of Finance and National Economy, the proceeds of which were used to
finance the development phase of the Al Masane project. The loan was
repayable in ten equal annual installments of $1,100,000, with the initial
installment payable on December 31, 1984. None of the ten scheduled payments
has been made. Pursuant to the mining lease agreement covering the Al Masane
project, the Company intends to
7
repay the loan in accordance with a repayment schedule to be agreed upon with
the Saudi Arabian government from its share of cash flows. An agreement has
not yet been reached regarding either the rescheduling or source of these
payments. The loan is collateralized by all of the Company's "movable and
immovable" assets in Saudi Arabia.
On July 29, 2003, a Purchase and Sale Agreement was negotiated with a bank
whereby the bank will purchase the accounts receivable of South Hampton at a
15% discount. The discounted amount is returned to South Hampton, less fees,
when the invoice is collected. Under this factoring agreement, the bank
agreed to purchase up to $4.5 million of invoices. Management expects the
fees and interest charged by the bank in this arrangement will equate to an
effective interest rate of approximately 9.0%. In July 2004, the limit of
purchases was raised to $6.0 million by the bank, and in January, 2005 it was
raised again to $8,500,000. At March 31, 2005, approximately $4,288,000 of
receivables had been sold and, due to the revolving nature of the agreement,
also remained outstanding. The original agreement restricts the payment of
any dividends to the Company by South Hampton to an amount not to exceed
$50,000 a month, provided that South Hampton is not in default under the
agreement. The Company adhered to this agreement until December 2004 when the
first installment of the mining lease payment was due. South Hampton advanced
to the parent Company in the form of a dividend, $260,000, which was used to
pay the installment due. The Bank waived default on this excess 2004 dividend
by letter dated April 6, 2005. The Bank also approved an amendment raising
the total dividends allowed during 2005 to $1,000,000. The agreement is
collateralized by a security interest in South Hampton's accounts receivable.
At March 31, 2005, South Hampton was in compliance with the provisions of the
agreement.
A contract was signed on June 1, 2004 between South Hampton and a supplier
for the purchase of 65,000 barrels per month of natural gasoline on open
account for the period from June 1, 2004 through May 31, 2006 and year to
year thereafter with 30 days written notice of termination by either party. A
provision of the contract states that South Hampton will begin reducing the
current debt to the supplier by $250,000 per quarter beginning July 1, 2004.
Therefore, $1.0 million of the balance of approximately $5.2 million has been
classified as current at March 31, 2005. The supplier is currently the sole
provider of the facility's feedstock supply.
On August 1, 2004, South Hampton entered into a $164,523 capital lease with
Silsbee Trading and Transportation for the purchase of a diesel powered
manlift. The lease is for five years with title transferring to South Hampton
at the end of the term. At March 31, 2005, approximately $23,000 represents
interest, resulting in a present value of $121,755 of which $27,065 is
classified as current.
At March 31, 2005, Coin had a loan to a Mexican bank in the amount of
$2,044,096, payable in quarterly payments through March, 2007, bearing
interest at the LIBOR rate plus seven points (LIBOR was 2.86% at March 31,
2005) and collateralized by a second lien on the plant facilities. This
lender was placed in receivership by the Mexican government in 2001 and Coin
has been unable to communicate with this lender since that occurrence. Coin
was in default of the loan covenants as a result of not having made its
quarterly payments and therefore the loan is classified as current in the
financial statements. Unpaid interest totaled $2,601,587 at March 31, 2005.
TOCCO recorded a loss on foreclosure in the fourth quarter of 2004 related to
a loan from a Mexican bank holding a first lien on the plant facilities. See
Notes 8 and 9. Unpaid interest on this loan totaled $529,797 at March 31,
2005 and has not been extinguished by the bank's insubstance foreclosure of
the Coin plant.
At March 31, 2005, the Company has a liability to its President and Chief
Executive Officer of approximately $1,212,000 for accrued salary and
termination benefits, a loan payable to him of $53,000 and a loan payable to
his wife of $100,000. There are also loans payable to two stockholders of the
Company of $565,000 and $100,000.
7. DERIVATIVE INSTRUMENTS
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 138
and 149, establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative instrument's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative
instrument's gains and losses to offset related results on the hedged item in
the income statement, to the extent effective, and requires that a company
must formally document, designate and assess the effectiveness of
8
transactions that receive hedge accounting treatment. SFAS No. 133, as
amended, was adopted by the Company on January 1, 2001 and SFAS No. 149 was
adopted on June 30, 2003.
On January 30, 1992, the Board of Directors of TOCCO adopted a resolution
authorizing the establishment of a commodities trading account to take
advantage of opportunities to lower the cost of feedstocks and natural gas
for its subsidiary, South Hampton. The policy adopted by the Board
specifically prohibits the use of the account for speculative transactions.
The operating guidelines adopted by management generally limit exposures to
50% of the monthly feed volumes to the facility for up to six months forward
and up to 100% of the natural gas requirements. Except in rare cases, the
account uses options and financial swaps to meet the targeted goals. These
derivative agreements are not designated as hedges per SFAS 133, as amended.
The Company had option contracts outstanding as of March 31, 2005 covering
various natural gas price movement scenarios through October of 2005 and
covering from 50% to 100% of the natural gas requirements for each month. As
of the same date, the Company had committed to financial swap contracts for
up to 50% of its required monthly feed stock volume with settlement dates
through June of 2005. For the three months ended March 31, 2005 and 2004, the
net realized gain from the derivative agreements was $342,318 and $9,240,
respectively. There was an estimated unrealized gain for the three months
ended March 31, 2005 and 2004 of approximately $1,217,120 and $280,182,
respectively. The realized and unrealized gains are recorded in Cost of
Petrochemical Product Sales and Processing for the periods ended March 31,
2005 and 2004.
8. COIN ASSET FORECLOSURE
A creditor (bank) of Coin, holding a first lien, initiated a mortgage
foreclosure proceeding that resulted in the court ordered public auction of
the plant facilities in Mexico on February 23, 2004. As a result, the court
awarded the plant facilities to the creditor in partial settlement of the
outstanding debt owed by Coin. The court order required legal transfer of
the assets to the creditor within three days, however, the transfer had not
occurred as of March 31, 2005. Management had been engaged with the creditor
in negotiations to stop the legal transfer. As a result, management of Coin
and Coin's legal counsel were unable to determine if or when the legal
transfer of ownership would occur. In March 2005, an additional procedure in
the process to transfer title occurred, such that, management believes it is
probable that title to the plant in Coatzacoalcos will ultimately be
transferred to the creditor or its assignee. As a result, management
recorded the loss on the foreclosure of the facility with a charge to
consolidated operations of $2,900,964 during the fourth quarter of 2004. In
April 2005, management ceased operating the plant and shut down the
facility. See Note 9.
9. SUBSEQUENT EVENTS
In late April, 2005, management met with a third party who has a contract
with the Mexican bank to take over the Coin facility in the event the
foreclosure proceedings are completed. A tentative agreement was reached
whereby the Company would sign appropriate documentation transferring title
to the facility in exchange for relief from certain outstanding liabilities.
In exchange for an orderly and clean transfer of title, the Company would
receive relief from the remaining outstanding bank interest and penalties of
approximately $530,000, would be relieved of severance liabilities of
approximately $160,000 due the remaining employees at the Coatzacoalcos
location, and would receive $100,000 cash with which to satisfy miscellaneous
expenses associated with closing the Mexico City office. Documentation is
being prepared and is expected to be completed in the second quarter 2005.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Statements in Part 1, Item 2 as well as elsewhere in, or incorporated by
reference in, this Quarterly Report on Form 10-Q regarding the Company's
financial position, business strategy and plans and objectives of the
Company's management for future operations and other statements that are not
historical facts, are "forward-looking statements" as that term is defined
under applicable Federal securities laws. In some cases, "forward-looking
statements" can be identified by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "contemplates," "proposes," believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such
terms and other comparable terminology. Forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from those expressed or implied by such
statements. Such risks, uncertainties and factors include, but are not
limited to, general economic conditions domestically and internationally;
insufficient cash flows from operating activities; difficulties in obtaining
financing; outstanding debt and other financial and legal obligations;
competition; industry cycles; feedstock, specialty petrochemical product and
mineral prices; feedstock availability; technological developments;
regulatory changes; environmental matters; foreign government instability;
foreign legal and political concepts; and foreign currency fluctuations, as
well as other risks detailed in the Company's filings with the U.S.
Securities and Exchange Commission, including this Quarterly Report on Form
10-Q, all of which are difficult to predict and many of which are beyond the
Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two business segments, specialty petrochemicals
(which is composed of the entities owned by the Petrochemical Company) and
mining. Its corporate overhead needs are minimal. A discussion of each
segment's liquidity and capital resources follows.
SPECIALTY PETROCHEMICALS SEGMENT. Historically, this segment has contributed
all of the Company's internally generated cash flows. Throughout the 1990's
the Petrochemical Company enjoyed the benefits of economic expansion in the
US and relatively low and stable energy prices. In 2000, energy prices became
more volatile and the economy slowed, and the Company suffered operating
losses as the petrochemical industry struggled to adjust to the new
environment. Beginning in February 2001, the decline of feedstock and natural
gas prices returned the Petrochemical Company to a positive cash flow, which
it attained for the remainder of 2001 and throughout 2002. Demand for
specialty solvents, while not enough to justify operating the plant at
capacity, was strong enough to cover fixed and variable costs. The toll
processing segment of the business remained strong throughout 2001 and 2002
and contributed to the Petrochemical Company's steady performance. The
Company also was able to successfully hedge its feedstock and a portion of
its fuel gas to dampen the effects of the new volatility in the energy
markets. During 2003, the industry again experienced tighter margins
resulting from the rise in feedstock prices and unfortunately, due to
increased scrutiny of the industry after the Enron fiasco, several of the
Company's trading partners in the hedging program dropped out of the business
and the Company was again at the mercy of rising petroleum costs. Feedstock
prices remained at historically higher prices throughout 2003 which resulted
in operating losses for the segment in 2003. After January 2004, feedstock
prices temporarily began to fall back to more moderate levels and at the same
time the Company was able to establish a trading relationship with an
international integrated oil concern. When oil prices began their dramatic
rise in 2004, the Company had financial swaps in place which gave it
protection against sudden and volatile price swings in feedstock prices and
to a lesser extent, fuel gas costs. Product demand also grew in 2004 and has
continued into 2005.
South Hampton obtains its feedstock requirements from a sole source vendor.
On May 7, 2004, South Hampton and the supplier signed a letter of intent
whereby the supplier will purchase up to $1,800,000 of capital equipment for
use by South Hampton to facilitate the execution of a new processing
agreement between a large customer and South Hampton. The equipment purchased
by the supplier will remain the property of the supplier who will enter into
a ground lease for the land upon which the capital equipment is located.
South Hampton and the supplier will also enter into a throughput arrangement
whereby South Hampton will agree to throughput product (utilizing the
purchased capital equipment) from the supplier at a rate and volume to be
negotiated based upon the new agreement with the customer. The terms of both
the throughput arrangement and the ground lease with the supplier will be
five years. As security for the funds used to purchase the capital equipment
and to secure outstanding debts for feedstock purchased from the supplier,
South Hampton executed a mortgage in June 2004 covering most of the existing
facility's equipment.
10
A contract was signed on June 1, 2004 between South Hampton and the supplier
for the purchase of 65,000 barrels per month of natural gasoline on open
account for the period from June 1, 2004 through May 31, 2006 and year to
year thereafter with 30 days written notice of termination by either party. A
provision of the contract states that South Hampton will begin reducing the
current debt to the supplier by $250,000 per quarter beginning July 1, 2004.
Therefore, $1 million of this debt has been classified as current at March
31, 2005. The supplier is currently the sole provider of the feedstock
supply. At March 31, 2005, South Hampton owed the supplier approximately $5.2
million.
The Company has signed a Letter of Intent with an investment group to provide
financing via a five year loan for the expanded toll processing facility as
an alternative to the ground lease and throughput fee arrangement discussed
in a preceding paragraph. Discussions are continuing and a decision will be
made in the second quarter as to which arrangement is more advantageous to
the Company.
On August 1, 2004, South Hampton entered into a capital lease with Silsbee
Trading and Transportation for the purchase of a diesel powered manlift. The
lease is for five years with title transferring to South Hampton at the end
of the term.
As mentioned in Note 6 to the consolidated financial statements, Coin was not
in compliance with certain covenants contained in its loan agreements at
March 31, 2005, and therefore, its creditors have the right to declare the
debt to be immediately due and payable. If this were to occur, Coin would
currently be unable to pay the entire amount due. On February 23, 2004, the
Coin plant facilities were awarded to a creditor in a foreclosure hearing.
See Notes 8 and 9 to the consolidated financial statements.
MINING SEGMENT. This segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is a
net user of the Company's available cash and capital resources.
Implementation of the project has been delayed over the last five years
because the open market prices for the minerals were not sufficient to
attract the additional investment required to achieve production. As the
world economy and metal prices have improved over the last year, the
investment viability has improved and steps are being taken to take advantage
of the improved investment climate.
On February 23, 2004, the Company's President received a letter from the
Deputy Minister of Petroleum and Mineral Resources stating that the Council
of Ministers had issued a resolution, dated November 17, 2003, which directed
the Minister, or whomever he may designate, to discuss with the President of
the Company the implementation of a work program, similar to that which is
attached to the Company's mining lease, to start during a period not to
exceed two years, and also the payment of the past due surface rentals. If
agreeable, a document is to be signed to that effect. The resolution stated
further that, if no agreement is reached, the Ministry of Finance will give
the Council of Ministers its recommendation regarding the $11 million loan
granted to the Company.
After discussions with the Deputy Minister, the Company President responded,
in a letter to the Minister dated March 23, 2004, that the Company will agree
to abide by the resolution and will start implementing the work program to
build the mine, treatment plant and infrastructure within two years from the
date of the signed agreement. The work program was prepared by the Company's
technical consultants and was attached to the letter. The Company also agreed
to pay the past due surface rentals, which now total approximately $586,000,
in two equal installments, the first on December 31, 2004 and the second on
December 31, 2005 and to continue to pay the surface rentals as specified in
the Mining Lease Agreement. On May 15, 2004, an agreement was signed with the
Ministry covering these provisions. In the event the Company does implement
the program during the two-year period, the matter will be referred to the
concerned parties to seek direction in accordance with the Mining Code and
other concerned codes. The Company paid $266,000 of the back payments on
January 3, 2005, and is scheduled to pay the remaining $320,000 on December
31, 2005.
The Company is making preparations to implement the work program. After
initialization, the program will take approximately twenty-two months to
complete, after which commercial production would begin. The Company, on
April 20, 2005, signed an agreement with SNC-Lavin Engineering and
Construction Company of Toronto, Canada, to update the feasibility study. The
updated study will allow the Company to pursue potential joint venture
partners to manage the project and to obtain acceptable financing to
commercially develop the program. The prices of zinc, copper, gold and silver
have increased significantly over the last two years. The updated study is
expected to be completed by early in the third quarter of 2005. There is no
assurance that a joint venture partner can be located, a joint venture formed
or, if it is formed, that the joint venture would be able to obtain
acceptable financing for the project. Without a joint venture, the work
program cannot be accomplished as planned. Financing for the updated
feasibility study was provided by an advance from a major shareholder.
11
The Minister of Petroleum and Mineral Resources announced on April 2, 2002
that a new revised Saudi Arabian Mining Code would be issued, which would
expedite the issuance of licenses and has new incentives to encourage
investment by the private sector, both Saudi and foreign, in the development
of mineral resources in Saudi Arabia. The mining code was revised, was
approved by the Council of Ministers, and was issued by Royal Decree prior to
the end of 2004.
On June 22, 1999, the Company submitted a formal application for a five-year
exclusive mineral exploration license for the Greater Al Masane Area of
approximately 2,850 square kilometers, which surrounds the Al Masane mining
lease area and includes the Wadi Qatan and Jebel Harr areas. The Company
previously worked in the Greater Al Masane Area after obtaining written
authorization from the Saudi Ministry of Petroleum and Mineral Resources, and
has expended over $3 million in exploration work. Geophysical, geochemical
and geological work and diamond core drilling on the Greater Al Masane area
has revealed mineralization similar to that discovered at Al Masane. The
application for the new exploration license is still pending and is expected
to be acted upon now that the new Saudi Arabian Mining Code is approved.
Management also is addressing two other significant financing issues within
this segment. These issues are the $11 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $933,000 due employees working in Saudi Arabia (this amount
does not include any amounts due the Company's President and Chief Executive
Officer who also primarily works in Saudi Arabia and is owed approximately
$1,212,000).
Regarding the note payable, this loan was originally due in ten annual
installments beginning in 1984. The Company has not made any repayments nor
has it received any payment demands or other communications regarding the
note payable from the Saudi government. By memorandum to the King of Saudi
Arabia in 1986, the Saudi Ministry of Finance and National Economy
recommended that the $11 million note be incorporated into a loan from the
Saudi Industrial Development Fund ("SIDF") to finance 50% of the cost of the
Al Masane project, repayment of the total amount of which would be made
through a mutually agreed upon repayment schedule from the Company's share of
the operating cash flows generated by the project. The Company remains active
in Saudi Arabia and received the Al Masane mining lease at a time when it had
not made any of the agreed upon repayment installments. Based on its
experience to date, management believes that as long as the Company
diligently attempts to explore and develop the Al Masane project no repayment
demand will be made. The Company has communicated to the Saudi government
that its delay in repaying the note is a direct result of the government's
lengthy delay in granting the Al Masane lease and has requested formal
negotiations to restructure this obligation. Based on its interpretation of
the Al Masane mining lease and other documents, management believes the
government is likely to agree to link repayment of this note to the Company's
share of the operating cash flows generated by the commercial development of
the Al Masane project and to a long-term installment repayment schedule. In
the event the Saudi government was to demand immediate repayment of this
obligation, which management considers unlikely, the Company would be unable
to pay the entire amount due.
With respect to the accrued salaries and termination benefits due employees
working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of
gradually releasing certain employees and paying its obligations as they are
released from the Company's employment.
The Company's mineral interests in the United States are its ownership
interest in Pioche, which has been inactive for many years. Its properties
include 48 patented and 5 unpatented claims totaling approximately 1,500
acres in Lincoln County, Nevada. There are prospects and mines on these
claims that previously produced silver, gold, lead, zinc and copper. There is
also a 300-ton-a-day processing mill on property owned by Pioche. The mill is
not currently in use and a significant expenditure would be required in order
to put the mill into continuous operation, if commercial mining is to be
conducted on the property. In August 2004, the Company exercised its option
to purchase 720,000 shares of the common stock of Pioche at $0.20 a share for
a total amount of $144,000. Pioche agreed to accept payment for the stock
purchase by the cancellation of $144,000 of debt it owed to the Company. This
purchase increased the Company's ownership interest in Pioche to
approximately 55.01%.
At this time, the Company has no definitive plans for the development of its
domestic mining assets. It periodically receives proposals from outside
parties who are interested in possibly developing or using certain assets.
Management will continue to review these proposals as they are received, but
at this time does not anticipate making any significant domestic mining
capital expenditures or receiving any significant proceeds from the sale or
use of these assets.
12
If the Company seeks additional outside financing, there is no assurance that
sufficient funds could be obtained. It is also possible that the terms of any
additional financing that the Company would be able to obtain would be
unfavorable to the Company and its existing shareholders.
The Company's management and Board of Directors have many years of experience
in the exploration for, and development of, mineral prospects in various
parts of the world. Two members of the Board are geologists, and a third is a
petroleum engineer. Neither management nor the Board members have personally
operated a mine on a day to day basis, nor have they marketed the product of
a mining operation. The Company intends to hire qualified and experienced
managers for the operation at the appropriate time. In addition, the Company
has from time to time employed various respected engineering and financial
advisors to assist in development and evaluation of the project. The
consultants currently being employed to update the feasibility of the project
are SNC-Lavalin of Toronto, Canada. Company management may not be totally
aware in detail of the specific requirements related to working within this
industry. Therefore, there is risk the decisions and choices may not take
into account standard engineering or management approaches mineral
exploration companies commonly use. If these issues are not correctly
handled, the operations, earnings and ultimate financial success of the
Mining Segment could suffer irreparable harm due to management's lack of
experience in this portion of the development of the project. The amount of
risk will ultimately depend upon the Company's skill in using consultants and
in hiring experienced personnel to manage the operation.
RESULTS OF OPERATIONS
SPECIALTY PETROCHEMICALS SEGMENT. In the quarter ended March 31, 2005, total
petrochemical product sales (including Coin) increased approximately
$7,573,000 or 75%, while the cost of sales (excluding depreciation) increased
approximately $2,925,000 or 29% from the same period in 2004. Consequently,
the total gross profit margin on revenue in the first quarter of 2005
increased approximately $4,876,000 or 748% compared to the same period in
2004. Coin's sales for the quarter increased approximately $1,040,438 or
357%, while its cost of sales (excluding depreciation) increased
approximately $480,000 or 1798%. Coin had a positive gross profit margin on
product sales in this quarter of approximately $584,000, compared to a
positive gross profit margin of approximately $24,000 in the same quarter in
2004.
The Petrochemical segment completed a de-bottlenecking project on the
solvents unit during the later part of the first quarter of 2005. The project
added two new, larger fractionation towers and divided the solvent production
into two trains. The total capacity of the unit was increased by
approximately 30% and was fully functional by March 31, 2005. The Company has
experienced typical mechanical reliability issues since the startup with the
increased volume and is resolving those as they arise. The project cost
approximately $1.5 million and was accomplished using current maintenance
department employees. No reportable injuries were recorded during the effort.
The first quarter of 2004 was a difficult period for the Company and the
petrochemical industry in general. Feedstock prices rose to record highs for
the Company and, with feedstock prices rising rapidly, the Company was unable
to raise product prices quickly enough to cover the increased costs. This
resulted in severe losses in January and, to a lesser extent, February. By
March, 2004, the Company had raised its product prices and adjusted its
business to cover the increases, which enabled it to regain a positive cash
flow position. Feedstock prices moderated early in the second quarter 2004
but by the end of the quarter and throughout the third and fourth quarters
the prices were again on the upswing. The first quarter of 2005 has seen
generally high feedstock prices but they have fluctuated within a range
rather than continuing the steady increase of the prior year. The Company has
been able to keep product prices high enough to maintain a positive cash flow
and cover the higher fuel gas and transportation costs. Sales demand has
remained high during the last fifteen months even with the constant price
increases to the customers. Management attributes the strong sales demand to
both the stronger general economic activity of the past year, and to the
growth in the industries served by the petrochemical product lines. Growth of
the markets served has generally been 2% to 3% annually over the last ten
years.
Since late 2003, the Company has entered into derivative agreements to dampen
the sudden price spikes and to provide feedstock price protection. Management
believes that if the derivative agreements can moderate rate of change in the
overall cost of feedstock, product prices can be raised sufficiently as
needed to avoid the large losses experienced in the past. Generally,
approximately 50% of the monthly feedstock requirements are covered at any
one time. This ratio cushions the price increases and still allows the
Company to experience partial benefit when the price drops. In the first
quarter of 2005, the natural gasoline derivative agreements had a realized
gain of approximately $361,368 and an estimated unrealized gain of
approximately $1,106,490 for a total positive effect of approximately
$1,467,858.
The price of natural gas (fuel gas), which is the petrochemical operation's
largest single expense, continued to be high during the first quarter of 2005
compared to historical levels. The Company has entered into option contracts
for fuel gas through the first quarter of 2006, to attempt to minimize the
impact of price fluctuations in the market. The Company has also been able to
pass through the price increases as they have occurred. In the first quarter
of 2005, the natural gas derivative agreements had a realized loss of
approximately $(19,050) and an estimated unrealized gain of approximately
$110,630 for a total positive effect of approximately $91,580.
The toll processing fee revenue for the first quarter of 2005 of
approximately $1,035,000 was an increase of approximately $229,000 or 28%
above the fees for the same period in 2004. Customers are very active and
remain on long-term contracts. While there are some fluctuations in the
tolling volumes handled, toll processing has developed into a stable business
and the Company intends to continue to develop opportunities when available.
Toll processing fees are expected to rise in the second half of 2005 when
expanded facilitates for one of the major customers are completed. The
contract was signed on January 28,
13
2005 with the expanded operations to commence within eight months of the
signing of the agreement. The revised contract will generate additional
processing fees, contains a capital repayment feature, and carries penalties
for being late in completion of the expansion project.
Interest expense decreased as the debt of the Company decreased due to
improved profitability of the Company and adequate cash flow. The Company's
largest supplier of feedstock asked for security on the account because of
the large increase in the amounts owed for feedstock purchases. While the
volume of feedstocks purchased has remained relatively consistent, the
significant price changes in the petroleum markets have increased the dollar
amount of such purchases. The Company negotiated a security agreement with
the supplier, which has solidified the supply of feedstock to the Company at
favorable terms compared to what is otherwise available in the market. Under
the security agreement, the supplier has a first lien on most of South
Hampton's assets. The increased feedstock volumes required by the expanded
solvent operation will be provided under this same arrangement with the
current supplier.
Coin restarted production in the first quarter of 2004 after having been shut
down during the latter part of 2003 for economic reasons. Coin, in early
2004, procured a sales contract with the largest user of pentanes in Mexico,
which gave the operation sufficient volume to justify operating on a daily
basis. The plant facilities of Coin have been foreclosed by a creditor (See
Notes 8 and 9 to the consolidated financial statements).
MINING SEGMENT AND GENERAL CORPORATE EXPENSES. None of the Company's other
operations generate significant operating or other revenues. The minority
interest amount represents the Pioche and Coin minority stockholders' shares
of the losses from the Pioche and Coin operations. Pioche losses are
primarily attributable to the costs of maintaining the Nevada mining
properties.
The Company assesses the carrying values of its assets on an ongoing basis.
Factors which may affect the carrying values of the mining properties
include, but are not limited to, mineral prices, capital cost estimates, the
estimated operating costs of any mines and related processing, ore grade and
related metallurgical characteristics, the design of any mines and the timing
of any mineral production. Prices currently used to assess the recoverability
of the Al Masane project costs, based on production to begin no sooner that
2005, are $1.40 per pound for copper and $.53 per pound for zinc. Copper and
zinc comprise in excess of 80% of the expected value of production. Using
these price assumptions, there were no asset impairments at March 31, 2005.
There are no assurances that, particularly in the event of a prolonged period
of depressed mineral prices, the Company will not be required to take a
material write-down of its mineral properties in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Other than as disclosed, there have been no material changes in the Company's
exposure to market risk from the disclosure included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President
and Chief Executive Officer and Treasurer, of the effectiveness of the
Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based upon that evaluation, the President and Chief
Executive Officer and Treasurer concluded that, as of the end of the period
covered by this report, the Company's disclosure controls and procedures were
effective such that information relating to the Company (including its
consolidated subsidiaries) required to be disclosed in the Company's
Securities and Exchange Commission reports (i) is recorded, processed,
summarized and reported within the time periods specified in the Securities
and Exchange Commission rules and forms and (ii) is accumulated and
communicated to the Company's management, including the President and Chief
Executive Officer and Treasurer, as appropriate, to allow timely decisions
regarding required disclosure.
During the period covered by this report, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Note 5 to the consolidated financial statements
contained in this Report for a discussion of material pending legal
proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information about the Company's Common Stock
repurchases during the three months ended March 31, 2005:
(c) (d)
Total Number of Shares Maximum Number of
(a) (b) Purchased as Part of Shares that May Yet be
Total Number of Average Price Publicly Announced Purchased Under the
Period Shares Purchased Paid Per Share Plans or Programs Plans or Programs
- ------------------------ ---------------- -------------- ---------------------- ----------------------
January 1, 2005 through
January 31, 2005 -- $ -- -- --
February 1, 2005 through
February 28, 2005 -- $ -- -- --
March 1, 2005 through
March 31, 2005 -- $ -- -- --
--- ------- --- ---
Total -- $ -- -- --
=== ======= === ===
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
Reference is made to Notes 5, 6 and 8 to the consolidated financial
statements and Part I. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in this Report for a
discussion of the $11 million note payable to the Saudi Arabian government
and the loans payable by Coin to Mexican banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
ITEM 5. OTHER INFORMATION.
A shareholder of the Company who is interested in submitting a proposal for
inclusion in the Company's proxy materials for the annual meeting of
shareholders, which is tentatively scheduled sometime in December 2005, must
submit the proposal to the Company at its principal executive office no later
than September 1, 2005. Any such proposal must also comply with the other
requirements of the proxy solicitation rules of the Securities and Exchange
Commission. The Company intends to exercise discretionary voting authority
granted under any proxy, which is executed and returned to the Company on any
matter that may properly come before the annual meeting of shareholders,
unless written notice of the matter is delivered to the Company at its
principal executive office no later than September 1, 2005.
15
ITEM 6. EXHIBITS.
The following documents are filed or incorporated by reference as exhibits to
this Report. Exhibits marked with an asterisk (*) are management contracts or
a compensatory plan, contract or arrangement.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3(a) - Certificate of Incorporation of the Company as amended through
the Certificate of Amendment filed with the Delaware Secretary
of State on July 19, 2000 (incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 0-6247)).
3(b) - Bylaws of the Company, as amended through March 4, 1998
(incorporated by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999 (File No. 0-6247)).
10(a) - Contract dated July 29, 1971 between the Company, National
Mining Company and Petromin (incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-6247)).
10(b) - Loan Agreement dated January 24, 1979 between the Company,
National Mining Company and the Government of Saudi Arabia
(incorporated by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999 (File No. 0-6247)).
10(c) - Mining Lease Agreement effective May 22, 1993 by and between
the Ministry of Petroleum and Mineral Resources and the
Company (incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(d) - Stock Option Plan of the Company, as amended (incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 (File No.
0-6247)).*
10(e) - Letter Agreement dated May 3, 1991 between Sheikh Kamal Adham
and the Company (incorporated by reference to Exhibit 10(j) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(f) - Promissory Note dated February 17, 1994 from Hatem El-Khalidi
to the Company (incorporated by reference to Exhibit 10(k) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(g) - Letter Agreement dated August 15, 1995 between Hatem
El-Khalidi and the Company (incorporated by reference to
Exhibit 10(l) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-6247)).
10(h) - Letter Agreement dated August 24, 1995 between Sheikh Kamal
Adham and the Company (incorporated by reference to Exhibit
10(m) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).
10(i) - Letter Agreement dated October 23, 1995 between Sheikh Fahad
Al-Athel and the Company (incorporated by reference to Exhibit
10(n) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).
16
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10(j) - Letter Agreement dated November 30, 1996 between Sheikh Fahad
Al-Athel and the Company (incorporated by reference to Exhibit
10(o) to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 0-6247)).
10(k) - Purchase and Sale Agreement/Security Agreement dated July 29,
2003 between Southwest Bank of Texas, N.A. and South Hampton
Refining Company, together with related Restricted Payments
Letter Agreement and Guaranty of Texas Oil & Chemical Co. II,
Inc. (incorporated by reference to Exhibit 10(s) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002 (File No. 0-6247)).
10(l) - Equipment Lease Agreement dated November 14, 2003, between
Silsbee Trading and Transportation Corp. and South Hampton
Refining Company (incorporated by reference to Exhibit 10(o)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 0-6247)).
10(m) - Pledge Agreement dated as of May 15, 2001, by Arabian American
Development Company, American Shield Refining Company, Fahad
Al-Athel, Hatem El-Khalidi, Ingrid El-Khalidi and Preston Peak
(incorporated by reference to Exhibit 10(p) to the Company's
Annual Report on Form 10-K for the year ended December 31,
2003 (File No. 0-6247)).
10 (n) - Security Agreement and Deed of Trust dated June 1, 2004
between South Hampton Refining Company and Martin Operating
Partnership, L.P. (incorporated by reference to Exhibit 10(p)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004 (File No. 0-6247)).
10 (o) - Addendum to Equipment Lease Agreement dated August 1, 2004,
between Silsbee Trading and Transportation Corp. and South
Hampton Refining Company (incorporated by reference to Exhibit
10(q) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 (file No. 0-6247)).
10 (p) - Letter Agreement dated May 7, 2005 between Sheikh Fahad
Al-Athel and the Company.
31.1 - Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 16, 2005 ARABIAN AMERICAN DEVELOPMENT COMPANY
(Registrant)
By: /s/ NICHOLAS CARTER
------------------------------------------
Nicholas Carter Secretary/Treasurer
(Authorized Officer and Principal Financial Officer)
18